Singapore Trust: Introduction
Singapore Trust refers to a legal relationship between the settlor and trustees, for the trustees to hold and manage the assets in question until they are to be distributed to the beneficiaries. It is not a separate legal entity of its own, and therefore requires the trustees to contract in their own name on behalf of the trust. Legal ownership of the trust assets lies with the trustees, but since they are deemed to be only holding and managing the assets on behalf of the beneficiaries, beneficial ownership of the assets lies with the beneficiaries. In Singapore, private family trusts are often used for the wealth management purposes managed above.
Singapore trusts can be hassle-free to set up if you are familiar with the process. With Tetra Consultants at the wheel, you will be able to dedicate your time and resources to other more important activities. With our lean-and-mean mentality, you can rely on our team of experts to provide you a seamless experience throughout the whole process of forming your Singapore trust company. Our ultimate goal is for your Singapore trust to be operationally ready within the stipulated time frame.
Tetra Consultants assists our international clients to set up Singapore Trust. Our service package includes:
- Creation of the Singapore Trust through a Trust Instrument
- Creation of Letter of Wishes
- Incorporation of your Singapore Private Trust Company
- Local management company and registered agent
- Annual accounting and tax services
Rising wealth in Singapore
- Singapore has always been one of the wealthier Asian countries, and this was proven in the 2021 Global Wealth Report by Credit Suisse Group. The report estimated that Singapore would see a 60% increase in the number of millionaires from 2020 to 2025 as the nation recovers from the COVID-19 pandemic. As it stands, Singapore currently has the second-highest density of millionaires in Asia, with 5.5% of the population in 2020 being millionaires. Given that it has a higher growth rate in the number of millionaires as compared to first placed Hong Kong, the nation-state might even claim the top spot soon. With so much wealth in Singapore, the need for wealth management has also increased accordingly.
Greater need for wealth management
- Many of our wealthy clients and families have started to recognize the importance of wealth and estate management as well as succession planning. By adopting a vehicle such as the Singapore trust, our clients are able to ensure that their wealth is adequately protected and managed such that it continues to grow, and also prevent legal conflicts over claims to assets.
Structure of a Singapore Trust
- The structure of trusts in Singapore is as follows. A settlor transfers its assets to and establishes a trust relationship with a trustee. This usually takes the form of a Singapore Private Trust Company, that is governed by professional advisers of the settlor and is ultimately responsible for holding and managing the assets of the settlor before conferring it to the beneficiaries. If there are multiple beneficiaries, individual family trusts might be set up to prevent overlapping claims to assets.
- Settlors that want an additional layer of protection and privacy may also choose to establish a purpose trust to hold the shares of the private trust company so that ownership of this company does not lie with the settlor, which might leave it vulnerable to creditors’ claims or additional tax. Protectors can also be appointed to oversee the trustees, and the powers that they are granted can be restricted by the settlor.
- Lastly, trusts can take various forms in how they choose to pay out income to the beneficiaries and when they will do so. Often, settlors will set out a Letter of Wishes with information and instructions on how this should be done.
Singapore Trust vs Corporation
Greater privacy, easier registration and compliancy
- Since trusts are not a separate legal identity, there is no need to go through a formal company registration process unless one intends to use a Singapore Private Trust Company. This makes it a lot easier to establish as opposed to using a holding company for wealth management purposes.
- In addition, compliancy is also a lot easier since trusts are granted exemptions from many financial reporting procedures if they are deemed to not be conducting profit-generating activities. They also face less taxation and compliancy requirements as compared to a company.
Lack of legal personality of a Singapore Trust
- However, such benefits that arise from a lack of legal personality will also bring about certain cons. In not being register, trusts must rely on trustees to contract, sue and be sued for on their behalf, unlike corporations. In addition, trusts that want to conduct profit-generating activities might not be able to do so since they are not a recognized structure in certain jurisdictions. Although this can be bypassed by having the trust own shares in a holding company, it adds another layer of requirements in terms of compliancy, as well as additional costs.
Singapore Trust vs Foundation
- Similar to corporations, trusts offer the same benefits and disadvantages when compared to a foundation. However, trusts do offer one additional advantage over foundations.
Traditional legitimacy of Singapore Trust
- As compared to foundations, trusts have been a long established structure. This creates a degree of certainty in terms of the legal and tax treatment of a trust as compared to foundations. This makes it easier to plan for succession and manage wealth by using a trust.
Why set up a Singapore Trust?
Favourable governmental and macroeconomic climate
- Singapore possesses one of the most favourable environments to do business in. The high level of socio-political and economic stability will offer a stable environment in which to establish your trust company. Being ranked 2nd in the 2020 edition of the World Bank’s Ease of Doing Business Index, you can expect not only stability from this region, but also a high degree of ease in registering your business.
- Singapore is a major financial hub and is home to more than 700 local and foreign financial institutions. This gives you a wide variety of options in terms of partners and investment options. Given its membership in multiple international and regional organizations, such as the Financial Action Task Force and Asia-Pacific Group on Money Laundering respectively, you can expect regulations in Singapore’s financial industry to be compliant with international standards, ensuring the international compliance of your business and thus its reputation.
- Apart from conforming to the same high levels that international standards are set to, international cooperation is also equally important to Singapore, as seen from how they are in compliance with the Organization for Economic Co-operation and Development’s Exchange of Information standards. This further enhances its reputation and makes it easy for you to deal with companies or financial partners that are overseas as well.
- Lastly, all these benefits would be applicable to both foreigners and domestic companies since Singapore has a high degree of openness to foreign investment. With Singapore being the 5th largest recipient of foreign direct investment in the world despite its small size, you can expect that the country’s business and regulatory environment is not only highly welcoming of foreign investment, but also highly qualified and experienced in working with foreigners and foreign investment. This will ensure you have a smooth experience when incorporating your company, and subsequently in managing and operating it.
Governing framework for Singapore Trust
- With their long established history, trust law in Singapore has its roots in English trust law principles and is regulated under the Trustees Act. This act provides safeguards and guidelines for the minimum standards that trustees should adhere to in the execution of their duties. Crucially, it also lays out the duty of care when they carry out specific duties and acts. This provides an additional layer of legal certainty and protection for settlors in ensuring that their trustees execute the wealth management and protection functions of their trust well. Forced heirship is also not allowed under the Trust Companies Act so individuals can be protected from such scenarios in domestic trusts.
- Although this law can be made more comprehensive by having a specific trust deed written out, it is good to have a preliminary or base level of guidelines already being set out. Given the efficiency of Singapore’s legal system, you can also expect such laws to be regularly reviewed and updated to offer high levels of protection without being overly restrictive. Additionally, given what we mentioned earlier about the long-stranding reputation of a trust as compared to foundations, case law for trusts are more likely to be available as compared to foundations, further increasing the legal certainties and protection that is associated with a trust.
Tax benefits for a Singapore Trust
- Taxation on trusts follows the same territorial taxation policy that Singapore applies on all companies. Thus, this allows for income to be distributed to beneficiaries without being subject to an additional layer of tax. Depending on the residency of the beneficiaries, tax on distributed income will be borne by either the trustee or beneficiary, as opposed to both. This income will also qualify for all the concessions, exemptions and foreign tax credits that are available to them. Income generated through the activities of the trust will also be taxed just once, at the trustee level.
- Qualifying foreign trusts will also not be subjected to tax on income derived from assets that is not in SGD.
Asset protection and privacy
- Establishing a Singapore trust allows you to successfully ward off any claims to your assets by creditors since a Singapore trust will not be void or voidable even in the event of the settlor’s bankruptcy or liquidation. This thus allows you to separate out a portion of your personal assets to be left under protection. Even though control of these assets will officially be in the legal possession of the trustees, the legal protections laid out above will ensure that you are able to reserve control and power over these assets.
- Given that no registration is required, they also provide privacy since they would not reveal the ultimate beneficial owner of the assets.
Requirements to set up a Singapore Trust
- Singapore trusts are subject to the statutory requirements as laid out in the Companies Act, as well as any prevailing regulations, directives and requirements as specified by the Monetary Authority of Singapore.
- They must have proper measures in place to safeguard and manage the assets received in their capacity as trustee. These must be separated from the personal assets and liabilities of the trustee.
- Private trust companies must engage a licensed trust company to conduct trust administration services and ensure its compliance to Anti-Money Laundering and counter terrorist financing policies.
- All other accounting records and reports must be properly kept and managed.
- If the trust is conducting business activities within Singapore, it should also file tax returns with the Inland Revenue Authority of Singapore.
- Private trusts that are solely providing trust services for family members may not offer trust services to the public, unless they apply and get a trust business license.
How to set up a Singapore Trust
- A trust does not need to be registered, and only needs a legal document stating the intent of the settlor to create a trust, the nature of assets to be governed by the trust, and the identifiable beneficiaries of this trust.
- After the trust instrument, and optionally the trust deed has been drafted and signed, you can transfer the assets to the trustee which would officially create your trust. If you are using a private trust company, it must be separately incorporated as a company first.
Looking to set up a Singapore Trust?
- Contact us to find out more about how to set up a Trust in Singapore. Our team of experts will revert within the next 24 hours.
Is a trust a legal entity in Singapore?
- No it is not. It does not have its own legal personality as it is merely an agreement between a settlor and trustee to manage assets on behalf of a beneficiary.
What types of trust are there in Singapore?
- There are licensed trusts that can offer trust services to the general public, and private trust companies that offer such services only to connected persons.
- There are also more specialized trusts such as purpose trusts, or business trusts.
Who can be a settlor in Singapore?
- A settlor can be any corporate entity or legal person above the age of 18 years old, with sound mind and in possession of the property in question.
Who can be a beneficiary in Singapore?
- The beneficiary can be any corporate entity or legal person.
Can the same person be a trustee and a beneficiary?
- Yes, it is possible.
How do I dissolve a trust?
- The property must first be fully distributed, either before the vesting date or at the date itself. The exact procedure can be specified in the trust deed.
How is the money in a trust protected against fraudulent acts of trustees?
- Singapore offers multiple legal protections against this since it imposes a duty of care on the trustees. Additional layers of protections come from specific powers as laid out in the trust deed, or vested in the protector.
Can beneficiaries directly access the assets in the trust?
- No, they cannot do so unless explicitly stated in the trust deed. If not stated, they will only be able to access the assets when it is distributed as per the instructions or deed of the trust.