Families have been using trusts as a means of holding and passing on family wealth for centuries and they still offer great advantages, particularly for individuals who are changing, or planning to change, their domicile, residence or citizenship; those with families resident abroad; those seeking asset protection; and those whose principal motivation is not to avoid taxation but to dispose of their estate on death freely and without recourse to a lengthy and expensive probate procedure.
A trust, unlike a company, is not a legal entity. It is best described as an arrangement whereby property is transferred from one person (the settlor) to another person (the trustee) who then holds that property for the benefit of specified people or objects (the beneficiaries). The lack of rigid formal requirements for the creation and operation of trusts, and the tremendous flexibility of trust instruments, make them uniquely useful for estate and succession planning.
Trusts in Singapore are regulated principally by the Trustees Act, which was significantly revised in 2004. Singapore’s trust law is largely based on English trust law and can be described as modern but, at the same time, conservative. It does not provide for a number of trust innovations, such as non-charitable purpose trusts, but with proper advice it can be used to accommodate most client needs.
Important features of Singapore trust law include:
- Reserved powers of investment for the settlor, which permit a settlor to retain the power to make investment decisions;
- Anti-forced heirship provisions, which means that foreign forced heirship laws are not enforceable against a Singapore trust if the settlor had the capacity to transfer the property from the jurisdiction in which the transfer took effect; and
- A statutory duty of care is imposed on trustees in exercising their powers.
Qualifying Foreign Trusts (QFTs) are trusts where neither the settlor nor beneficiary is a Singapore resident, citizen or Singapore resident company. These trusts are exempt from Singapore tax on certain income derived from ‘Designated Investments’, including: stocks and shares in foreign currency of non-Singapore companies, foreign currency denominated securities outside of Singapore, futures contracts denominated in foreign currency and held in any futures exchange, immovable property outside Singapore, and various deposits and foreign exchange transactions that are not in Singapore currency.
he extension of the tax exemption for income of a foreign trust, which must be administered by a licensed trust company in Singapore, is limited to underlying companies that are not incorporated in Singapore. Distributions to beneficiaries of QFTs are exempted from Singapore taxes.
In addition to tax neutrality for foreign settlors and beneficiaries within its domestic tax law, Singapore also has an extensive network of double tax treaties with over 70 countries across the world, which can create tax planning opportunities for clients with substantial international business interests.
Trust business in Singapore is governed by the 2005 Trust Companies Act (TCA), which sets out the legislative and regulatory framework for companies providing trust services in Singapore. Professional trust companies, such as Sovereign, must be licensed by the Monetary Authority of Singapore (MAS) and the TCA also contains very strict confidentiality provisions preventing trustees from disclosing affairs of their clients.
Singapore also offers the flexibility of using private trust companies (PTCs). These are companies formed in Singapore to act as trustees of Singapore trusts. A PTC is established with the sole purpose of acting as a corporate trustee to a trust or a number of trusts, provided those trusts are ‘connected’. They therefore enable a family to retain more control over assets settled into trust, such as a family business, than by appointing an independent trustee because family members can be involved in the decision-making process within a PTC.
On a practical level, a PTC ensures more privacy in relation to the trusts, and allows for rapid commercial decisions to be made. A PTC does not compromise the validity of the trust structure and its residency for tax purposes, and can provide immediate and long-term tax planning advantages. A PTC also enables the next generation of a family to be trained to ultimately take over as directors of the PTC.
A PTC is exempt from licensing by the MAS, but must appoint a licensed trust company to administer the anti-money laundering obligations required by the MAS.
For more details contact Desiree Tan.