Setting Up a Discretionary Living Trust in Singapore
What is a discretionary living trust?
A trust is a legal arrangement between several parties to effect the transfer of assets. The owner of the assets is the “settlor”, who wishes to allow the transfer the legal title of the assets to a “trustee” and the beneficial ownership to the “beneficiary”. The trustee, as the legal owner, has management control over the assets. However, the benefits and entitlements will go to the beneficiary. Note that the settlor and the beneficiary can be the same person.
Different types of assets, or property, can be placed in trust. Common examples include cash, real estate and shares.
The unique feature of a discretionary living trust is that the trustee is granted the power to exercise discretion in making distributions to the beneficiaries. This is in contrast to a fixed trust, where the distributions have already been pre-arranged by the settlor. For example, the trustee in a discretionary living trust may choose the beneficiary from a list of names or classes (e.g. spouses, children) in contrast to a trustee in a fixed trust who can only distribute the benefits of the assets to an appointed beneficiary appointed by the settlor.
Why should I set up a discretionary living trust?
Long-term planning – The key benefit of a discretionary trust is flexibility. The trustee can choose to exercise his or her discretionary powers according to changing circumstances. For example, in a family situation where the trustee is a father and the beneficiaries are his two daughters, the trustee may choose to distribute more assets to the married daughter to take into account her increased financial commitments or to grant the unmarried daughter a house to enable her to have a roof over her head. As circumstances may change over time, discretionary living trusts allows the trustee the flexibility and leeway to make such decisions.
Asset protection – In transferring the legal title to the trustee, the settlor has no more rights to the assets. In any future event of bankruptcy or insolvency, creditors will not be able to claim the settlor’s assets provided the trust was made more than 5 years ago and no fraud was involved.
Convenience – Setting up a living trust will help your family to avoid applying for probate or other representation after your death. These procedures may freeze your assets, meaning they cannot be used for several months or even years. However, the legal arrangement in the trust will allow for the assets to be used immediately by the beneficiaries.
Tax savings – If you set up a trust in a country with no or low tax, you will be able to minimise tax. Singapore does not charge tax on several transactions, such as the remittance of foreign income or interest income earned from fixed deposits in Singapore-based banks.
How to set up a discretionary living trust?
A discretionary living trust must be made expressly and in adherence to the formality requirements under section 7 of the Civil Law Act whereby the trust must be manifested in writing.
Other than the formality requirements, for the discretionary trust to be validly constituted, the “three certainties” consisting of:
- The intention to create a trust;
- The subject-matter of the trust (e.g. cash, real property etc.); and
- The parties involved (beneficiary, trustee, settlor)
must be clearly identified and certain in the trust deed. For instance, the trust property has to refer to a house with a specific address or a specific bank account rather than a vague and unidentifiable subject-matter like the bulk of the settlor’s residuary estate.
The beneficiaries of the trust must also be identifiable. For instance, identifying the beneficiaries as the “friends” of the settlor might be too vague for the Court to establish who are the intended beneficiaries since it is impossible to ascertain who are the “friends” of the settlor.
In addition, the settlor will also create a Letter of Wishes to provide guidance to the trustee for exercising the discretionary power under the trust. This is not a legally binding document and can be altered by the settlor.
As a discretionary living trust often involves the transfer of a substantial, if not all of the settlor’s assets, a person looking to set up a discretionary living trust should consult a trust lawyer to ensure that the documentations and legal requirements of a trust are adhered to. This would prevent a situation whereby the the Court strikes down the trust for being invalidly constituted.
For more information on trusts and setting up trusts in general, you can also refer to our article on “Trust law in Singapore”.
- Plan Intergenerational Wealth With a Singapore Family Office
- Estate Planning for Digital Assets (NFTs, Social Media, Etc.)
- 8 Tools You Must Know for Estate Planning in Singapore
- Guide to CPF Nominations & How to Make One In Singapore
- What Happens to Your Debts When You Die?
- Who Pays for the Mortgage Debts and Medical Bills After Death?
- Is Inheritance Tax Payable When You Die in Singapore?
- Is Stamp Duty Payable When Inheriting Property in Singapore?
- How to Donate your Assets to Charity
- Organ Donation in Singapore (under HOTA, or For Science)
- Finding Missing Persons in Singapore (or ‘Presumed Dead’)
- Making a Will in Singapore: What are the Formalities Involved? (2023)
- The Complete Guide to Making Your Will in Singapore
- Why Should You Make a Will?
- Checklist for Drafting a Comprehensive Will in Singapore
- Get An Affordable Will Made By Experienced Lawyers
- Choosing an Executor for Your Will in Singapore
- How to Prepare a Schedule of Assets for Your Will in Singapore
- Appointing a Guardian for Your Children in Your Will in Singapore
- What is a Mutual Will, Mirror Will and Joint Will?
- How to Give Away Overseas Assets in a Will in Singapore
- Can I Use My Will to Distribute Insurance Proceeds?
- Where Should You Store Your Will?
- How Can I Change My Will?
- How to Plan for Mental Incapacitation
- Mental Capacity Assessment for LPAs and Wills
- Appointment of Deputies under the Mental Capacity Act
- How to Appoint a Deputy for Mentally Incapacitated Persons in Singapore
- Advance Medical Directives in Singapore
- Making a Lasting Power of Attorney in Singapore
- Revocation of a Lasting Power of Attorney
- Advance Care Planning in Singapore: Why and How to Get Started
- No Executor For Your Loved One's Will: What to Do
- What is Probate? Is It Needed If Your Loved One Passes Away?
- Can the Public Trustee Administer Your Loved One's Estate?
- How to Get a Copy of a Deceased's Will in Singapore
- Managing a Loved One's Estate After Their Death in Singapore
- Applying for a Grant of Probate in Singapore
- Intestacy: Applying for Letters of Administration in Singapore
- Obtaining a Fresh Grant of Probate and Resealing a Foreign Grant of Probate
- Comprehensive Guide to Probate Fees in Singapore
- Dispute with Executor of Will in Singapore: What to Do
- Bona Vacantia: Dying With No Will or Relatives in Singapore
- Who Gets the Joint Bank Account Monies if One Owner Dies?
- What Happens If You Die Without a Will in Singapore?
- An Executor’s Checklist to Executing a Will in Singapore
- What to Do If the Will Cannot be Found
- How to Contest a Will in Singapore (Grounds and Procedure)
- What Happens to the HDB Flat When One Owner Dies?
- How to Access the Bank Account of a Deceased Spouse
- What Happens to the Car When the Owner Passes Away?
- Simultaneous Death: How are Assets Distributed When Family Members Die at the Same Time?
- Can a half-brother be considered a next of kin? (when distributing the assets of the deceased)
- What happens to property when a deceased’s next-of-kin or named personal representative is uncontactable?
- What happens to residuary property not accounted for?
- What happens to a Singapore expatriate's assets when he passes on?
- What if a Child or Beneficiary Dies Before the Willmaker?
- How Can Your Minor Beneficiaries Receive Their Inheritance?
- Unfair Maintenance: What Can Singapore's Law Do for You?