A Singapore Trust is regulated by the Singapore Trustees Act which requires its trustees to follow high standards of conduct and professionalism. The Ministry of Law administers the Trustees Act.
Singapore also enacted the Trust Companies Act (TCA) regulating their trust services companies. Trust companies are licensed and regulated by the Monetary Authority of Singapore (MAS) which requires the highest standards in the quality of operational controls, financial reporting, and the integrity and experience of the trustee professionals employed by these companies. MAS conducts on-site inspections and off-site reviews of trust companies to ensure their compliance with the laws and regulations concerning trusts and trustees.
Background
Singapore is a former British Colony having been granted independence in 1959. An islands nation located near Thailand and Malaysia in Southeast Asia.
It follows English Common Law and has a democratically elected parliament.
Offshore Trust Benefits
A Singapore Trust can take advantage of these benefits:
• Completely Foreign: Foreigners can create trusts to benefit foreigners with assets held in other countries.
• No Taxation: Qualified Foreign Trusts pay no taxes of any kind. However, U.S. residents and those residing in countries taxing worldwide income must reveal all income to their governments.
• Privacy: Trusts do not register with the government.
• 100 Year Lifespan: Trusts can exist for 100 years.
• Settlor’s Control: Trusts can be structured so the settlor retains control over investments and asset management without jeopardizing the validity of the trust.
• Protector: The settlor can appoint a protector to protect the beneficiaries’ rights.
• Asset Protection: No forced heirship laws of other countries enforced
• Estate Planning: Benefits the settlor’s heirs and their heirs for up to 100 years.
• English: As a former British Colony, Singapore’s second official language is English.
Singapore Trust Name
Singapore does not allow any company or legal entity to assume the same name or one resembling another’s name.
Every trust’s name must identify that is a trust by ending its name with the word “Trust”.
Types of Trusts
Singapore allows for different types of trust to be created such as:
• Charitable trusts;
• Family trusts – Wealthy individuals can set up a family trust as an asset protection and estate planning platform for up to 100 years of future generations.
• Collective investment trusts – Any trust which accumulates numerous investments under one umbrella like a business trust or unit trusts and global real estate investment trusts;
• Statutory trusts – These trusts are created to comply with specific laws like insurance trusts for policyholders and their beneficiaries under specific types of insurance products like fire, health, auto, life, and malpractice; and
• Foreign trusts – Such trusts only have settlors and beneficiaries who are foreigners and not residing in Singapore holding assets located outside of Singapore. These trusts obtain tax exemptions on their income and distribution of assets to their beneficiaries.
Registration
Trusts are not required to register with the government. Therefore, no information regarding trusts are included in any public records.
Perpetuity
Singapore law allows its trust to have a maximum lifespan of 100 years. However, a trust deed may specify a shorter definite period of time.
Trust Deed
The trust deed is the legal instrument establishing a trust and deeding assets to the trustee. Like a corporation’s Articles of Association, it sets forth the entire structure for managing assets, trustee’s duties, beneficiaries’ rights, distribution of income and assets to the beneficiaries, appointment of a protector, reserved powers of the settlor, and termination.
Settlor
Settlors can be from any country and may be natural persons or legal entities. They must be at least 18 years of age with sound mind owning assets to transfer ownership to the trustee.
Beneficiaries
Beneficiaries can be natural persons or legal entities residing in any country who accrue the benefits of a trust. A settlor can also be a beneficiary.
Trustee
Singapore licenses and regulates professional trustee services companies who can be appointed as the trustee. However, settlors are free to appoint an investment bank or other corporation or a trusted advisor. Another increasingly popular is to hire a Private Trust Company (PTC).
Private Trust Company
A Private Trust Company (PTC) is an incorporated company with the only purpose of owning and managing a settlor’s trust. The PTC’s Board of Directors can be the settlor’s trusted advisors and/or family members. Here are some advantages for using a PTC:
• Settlors can maintain an active role in managing the trust’s assets by owning the PTC which is appointed as the trustee. This protects the trust from being legally challenged as a “sham” leading to a court order declaring the trust “void”.
• Trustee’s costs will be minimal as the PTC can work for free although there will be costs to establish and administer the PTC.
• Numerous trusts can be created with the PTC acting as the trustee for all of them. This includes a family trust, a business trust, or separate investment trusts.
• PTC’s are exempt from Singapore trustee licensing requirements pursuant to the Trust Companies Act under Section 15(d). This exception exists due to the PTC only providing trust services for one settlor and cannot solicit business from the public.
Protector
Settlors may appoint a natural person to oversee the actions of the trustee like a supervisor with the power to overrule actions of the trustee. This is called a “protector” who protects the rights of the beneficiaries. The trust deed can provide many powers upon the protector including adding or replacing trustees, compensating trustees, or adding beneficiaries.
Taxes
Singapore is a territorial taxation country so only income derived within Singapore’s borders are subject to corporate and income taxation. Income earned inside Singapore are taxed on the trustee. Therefore, distributions to non-resident beneficiaries are not taxed on them. Only Singapore residents who are beneficiaries will be subject to income taxation on their receipt of funds or assets.
Foreign trusts are called “Qualifying Foreign Trusts” (QFT). This type of trust has a settlor and all beneficiaries who are foreigners and is managed by a licensed trust company. All income is exempt from taxation including:
• Rents, premiums, royalties and income derived from properties located outside of Singapore;
• Dividends and interests obtained from sources outside of Singapore including investments even though received in Singapore;
• Foreign unit trusts distributions located outside of Singapore but received in Singapore; and
• Profits and gains obtained from the sale of any designated investments.
Even if the settlor or a beneficiary who are natural persons later becomes a resident or citizen of Singapore, the tax exemption granted for the QFT will remain in place. This encourages foreigners to choose to become legal residents or citizens of Singapore at a later time.
Note: Beneficiaries who are U.S. residents are subject to worldwide taxation like others residing in countries taxing global income where they are required to report all income to their governments.
Singapore does not have any capital gains tax, gift tax, nor estate taxes. Singapore trusts can distribute tax exempt capital to the beneficiaries.
In addition, there are no currency exchange controls allowing funds in any currency to freely be transferred to the beneficiaries.
Asset Protection
The settlor’s bankruptcy or insolvency cannot make a trust voidable. However, a Singapore court can void a trust or any of its assets transference if it is proven that the settlor had the intent to defraud creditors who existed at the time of the creation of the trust or transferring assets to the trust.
The Trustees Act specifically states that settlors may reserve powers in order to control and/or manage the trust’s assets without jeopardizing the legality or validity of the trust. In fact, the Act allows settlors to maintain all powers of asset management and investments without causing the trust to be declared invalid.
Many countries have “forced heirship” laws requiring their citizen’s estates to include certain heirs (like family members) which the citizen may not wish to include as heirs. Singapore’s Trustees Act contains anti-forced heirship provisions disregarding the enforcement of those laws on its trusts. This provides the freedom for settlors to designate who they want as their beneficiaries in spite of what their country’s laws dictate.
Estate Planning
A trust can last for 100 years providing benefits for the settlor’s heirs and their heirs for many generations. Legally avoids income taxes, gift taxes, capital gains taxes, inheritance taxes, and estate taxes.
Privacy
Trusts do not have to register with the government. Thus, the names of the settlor and the beneficiaries and the identity of the assets and their location are not part of any public records.
Singapore’s tax authority will not disclose any information about foreign trusts who may file tax returns for domestic income.
Conclusion
A Singapore Trust enjoys these benefits: total foreign ownership, tax free, privacy, settlor’s control, asset protection, estate planning, and English is its second official language.
