Key Components and Duties of Trusts in Singapore: A Complete Guide for Settlors, Trustees, Beneficiaries and Their Assets

Establishing a Trust in Singapore

A trust is a legal arrangement where a trustee holds assets on behalf of a beneficiary or beneficiaries. Trusts are commonly used for estate planning, wealth management, and tax planning purposes. In Singapore, trusts have become a popular tool for individuals and families to protect their assets and ensure the financial future of the next generation. Singapore’s favourable tax regime, political stability, and strong legal system have made it a desirable jurisdiction for setting up trusts. With the help of experienced trust professionals, individuals can set up a trust that meets their specific needs and goals.

Key players in a Singapore Trust:

1. Settlor

The settlor is the person who transfers the legal ownership of his assets to the trustee. This transfer of assets creates a living or inter-vivos trust. Once the assets have been transferred, the settlor’s role as the person who establishes the trust is typically over. However, if the settlor is also a beneficiary, they can hold the trustee accountable for their actions in that capacity. If the settlor is appointed as an investment advisor or manager under the terms of the trust, they can be responsible for the investment of the trust assets.

2. Trustee

The trustee is an individual or company who holds the trust assets for the benefit of the beneficiaries. In certain jurisdictions, the trust business is a regulated activity, and professional trustees are subject to licensing. In Singapore, for example, the trust business is regulated by the Monetary Authority of Singapore, and the law governing trusts and trustees is found in the Trustees Act and the Trust Companies Act, respectively.

The trustee is obligated to act in the best interests of the beneficiaries and in accordance with the terms of the trust. This obligation is fiduciary and personal in nature, and imposes upon the trustee a duty of care, skill, honesty, integrity, and good faith. The trustee must avoid conflicts of interest and not engage in self-dealing. The trustee must also act with the same standard of care and skill as an ordinary prudent person of business would in managing their own similar affairs. However, a higher standard of care and skill is expected from a trustee who is a professional and is remunerated for their services.

3. Beneficiaries

Beneficiaries of a trust are individuals or entities that are entitled to receive benefits from the trust. Beneficiaries can be family members, friends, charities, or any other person or entity that the settlor, or the person creating the trust, wishes to benefit. The beneficiaries can receive income from the trust, access the trust’s assets, or receive a distribution of the trust’s assets upon the completion of the trust term.

The rights of beneficiaries depend on whether the trust is a fixed trust or a discretionary trust. In a fixed trust, the beneficial interests are set out in definite terms by the settlor. In a discretionary trust, the distribution of the trust assets is left to the discretion of the trustee. As a result, the beneficiary of a discretionary trust has no interest in the trust assets but only a hope or expectation that the trustee will exercise their powers in the beneficiary’s favor. Discretionary trusts are more flexible and are effective for asset protection compared to fixed trusts.

4. Trust Assets

The trust assets are the property or resources held in trust by the trustee for the benefit of the beneficiaries. The assets may include stocks, bonds, real estate, cash, or other financial instruments. The trustee must invest the assets of the trust suitably and must exercise the same care and skill as an ordinary prudent person of business would in managing their own similar affairs. The duty of care only applies unless a contrary intention is expressed in the trust instrument.

5. Investment Adviser/Manager

Trustees often delegate the task of managing the trust’s investments to professionals, such as investment advisers like family offices, due to the lack of investment expertise. Family offices, in particular, are private wealth management advisory firms that provide personalised and comprehensive financial services to ultra-high-net-worth individuals and their families. For trusts, family offices can serve as a trusted advisor and provide valuable insights and expertise on investment strategies and opportunities. With the help of investment advisors, trusts can be managed effectively, ensuring that the trust’s assets are protected and that the beneficiaries’ needs and goals are met.

Security considerations when setting up a Trust:

Adding a Protector

When assets are transferred to a trustee, the settlor may be concerned about the amount of control and power vested in the trustee. To address this, trusts often appoint a protector. The protector’s role is to monitor or oversee the actions of the trustee.

In some jurisdictions, laws provide the protector with significant powers, such as the ability to remove or appoint trustees, modify the list of beneficiaries, change the governing law of the trust, etc. The settlor can often be appointed as the protector, but it’s important to ensure that the powers given to the protector do not make them a co-trustee under the law.

Typically, the protector’s role is passive and only gives consent for the trustee to exercise specific powers. However, the power to remove and appoint a trustee is an “active” power that gives the settlor a way to ensure independent oversight of the trustee, especially after their passing.

Letter of Wishes

A Letter of Wishes outlines the settlor’s desires for the trustee to act in a specific manner for the benefit of the beneficiaries. The letter is not legally binding, but serves as guidance for the trustee. It can be amended by the settlor at any time.

Asset Holding Company

Assets in a trust are often held through an Asset Holding Company (AHC) for risk management purposes. As separate legal entities, AHCs offer protection to shareholders from the company’s debts. Holding different assets under different companies or ring-fencing liabilities can help manage risk to the trust assets. A change of trustee can be efficiently made by changing the shareholder of an AHC, whereas the current trustee would have to transfer each individual asset to the incoming trustee. However, using an AHC raises the cost of the trust structure.

Motivation for Trust Establishment

  • Asset Protection: Provide a layer of protection for assets, shielding them from creditors, divorce proceedings, and other legal actions.
  • Confidentiality: Offers privacy and confidentiality, allowing individuals to keep their financial affairs private and protected.
  • Charitable Giving: Support charitable organizations and causes, allowing individuals to make a lasting impact and fulfill their philanthropic goals.
  • Legacy Building: Preserve family wealth, traditions, and values, allowing individuals to pass on their legacy to future generations.
  • Professional Administration: Trusts can be managed by professional administration, ensuring that the trust’s assets are managed and invested by experienced professionals.

Advantages of Trusts

  • Maintaining privacy and security: – Assets can be enjoyed in private, protected from threats such as ransom demands, and bodily harm.
  • Proper handling during disability or illness: Wealth is managed according to the settlor’s wishes in capable hands.
  • Continued privacy after death: Wealth is managed discreetly after death without interruption.
  • Reduced probate and estate duties: Assets pass to charity or beneficiaries smoothly and free from delays, publicity, and associated costs after death.
  • Protection from risks: If certain conditions are met and the trust is governed by Singapore law, wealth and the family’s wealth within the trust are protected from threats such as business risks, personal risks, and attacks from private or public claimants.

Disadvantages of Trusts

  • Cost: Establishing and maintaining a trust can be expensive, as it requires the services of lawyers, accountants, and other professionals.
  • Complexity: Trusts can be complex and difficult to understand, making them challenging to manage and administer.
  • Limited Control: Once assets are placed in a trust, the settlor may have limited control over the assets and how they are used.
  • Inflexibility: Trusts can be difficult to modify or revoke, making them less flexible than other estate planning options.

In conclusion, trusts play a vital role in the administration of assets for the benefit of specified individuals or entities. The trust consists of various key players, including the settlor, the trustee, the beneficiaries, and the trust assets. The trustee holds the trust assets and has a fiduciary duty to act in the best interest of the beneficiaries. Beneficiaries’ rights depend on whether the trust is a fixed trust or a discretionary trust. Trusts often appoint a protector to monitor the actions of the trusteeThe motivation for establishing a trust can vary, including asset protection, tax planning, estate planning, and more.

Trust Scenario:

John is a wealthy businessman who has built a substantial fortune through his successful career. He is concerned about the future of his assets and the well-being of his family after he passes away. He wants to ensure that his assets are properly administered and used for the benefit of his wife and children. John decides to establish a trust for this purpose.

  • Settlor: John transfers legal title of his assets to the trustee. This transfer of assets creates a living trust.
  • Trustee: John appoints a reputable investment firm as the trustee to hold the trust assets for the benefit of his wife and children. The trustee is obligated to act in the best interests of the beneficiaries and in accordance with the terms of the trust.
  • Beneficiaries: John’s wife and children are the beneficiaries of the trust. The rights of the beneficiaries are set out in definite terms by John.
  • Trust Assets: John’s assets include stocks, bonds, real estate, and cash. The trustee must invest the assets of the trust suitably and must exercise the same care and skill as an ordinary prudent person of business would in managing their own similar affairs.
  • Investment Adviser/Manager: The trustee delegates the task of managing the trust’s investments to a family office that manages the investment for John’s wife and children.
  • Protector: John appoints his close friend as the protector to monitor or oversee the actions of the trustee. The protector has the power to remove or appoint trustees and modify the list of beneficiaries.
  • Letter of Wishes: John writes a Letter of Wishes outlining his desires for the trustee to act in a specific manner for the benefit of his wife and children. The letter serves as guidance for the trustee and can be amended by John at any time.

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1. What is a trust? 

A trust is a legal arrangement where a trustee holds and manages assets for the benefit of specified individuals or entities, called beneficiaries. The trust is governed by a trust instrument or deed and the law.

2. Who is the settlor in a trust? 

The settlor is the person who transfers the legal title of their assets to the trustee. The settlor is the person who establishes the trust.

3. What is the role of the trustee? 

The trustee is an individual or company who holds the trust assets for the benefit of the beneficiaries. The trustee is obligated to act in the best interests of the beneficiaries and in accordance with the terms of the trust. This obligation imposes a duty of care, skill, honesty, integrity, and good faith on the trustee.

4. What are the rights of the beneficiaries? 

The rights of beneficiaries depend on whether the trust is a fixed trust or a discretionary trust. In a fixed trust, the beneficial interests are set out in definite terms, while in a discretionary trust, the distribution of the trust assets is left to the discretion of the trustee.

5. Can the settlor manage the investments of the trust? 

In jurisdictions that permit “reserved powers” trusts, the settlor can reserve the power to manage the investments. Otherwise, trustees often delegate the task of managing the trust’s investments to professionals, such as investment advisers or family offices.

6. How does Family Offices help with advising a Trust?

Family offices are private wealth management advisory firms that provide personalised and comprehensive financial services to ultra-high-net-worth individuals and their families. They offer a range of services, including investment management, estate planning, risk management, and philanthropic advising. Family offices provide a single point of contact for all financial matters, helping to simplify the complex financial lives of their clients. For trusts, family offices can serve as a trusted advisor and provide valuable insights and expertise on investment strategies and opportunities. With the help of investment advisors, trusts can be managed effectively, ensuring that the trust’s assets are protected and that the beneficiaries’ needs and goals are met.

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