What Is A Trust Fund And 5 Steps To Setting Up One In Singapore

A trust is a legal arrangement in which a settlor entrusts their assets to an appointed trustee, who will administer and manage them for the beneficiaries. Assets can include real estate, funds, stocks, bonds, etc.

The trustee may legally own the assets, but the beneficiary is equally entitled to them. In setting up a trust fund in Singapore, the beneficiary may not possess legal ownership, but they still have a stake in the assets, alongside other rights. All of these are governed under the Trustees Act.

This blog will provide you with the insights you need to confidently start your journey. Read on to discover how to set up a trust in Singapore and the benefits it can offer.

What Is A Trust Fund?

A trust fund is a legal entity created to hold and manage assets on behalf of one or more beneficiaries. It is established by an individual, known as the settlor, who transfers assets to a trustee.

The trustee, who can be an individual or a professional entity like a bank or a law firm, holds the legal title to the assets and is bound by a fiduciary duty to manage them in the best interests of the beneficiaries.

The terms of the trust fund are outlined in a legal document called a trust deed. This document specifies the assets included, the beneficiaries, and the distribution method and timing.

Essentially, a trust fund in Singapore separates the legal ownership and control of assets (held by the trustee) from the beneficial ownership (held by the beneficiaries). This structure provides a high degree of flexibility and control over the management and distribution of wealth, making it a cornerstone of effective estate and succession planning.

How To Set Up A Trust Fund In Singapore?

1. Determine The Purpose Of The Trust

The first step in setting up a trust in Singapore is to define the trust’s purpose clearly. Understanding why you want to establish trust will help guide your decisions. Here are some common purposes for setting up a trust fund:

• Asset Protection: A trust can safeguard your assets from creditors or legal claims. By placing your assets in a trust, you can shield them from potential risks while ensuring they are managed according to your wishes.
• Estate Planning: Trusts are often used in estate planning to manage the distribution of your assets upon your passing. This ensures your beneficiaries receive their inheritance without going through the lengthy and costly probate process.
• Support for Dependents: If you have minor children or dependents with special needs, a trust can provide financial support for their care. You can specify how and when funds are disbursed to ensure their ongoing welfare.
• Charitable Giving: Establishing a charitable trust allows you to donate assets to a charitable organisation while retaining control over how the funds are used. This can also provide tax benefits.
• Tax Planning: Trusts can be structured to minimise tax liabilities, allowing you to preserve more wealth for your beneficiaries. Working with a financial advisor allows you to explore options that align with your financial goals.

2. Choose A Trustee

The second step in setting up a trust fund in Singapore involves selecting a trustee, a crucial decision that can significantly impact the effectiveness and administration of your trust. The trustee is responsible for managing the trust assets and ensuring they are distributed according to your wishes as outlined in the trust deed.

Here are important considerations when choosing a trustee:

• Types of Trustees: You can choose an individual (such as a family member or friend) or a professional trustee (such as a trust company or financial institution). Each option has its advantages:
  • Individual Trustees: Often more cost-effective and may have a personal understanding of your family’s needs. However, they may need more expertise for complex asset management.
  • Professional Trustees: They possess the necessary skills and experience to manage trust assets effectively. They can also provide impartiality and a higher level of accountability, which is especially important when family dynamics complicate decision-making.
• Qualifications and Experience: If you opt for a professional trustee, ensure that the firm has a solid reputation and relevant experience in trust management. Look for trustees who are knowledgeable about Singapore’s laws and regulations governing trusts.
• Trustee’s Role and Responsibilities: The trustee’s duties include:
  • Managing trust assets prudently and in the best interests of the beneficiaries.
  • Maintaining accurate records and accounts for transparency.
  • Communicating with beneficiaries and providing updates regarding the trust.
  • Distributing assets according to the terms of the trust deed.
• Fees and Costs: Understand the fee structure associated with your chosen trustee. Professional trustees typically charge a percentage of the trust’s value as an annual fee, while individual trustees may have varying expectations regarding compensation. Be clear about these costs upfront to avoid surprises later.
• Trustee Availability: The trustee should have the time and resources to manage the trust effectively. Consider their current commitments and whether they can dedicate sufficient attention to the trust’s administration.

3. Draft The Trust Deed

The third step in setting up a trust fund in Singapore is drafting the trust deed, the foundational legal document governing the trust. A well-drafted trust deed is crucial, as it outlines the trust’s terms, conditions, and operational guidelines.

Here are key elements to consider when drafting a trust deed:

• Title of the Trust: Begin by naming the trust. This title should reflect the trust’s purpose and can include the name of the settlor (the person creating the trust) for easy identification.
• Parties Involved: Identify all parties involved in the trust:
  • Settlor: The individual creating the trust and transferring assets into it.
  • Trustee(s): Specify the chosen trustee(s) and their roles.
  • Beneficiaries: Identify all beneficiaries who will benefit from the trust, including any contingent beneficiaries who may inherit if primary beneficiaries cannot do so.
• Purpose of the Trust: Articulate the specific purposes of the trust, which should align with your initial objectives. This section clarifies the intent behind the trust and provides direction for the trustee.
• Trust Assets: List the assets being transferred into the trust. This may include cash, property, investments, or other valuables. Be as detailed as possible to avoid confusion later.
• Powers and Duties of the Trustee: Define the powers granted to the trustee, including their authority to manage, invest, and distribute trust assets. Additionally, outline the trustee’s responsibilities, such as record-keeping, providing reports to beneficiaries, and ensuring compliance with relevant laws.
• Distribution of Assets: Specify how and when the assets will be distributed to the beneficiaries. This may include:
  • Specific amounts or percentages of the trust assets.
  • Conditions or milestones must be met before distributions occur (e.g., reaching a certain age or completing education).
• Amendment and Revocation Clauses: Include provisions for amending or revoking the trust in the future, if necessary. This offers flexibility should circumstances change over time.
• Governing Law: State that Singapore law will govern the trust to ensure legal compliance and clarity.
• Signatures: Finally, ensure that the trust deed is signed by all parties involved, including witnesses, where required. This formalises the trust and makes it legally binding.

4. Transfer Assets Into The Trust

This critical phase officially establishes the trust and puts your intentions into action. Here’s a detailed guide on how to effectively transfer assets into your trust:

• Identify Trust Assets: Identify the specific assets you wish to place in the trust. These can include:
  • Cash: Bank accounts, savings, or other liquid assets.
  • Real Estate: Residential homes, commercial buildings, or land.
  • Investments: Stocks, bonds, mutual funds, or other financial instruments.
  • Personal Property: Valuable items like art, jewellery, vehicles, or collectables.
• Obtain Valuations: For certain types of assets, especially real estate and personal property, it may be beneficial to obtain an independent valuation. This can help establish a clear market value for the transferred assets, which is important for legal and tax purposes.
• Prepare Transfer Documents: Depending on the type of asset, you will need to prepare specific transfer documents:
  • Real Estate: A deed is often required to transfer ownership of property. This document must be filed with the relevant authorities in Singapore to update the property records.
  • Bank Accounts: Contact your bank to understand their requirements for transferring funds into the trust. This may involve completing specific forms or documentation to change the account ownership.
  • Investment Accounts: For investment assets, liaise with your financial institution to facilitate the transfer process. This may include changing account titles to reflect the trust as the new owner.
• Review Tax Implications: Transferring assets into a trust may have tax implications, including potential stamp duty for real estate and capital gains taxes. Consult with a tax advisor or legal expert to understand these implications and ensure compliance with Singapore tax laws.
• Document the Transfers: Keep meticulous records of all asset transfers, including copies of transfer documents, valuations, and correspondence with financial institutions. This documentation will be essential for the trust administration and future tax reporting.
• Inform Beneficiaries: It is often beneficial to inform the beneficiaries about the trust and its assets. This transparency can help manage expectations and ensure that beneficiaries understand their rights and interests in the trust.

5. Register The Trust (If Necessary)

While not all trusts require registration, certain types may need to be officially documented to ensure legal compliance and clarity. Here’s what you need to know about the registration process:

Understanding Registration Requirements: There is no general requirement to register a trust in Singapore. However, specific types of trusts, such as those involving real estate or certain investment accounts, may have additional registration requirements.

Benefits of Registration: While registration is not mandatory for most trusts, there are several benefits to consider:

• Legal Recognition: Registering a trust can provide formal recognition, enhancing its legal standing in the eyes of creditors and beneficiaries.
• Transparency: A registered trust can help ensure clarity about the trust’s existence and terms, reducing potential disputes among beneficiaries.
• Facilitated Asset Management: Certain financial institutions may require proof of registration for trusts managing significant assets, making the process smoother for the trustee.

How to Register a Trust: If you determine that registration is necessary for your trust, follow these steps:

1. Gather Documentation: Prepare all relevant documents, including the trust deed and asset transfer documents.
2. Complete Required Forms: Depending on the asset type, you may need to complete specific registration forms. For property, this may include a Notice of Transfer.
3. Submit to Relevant Authorities: File the completed forms and documentation with the appropriate authority, such as the Singapore Land Authority for real estate or relevant financial institutions for investment accounts.

Consult a Legal Expert: Given the complexities of trust law and the specific requirements that may apply, it is advisable to consult with a legal professional. They can guide whether your trust needs to be registered and assist with the registration process if necessary.

Types Of Trust Funds Available In Singapore

In Singapore, you can establish various types of trust funds to suit different needs and objectives. Understanding these is a key part of learning how to set up a trust fund in Singapore. The most common types include:

• Revocable Trust: This type of trust can be amended, altered, or revoked by the settlor at any time during their lifetime. It offers flexibility but provides less protection against creditors as the assets are still considered to be under the settlor’s control.
• Irrevocable Trust: Once created, an irrevocable trust cannot be easily changed or terminated by the settlor without the consent of the beneficiaries. This provides robust asset protection from creditors and legal claims and can be a strategic tool in the event of a Divorce, as the assets are no longer legally owned by the settlor.
• Testamentary Trust: This trust is created within a will and only comes into effect after the settlor’s death. It is commonly used to provide for minor children or beneficiaries who may not be equipped to manage a large inheritance.
• Discretionary Trust: In a discretionary trust, the trustee has the power to decide which beneficiaries will receive payments from the trust and how much they will receive. This is particularly useful when the future needs of beneficiaries are uncertain, such as providing for a child with special needs or for multiple generations to come.
• Charitable Trust: This is established for philanthropic purposes, allowing you to leave a lasting legacy by providing ongoing support to a cause or organisation you care about.

Cost Of Setting Up A Trust In Singapore

The expenses can vary significantly based on several factors, including the complexity of the trust, the assets being transferred, and the professionals you engage. Here’s a breakdown of the potential costs you may incur:

• Legal Fees: Depending on the lawyer’s experience and the complexity of the trust, these fees can range from a few hundred to several thousand Singapore dollars. Costs may be lower for simple trusts, while more intricate trusts may require more extensive legal work.
• Trustee Fees: If you choose a professional trustee, they will charge fees for managing the trust. These fees are typically calculated as a percentage of the trust’s assets under management, ranging from 0.5% to 1.5% annually. Some trustees may charge flat fees for specific services or initial setup costs.
• Asset Valuation Costs: If your trust includes real estate or valuable personal property, you may incur costs for asset valuation. Hiring a professional appraiser can add to your overall expenses, with fees varying based on the type and complexity of the asset.
• Registration Fees: While registering a trust is not always required, you may incur registration fees with the Singapore Land Authority if your trust involves real estate. These fees depend on the property’s value and the specific registration requirements.
• Accounting and Tax Advisory Fees: Engaging an accountant or tax advisor to manage these responsibilities can incur additional costs. Their fees may vary based on the complexity of the trust’s financial situation and any necessary tax filings.
• Miscellaneous Costs: Other potential costs can include bank fees for transferring assets, costs associated with the ongoing trust management, and any administrative expenses that arise during the trust’s operation.

Why You Should Set Up A Trust In Singapore

As discussed, a trust has various functions and is helpful in situations with unique circumstances. Contrary to popular belief, creating a trust is not just a form of wealth management for those in the high-income bracket. Average income earners may also benefit from it.

Setting up a trust can be beneficial for a couple of reasons:

• You want to provide for a special needs child or family member.
• You want to provide for your loved ones.
• You want to reduce your taxes.
• You want to continue donating to charitable organisations even after your passing.
• You want to protect your assets from creditors.
• You want to protect your assets in a divorce.
• You want to invest your money.

You Want To Provide For A Special Needs Child Or Family Member

If you’re caring for a special needs child or loved one, you can entrust your money to the Special Needs Trust Company (SNTC). They’re a non-profit organisation where you can entrust your assets to your beneficiaries.

Since it is also a registered charity, the SNTC is supervised by the Commissioner of Charities. It operates through subsidies provided by the Ministry of Social and Family Development.

You Want To Provide For Your Loved Ones

If you don’t have a child, you may still want to set up a trust for your loved ones who aren’t too fiscally responsible. Large sums of money can be challenging to handle. However, a trust allows you to provide money for your family members without overspending.

For instance, you may set up a trust to fund a relative’s education. You can provide specific instructions for spending the money solely for that purpose.

However, there may also be cases where the trust may end. For example, if the beneficiary (who is not a minor and has legal capacity) orders the trustee to hand over the trust, it ceases to be binding.

You Want To Reduce Your Taxes

There is no capital gains tax or wealth tax in Singapore. But if you’re an income earner from the high-income tax bracket, you may set up a trust to reduce your tax liability.

You can reduce your taxes by declaring yourself a trustee for an income-producing asset. Then, you should name a Singapore resident from the lower tax bracket as the beneficiary. The income will be assessed and taxed based on the beneficiary’s income rate instead of yours.

However, you should know that any income from your business or trade will still be taxed according to the applicable rate. If you need more information regarding this matter, you may contact one of our family lawyers to help.

You Want To Continue Donating To Charitable Organisations Even After Your Passing

A charitable trust is designed to make donations to a designated charity rather than a person or a group. In principle, a charitable trust can last indefinitely. The trust can still make donations even after your death.

Before setting up a charitable trust, you need a trust deed and a board of trustees (at least three people who will manage it).

You can also set up a society or a Guarantee Company. It’s a form of company from which shareholders do not profit. Instead, the profit is used for other purposes, such as charities, non-profit organisations, or social enterprises.

You Want To Protect Your Assets From Creditors

When you declare bankruptcy, your creditors will divide most of your assets to settle claims against you. To protect assets from their reach, consider setting up an irrevocable trust in another person’s favour.

An irrevocable trust cannot be changed or altered. Its assets cannot be claimed. This trust will not be part of the pool of assets you own. By this definition, your creditors cannot repossess the assets from the irrevocable trust if you file for bankruptcy.

There are some restrictions to this type of trust. There are cases wherein it may be rendered invalid by the Court:

• The Court may determine the trust as an undervalued transaction. When this happens, the Court will deem the trust invalid, especially if it was set up less than five years before the bankruptcy filing.
• The Court may void your trust if it determines you have set it up to defraud creditors.
• The Court may, for whatever reason, declare the trust fraudulent and thus unenforceable.

Remember that if you set up irrevocable trusts, there are varying requirements for immovable trust property. Some examples are a parcel of land or a private residence.

Setting up an immovable trust in Singapore can be complicated without professional assistance. It’s best to seek legal advice from our law firm.

You Want To Protect Assets In A Divorce

Part of the divorce proceedings in Singapore involves the equitable distribution of matrimonial assets between the couple. These assets can include the family car, shares, savings, appliances, and Central Provident Fund savings.

Unless the couple has come up with a prenuptial agreement or discussed who gets what after a divorce, the Court will usually divide the matrimonial assets for them.

However, before dividing the assets, the couple must provide a complete list of all their assets, known as the Schedule of Assets.

But what if you have some assets you don’t want to be part of the matrimonial pool? Setting up a trust in Singapore is one workaround.

With an irrevocable trust, the Court will not likely count the trust assets as part of the matrimonial assets. However, note that the Court can find grounds to undo the trust.

For example, if the Court has reason to believe you have intentionally set up the trust to deprive your former spouse of the assets, they can invalidate the trust within three years of its creation.

Also, if you set up a trust naming yourself as one of the beneficiaries, the Court may include the trust assets in the matrimonial pool.

You Want To Invest Your Money

A trust may also be useful for investors. In this structure, they participate in an existing trust instead of setting up their own.

You’re buying a share in a Real Estate Investment Trust (REIT). You automatically become one of the beneficiaries of that trust. The trust property comes from real estate, such as a shopping centre or retail store. The income from the property will be proportionately distributed among the beneficiaries with due regard given the amount they invested.

Another alternative is a Business Trust, which covers other assets. BTs are business enterprises, different from companies.

Common Misconceptions About Setting Up A Trust Fund In Singapore

Several myths and misunderstandings surround the topic of setting up a trust fund in Singapore, which can deter people from exploring this valuable financial tool. Here are some of the most common misconceptions debunked:

“Trust funds are only for the extremely wealthy.”

This is one of the biggest myths. While high-net-worth individuals certainly use trust funds, they can also be a practical tool for anyone who wants to protect assets, provide for loved ones, and ensure their wealth is managed according to their wishes. You do not need a vast fortune to benefit from a trust.

“Setting up a trust fund means I lose complete control of my assets.”

This is not necessarily true. With a revocable trust, you can retain a significant degree of control, acting as your own trustee. Even with an irrevocable trust, you, as the settlor, dictate the terms of the trust deed, ensuring your wishes are carried out.

“A will is all I need for estate planning.”

While a will is essential, a trust fund offers benefits that a will cannot. Trusts can help avoid the lengthy and often public probate process that a will must go through in Court. They also provide greater protection from creditors and legal challenges.

“It is too complicated and expensive to set up a trust fund.”

While it requires professional legal assistance, the process of setting up a trust fund in Singapore is relatively straightforward for a qualified lawyer. The initial investment in setting up a trust can save your beneficiaries significant time, money, and stress in the long run.

Conclusion About Setting Up A Trust Fund In Singapore

Creating a trust fund in Singapore can be complicated for the average individual. But there are many practical reasons for doing so, not just for wealth protection.

Individuals may opt for a trust fund to assist financially struggling family members or create a trust to protect their assets from creditors. Whatever the reason, nuances in Singapore law can complicate the process.

If you ever decide to set up a trust, your best action to avoid disputes or legal issues is to consult with a divorce lawyer in Singapore. For any matters related to criminal law, seeking advice from a criminal lawyer in Singapore can be crucial. Tembusu Law is a modern-day law firm in Singapore that can assist you with legal concerns.

Call us now for a free 10-minute discovery call. We’ll be more than happy to help you with your case.

Frequently Asked Questions About Trusts In Singapore

Who Can Be A Beneficiary?

A beneficiary can be a third-party person or entity (company, charity, or another trust) who will benefit from the trust. They hold an equitable interest in the trust property a trustee manages.

What Is A Criminal Breach Of Trust?

A criminal breach of trust occurs when an appointed trustee deliberately misappropriates the trust fund for their benefit. A violation of trust may also happen when the trustee’s actions negatively impact the beneficiaries’ interests.

How Much Does It Cost To Create A Trust In Singapore?

The cost of setting up a trust in Singapore can vary, depending on the circumstances and factors involved. If you plan to set up a trust with the help of a lawyer, you can reach out to us at Tembusu Law. We’ll work within a fair and reasonable budget after assessing your case’s circumstances.

Do Trusts Have To Be Registered In Singapore?

No. Singapore law does not require formal registration of trusts.