Should you set up a Family Trust? And why Singapore might be the ideal home for your trust

High-net-worth (HNW) families with personal financial assets between USD1 million and USD50 million and ultra-high-net-worth (UHNW) families with more than USD50 million in the Asia-Pacific region are set to undergo an intergenerational wealth transfer estimated at USD5.8 trillion between 2023 and 2030, according to McKinsey analysis.

With many such families in the Asia-Pacific region owning operating businesses, effective succession planning is even more essential for preserving wealth and ensuring a smooth transition of assets across generations.

A trust is a flexible legal arrangement that can be structured to meet the objectives of a settlor, providing families with the opportunity to make generational transfers of wealth while preserving a degree of control and asset protection.

The assets within a trust are safeguarded by the trustees, which can help protect against claims arising from business creditors or in the event of divorce. Where a family’s wealth is held in a business, consolidating the family’s operating businesses under a trust avoids fragmenting shareholdings amongst individual family members and reduces the risk of disputes and claims in relation to the family business.

Trusts can further help ensure that your chosen beneficiaries are all suitably provided for following your death, particularly where there is any concern as to their ability to manage the assets appropriately. When assets are settled on trust they cease to be part of the settlor’s estate, eliminating the need for probate on death and avoiding any forced heirship provisions that might apply in the settlor’s country of residence.

Families today are facing increasingly complex questions around how to protect their wealth, preserve their values and empower future generations. Family Trusts offer a powerful solution, but before setting up any trust it’s essential to ask the right questions.

1. What exactly are you trying to protect or achieve by setting up a Family Trust?
   You need to decide on your priorities in respect of wealth preservation, succession planning, tax optimisation, asset protection or family governance
2. Who do you wish to ultimately benefit from the Family Trust and under what circumstances?
   Are you clear about whether the trust is purposed for your own interests, for current or future family members or for charitable causes?
3. How much control are you willing to give up now to ensure stability for tomorrow?
   Are you truly comfortable letting trustees make decisions according to the trust deed and any guidance you have provided by way of a letter of wishes?
4. Are family conflicts likely be prevented — or triggered — by how the Family Trust is structured?
   Have you considered issues of fairness and managing expectations among heirs?
5. Is the Family Trust sufficiently flexible to adapt to future changes in regulations, family dynamics or asset values?
   Does the trust allow for mechanisms like protectors, powers of appointment or the ability to amend?
6. Who should serve as the trustees of the Family Trust?
   The trustees have the fiduciary responsibility to act in the best interest of the trust’s beneficiaries, while carrying out the wishes of the donor. You need to examine the merits of individual or professional trustees and assess if they will be capable, objective, cost-effective and future-proof?
7. Have you properly considered the choice of jurisdiction for your Family Trust and what could happen if political, legal or tax regimes change?
   Is the chosen jurisdiction politically, economically and socially stable, is it considered of good reputation and is it aligned with your family’s long-term interests?
8. How transparent should the Family Trust arrangements be to beneficiaries during your lifetime?
   Should any or all your beneficiaries be informed about the trust deed and the trust governance structure now, later or never?
9. What are the real costs in respect of set up fees, ongoing administration, reporting and compliance?
   Are you prepared for the time, attention and costs that a trust will consume over decades?
10. What is your preferred legacy beyond simply the assets and how can the Family Trust reflect your values, aspirations and objectives?
    Is the trust purely a financial mechanism, or do you also want to also encourage education, hard work, entrepreneurship, philanthropy, family life or family leadership?

Why Singapore is an ideal jurisdiction for setting up a Family Trust

Once the decision to set up a Family Trust has been made, the next question is where? Singapore stands out as a leading trust jurisdiction worldwide for the following reasons:

• Political and economic stability – Singapore consistently ranks among the world’s most politically and economically stable countries, making it a safe haven for long-term family planning.
• Strong legal system – Singapore has a trusted, transparent legal framework based on English common law that offers confidence and familiarity to international families.
• Modern, flexible trust laws – the Singapore Trustees Act has established Singapore as a jurisdiction of choice for wealth structuring and business, and includes specific provision for the settlor to reserve the powers of investment and asset management without invalidating the trust.
• Attractive tax regime – Singapore-resident trusts offer various tax benefits. Income earned inside Singapore is taxed on the trustees but if the settlor and beneficiaries are all non-Singapore resident, full exemption from Singapore taxation may be granted to foreign income allowing for frictionless deployment of capital for investment. There are no capital gains or inheritance taxes.
• Deep professional sector – Singapore boasts a sophisticated ecosystem of regulated professional trustees, private banks, wealth advisors, and legal and accountancy experts.
• International connectivity – located at the heart of Asia, Singapore offers excellent access to families across the Asia-Pacific region, including Indonesia, Malaysia, Thailand, India, China, and the Philippines.
• Privacy and confidentiality – unlike companies, the trust deeds and beneficiary details are not publicly registered, ensuring a high degree of confidentiality for Family Trusts.
• Access to global investment opportunities – Family Trusts can tap into Singapore’s dynamic financial markets, private equity funds, real estate and other sectors.
• Family Office synergy – families setting up private trusts often combine them with Singapore family offices, enabling them to benefit from key tax incentives, such as the Section 13O and 13U schemes which provide tax exemption to fund vehicles that are managed by Singapore-based fund managers.
• Forward-thinking regulatory environment – Singapore’s regulators are proactive, balancing innovation with strong governance and international compliance. This attitude provides reassurance to families that Singapore structures will remain robust and compliant into the future.

Sovereign trustees

Choosing the right trustee(s) is a crucial part of setting up a trust because trust law imposes strict obligations and rules on trustees. Corporate trustees that are appropriately licensed, like Sovereign, are held to a standard of providing responsible ethical conduct, careful exercise of discretionary powers, competent investment management, expertise in tax and legal matters, and continuity in the administration of the trust for its duration.

Sovereign is fully licensed to act as professional trustee in both Singapore and Hong Kong, which are both conveniently located for families in the Asia-Pacific region, but also in the leading European trust jurisdictions of Guernsey, the Isle of Man, Gibraltar, Malta and Cyprus.