7 Reasons Why You Should Consider Setting up a Trust in Singapore

Featured image for the "7 Reasons Why You Should Consider Setting Up a Trust in Singapore" article. It features a piggy bank in a field, set against a clear blue sky. There are coins next to the piggy bank.

When a property is held on trust, one person (the trustee) is responsible for managing the property for the benefit of another person (the beneficiary).

The trust is a very flexible tool that can serve many functions. Here are some situations in which you may wish to set up a trust.

1. You wish to provide for a loved one who is a minor or has special needs

If your loved one is a minor

In Singapore, individuals cannot hold property (such as a flat) until they turn 21. Therefore if you wish to provide for your minor child by purchasing a piece of property for them, you may do so by means of a trust.

One method is to purchase (and hold) the property on behalf of your child. Alternatively, if you wish to ensure that your property (such as the flat that you are living in) goes to your child in the event of your death, you may consider setting up a testamentary trust, which is a trust which only becomes effective upon your death. You may also do the same for any loved ones who lack mental capacity.

Under the testamentary trust arrangement, the child or incapacitated individual will not hold the property in his or her own name. Rather, another individual (which may be you or somebody you trust) will own and manage the property for their benefit and on their behalf.

Please note that if your property is an HDB flat, you will need written approval from the HDB before you can create a trust over it.

If your loved one has special needs

If you have a loved one with special needs, you may consider putting your money with the Special Needs Trust Company (SNTC). The SNTC is a non-profit organisation that will hold your money on trust for your loved one.

As it is also a registered charity, the SNTC is subject to supervision by the Commissioner of Charities. SNTC fees are heavily subsidised by the Ministry of Social and Family Development.

2. You wish to provide for your spendthrift loved ones

Alternatively, if you have a loved one who has full capacity and is not a minor, but you do not think that he or she will be able to handle a large sum of money in a responsible manner, a trust can allow you to provide for them while ensuring that the money is not squandered away.

You may, for example, set up a trust with specific instructions that the money only be used for your beneficiaries’ education.

However, please note that under Singapore law, a beneficiary who has capacity and is not a minor can direct the trustee to hand over the trust assets, effectively ending the trust.

3. You wish to invest your money

The trust is also an important structure for investors. Here, you would likely be participating in an existing trust rather than setting up your own trust.

For example, purchasing a beneficial share in a Real Estate Investment Trust (REIT) will make you one of the beneficiaries of a trust. The trust property is a piece of real estate such as a shopping centre. Income from the property will be divided proportionately among all the trust beneficiaries after deducting fees for managing the property.

You may also consider investing in a Business Trust, which is similar to a REIT, but in relation to assets other than real estate.

4. You wish to avoid taxes

Singapore does not impose capital gains tax or wealth tax. However, if your income places you among the higher tax brackets for income tax, a trust may help in reducing your tax liability.

Declaring yourself as a trustee for an income-producing asset in favour of a beneficiary (who is resident in Singapore and belongs in a lower tax bracket) allows such income to be assessed at the beneficiary’s income tax rate instead.

However, any income derived from your trade or business will be subject to a final tax at your own applicable income tax rate. For more information on how trusts are treated for income tax purposes, you may refer to this guide published by the Inland Revenue Authority of Singapore.

5. You wish to protect your assets in the event of a divorce

Similarly, a trust may help you put some assets out of the pool of matrimonial assets that are subject to division in the event of a divorce. If you create an irrevocable trust in favour of a third-party to your marriage, it is likely that the court will not consider the trust assets to be matrimonial assets.

However, please note that if the creation of such a trust was done with the intention of depriving your spouse of any assets, your spouse may apply to the court to undo the trust within 3 years of its creation.

Additionally, if you create a trust under which you are the beneficiary, the court may consider the trust assets to be part of the matrimonial assets.

6. You wish to continue contributing to a particular charitable cause even after your death

A charitable trust is a special kind of trust where the beneficiary is a charitable purpose rather than an individual or group of individuals. A charitable trust can, in theory, last forever, so the trust may continue its charitable contributions even after your death.

In order to set up a charitable trust, you need a trust deed (a legal document) and a board of trustees (a group that will manage the trust assets) of at least 3 persons.

Alternatively, you may consider setting up a society or a company limited by guarantee. More information on how you can leave your assets to charity after your death can be found in our other article.

7. You wish to protect your assets from potential creditors

If you have been declared bankrupt, most of your assets will be divided among your creditors to settle their claims against you. One way to put your assets out of reach of your creditors is to create an irrevocable trust in favour of another individual.

An irrevocable trust is one where you cannot, at a later date, change your mind and reclaim your assets. Upon creating such a trust, the trust assets will not form part of the pool of assets that belong to you. These assets therefore cannot be given to your creditors in the event of your bankruptcy.

There are, however, numerous restrictions on the creation of such a trust. For example:

  • If the trust is created less than 5 years before the bankruptcy application is filed, the court may undo the trust if it considers it to be an undervalue transaction.
  • The trust may be void if it was created with the intention to defraud your creditors.
  • The court may also declare that the trust is a “sham” and thus void.

If you do end up setting up a trust, please note that there are special requirements where the trust property is immovable (such as a house or a piece of land). There are also special requirements for a charitable trust, as mentioned above.

If you are unsure of how to go about setting up a trust, please consult a lawyer.