Buying a property on trust for your child

Last updated on June 5, 2017

In Singapore, a house is often more than just a home – many purchase property as a form of long-term investment. Parents may as such be interested to know how they can purchase properties for their children. Whilst a child (i.e. persons below 21 years old) does not have the legal capacity to own a property in his own name as yet, his parents could nevertheless buy a property for him or her by way of a trust, which allows the child to beneficially own the property. This article explains what it means to hold a property “on trust”, as well as the legal and practical implications of doing so.

What does it mean to hold the property “on trust” for the child?

When parents hold the property “on trust” for the child, the parents remain the legal owners of the property and the child becomes the beneficial owner of the same. Briefly, the nature of the child’s beneficial ownership is an equitable interest that binds all third parties except for the bona fide purchaser of the property for value and without notice. Essentially, for the purpose of this article, the child is able to assert a proprietary interest in the property against the whole world except for a bona fide purchaser who has purchased the property without notice of the trust.

When a property is held on trust by the parents for their child, what this practically means is that the personal creditors of the parents are not entitled to reach the trust property to satisfy the personal claims of the parents.  Holding the property on trust also means that the parent is responsible for managing the trust property (for instance, investing a trust fund in stocks or real estate, as well as paying the relevant taxes and duties) for the benefit of the child.  Further, any economic benefits from the property will accrue to the child.

Should the property earn income, the statutory income of a trustee (i.e. the parent) is subject to income tax at a flat rate of 17%. Beneficiaries (i.e. the child) entitled to a share of the trust income by virtue of the trust deed will be assessed on their share of entitlement of income at their personal income tax rates; and given the same tax exemptions and concessions as accorded to taxpayers who are resident individuals.

What can parents, as trustees, do with the property?

Trustees derive their power from the terms of the trust instrument, which circumscribes the trustees’ powers to deal with the property. For instance, the trust deed may specify that the trustee is to have the power to invest the trust fund in a myriad of low risk unit trust and investment-linked policies.

The Trustees Act specifically confers certain powers on the trustee, but these powers only apply if they are not contrary to the terms of the trust instrument. They include (non-exhaustively) the power to invest, insure, maintain minors, and advance the benefit of beneficiaries.

Can the trust property be any property?

While both HDB and private properties can be trust property, the creation of a trust over a HDB property requires a prior written approval from the Housing Development Board.

When will the legal title be passed to the child? Can this be specified in the trust?

For a fixed trust, a trust may be terminated and the legal title be passed to the child by all the trustees if the beneficiaries are of full age, under no disability and absolutely entitled under the trust. If parents intend for their child to inherit the property at a later time, it should be expressly stated in the trust deed the age which they should inherit.

How can the parents protect their interests?

You can choose to elect an alternative beneficiary to prevent the gift from failing if one beneficiary dies before you.

Formal legal procedures to set up such a trust

A trust is set up upon a Deed of Settlement being executed between the settlor and a trustee (usually a professional trustee licensed in the selected jurisdiction), and the transfer of assets into the trust. In executing the Deed of Settlement, the settlor must decide the key terms of the trust, including:

  • Who the initial beneficiaries are
  • Who to appoint as protector of the trust
  • Which powers the settlor wishes to retain

The trust deed need not be stamped unless the instrument itself is the document evidencing the transfer of land or shares.

Under CPF rules, one can only use CPF monies to buy an HDB flat under the Public Housing Scheme or buy private property under the Residential Properties Scheme. Thus, if the trust property is a private property or a first HDB property, it can be financed by CPF.

A caveat can also be lodged on the child’s behalf to protect the property.

This article provides only a general guide on the topic. You may wish to speak to a lawyer to understand the finer details and/or alternatives to creating a trust.

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