Buying a Property on Trust for Your Child

Last updated on April 6, 2021

In Singapore, a house is often more than just a home – many also purchase property as a form of long-term investment. In this respect, parents may be interested to know how they can purchase properties for their children.

While a child (i.e. a person below 21 years old) does not have the legal capacity to own a property in their own name as yet, their 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” in Singapore, as well as the legal and practical implications of doing so.

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

When parents hold the property “on trust” for a child, they will remain the legal owners of the property while 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 a bona fide purchaser of the property for value and without notice.

Essentially, for the purpose of this article, what this means is that the child is able to assert a proprietary interest in the property against the whole world except for a genuine purchaser who had purchased the property without being informed that it was being held on trust.

Implications of parents holding property on trust for their child

When a property is held on trust by the parents for their child, any personal creditors of the parents are not entitled to claim the trust property to satisfy any debts owed by the parents to them.

Holding the property on trust also means that the parent is responsible for managing the trust property (such 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.

In addition, should the property earn income, this income is considered the statutory income of a trustee (i.e. the party managing the property) and is subject to income tax at a flat rate of 17%.

If beneficiaries (i.e. the child) receive a share of the trust income, and they are not ordinarily entitled to it, then their share is not subject to a second round of tax.

On the other hand, if beneficiaries ordinarily entitled to a share of the trust income by virtue of a trust deed, then their share of the trust income will be assessed at their own personal income tax rates. At the same time, tax will not be imposed at the trustee level.

Such beneficiaries will also be given the same tax exemptions and concessions as accorded to taxpayers who are resident individuals.

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What can trustees do with the property?

Trustees derive their power from the terms of the trust instrument, which lays out the trustees’ powers to deal with the property.

For instance, the trust deed may specify that the trustee will have the power to rent out the trust property for rental income.

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

Can the trust property be any real estate 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 pass 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.

On the other hand, if parents intend for their child to inherit the property at a later time, then the trust deed should expressly state the age or the occasion at which their child will inherit the property.

How can 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 a trust over property

A trust is set up upon:

  • The execution of a trust deed, or Deed of Settlement, being executed between the settlor (the person making the trust) and a trustee (the person who will manage the trust, and who can also be the settlor); 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 will be appointed as trustee of the trust
  • What powers the settlor wishes to retain, if any

For the setting up of trusts over property that do not involve changes in the property’s beneficial interest (e.g. the child is made the beneficial owner of the property right when it is purchased), the trust deed will need to be stamped at a fixed duty of $10.

Properties to be purchased to be held on trust will have to be fully paid for in cash. CPF monies cannot be used for the purchase. Banks are also unlikely to extend a loan for the purchasing of property on trust.

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 trusts lawyer to understand the finer details and/or alternatives to creating a trust.

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