Asset protection from creditors, wealth management, asset preservation and tax effectiveness – these are the main reasons to set up a trust. Choosing to set up a Singapore trust is indeed a wise decision because Singapore has a sound legal environment with well-developed trust laws and local trust companies being regulated by the Monetary Authority of Singapore.
The Lion City boasts a stable economic and political environment, making it a safe place for the protection of assets. In addition, Singapore has a positive tax regime with a wide network of Double Taxation Treaties, contributing to make the City-State a favourable place for long-term asset protection.
Before you make a decision on setting up a trust in Singapore, below is a list of the most common types of trusts in Singapore.
Private family trust
A private family trust is established, if the settlor plans to protect his wealth, to safeguard the confidentiality of his assets and/or to do succession planning. It is a means to transfer assets to future generations. This kind of trust can be in the form of a will, deed or declaration. It is usually used to safeguard against creditors, bankruptcy in Singapore, exchange controls, or hostile governmental authorities. Should the settlor die, the assets under the private family trust will not be dealt with under probate proceedings.
With a charitable trust, there are no individual beneficiaries as the aim is to promote a charitable purpose. This type of trust is exempt from complying with firm rules related to certainty of object and perpetuity, and also has tax reliefs and exemptions. A public trustee can administer the property of the charitable trust without the appointment of a trustee. It is to be noted that a charitable trust does not benefit individual beneficiaries.
Collective investment trust
A collective investment trust is established for investment purposes, including unit trusts, business trusts and real estate investment trusts. There is a small capital requirement needed as compared to the minimum capital necessary to invest in shares or properties.
While there are certain tax benefits and lesser restrictions, the collective investment trust can be risky and expensive due to the payment of related high fees and charges.
A revocable trust - as its name alludes to - can be cancelled, terminated or changed by the settlor. This type of trust is usually chosen when a settlor plans to have some control of his assets placed in a trust. It is to be highlighted that assets under a revocable trust is subject to estate duty and can also be taken by any of the settlor's creditors should the settlor become bankrupt.
In contrast, an irrevocable trust refers to a trust whereby once the settlor bestows his assets, he can no longer reclaim these back. In fact, the assets placed in the trust will no longer form part of the settlor's estate upon his death. Should the settlor be bankrupt, his assets placed under this kind of trust will not be distributed to creditors. This is provided that the irrevocable trust has been set up more than five years prior to the bankruptcy petition.
A discretionary trust refers to a trust whereby the trustee has the complete discretion to decide how to apportion assets, to which beneficiaries to attribute these assets, and during what time period. The discretionary trust is put in place, acting as an asset protection role for the beneficiary. This is because should a beneficiary become bankrupt or pass away, the assets in the trust will not be seized by creditors or subject to tax. It is worth noting that with such a trust, its enforcement can on occasions be an issue.
Asset protection trust
An asset protection trust, which is a type of discretionary trust, protects the settlor's assets from his own investment miscalculation or business exposure, for instance. The assets in such a trust do not form part of the estate, and can be distributed upon demise or held for a certain duration of time. This type of trust also protects the assets against both the settlor's and/or beneficiaries' creditors from claims. Likewise, its enforcement can also prove to be an issue for some cases.
A testamentary trust comes into effect only after the death of the settlor based on a clause in the will and is subject to the estate administration process. This kind of trust is usually chosen either when the settlor believes that the beneficiaries might squander away the assets or when the beneficiaries are still minors.
Choosing among the types of trusts to meet your requirements can be time-consuming. With our expertise at AM Corporate Services, we can advise and guide you on setting up a trust in Singapore. Contact us today for an appointment.