Testamentary Trust In Singapore: 3 Crucial Facts You Must Know Before Setting Up A Trust

by | Jun 10, 2024 | Knowledge & Insights

A Testamentary Trust in Singapore, also known as a will trust, is a legal arrangement effective only after the trustor’s death. The trust outlines how the trustor’s assets will be managed and distributed posthumously.

A trustor is essentially the person who creates the trust; they are responsible for deciding how their assets should be handled after their passing.

This individual could be anyone with assets to manage, such as a parent, grandparent, or even a close friend, seeking to ensure their assets are responsibly managed and distributed according to their wishes.

Testamentary Trusts are subject to the Grant of Probate process and offer a low-cost way to manage and protect assets beyond the trustor’s lifetime​​.

In this article, we’ll share three crucial facts you need to know before creating a testamentary trust. We’ll also share a step-by-step guide to setting up a testamentary trust in Singapore

1. A Testamentary Trust Makes It Easier For You To Protect Your Inheritance

Setting up a testamentary trust in Singapore can be a strategic financial decision with numerous advantages. Here are five crucial benefits of establishing a testamentary trust in Singapore.

Provide For Minors Or Those With Special Needs

Testamentary trusts offer a valuable mechanism to hold and manage property for beneficiaries, particularly minors or individuals with special needs.

These trusts ensure that assets are safeguarded and used for the benefit of the beneficiary until they are capable or legally allowed to manage them independently. This can be especially crucial to ensuring vulnerable family members’ financial well-being and care.

Asset Protection In Divorce

One notable benefit of testamentary trusts is their ability to secure specific assets from being subject to division in divorce proceedings. When irrevocable trusts are established without intending to deprive a spouse of assets, they can shield those assets from being included in marital property.

This can be a prudent strategy to protect family wealth and assets during challenging life circumstances.

Here are assets that can be protected in divorce through the use of testamentary trusts in Singapore include:

  • Family Home: By placing the family home into a testamentary trust, you can ensure that it remains a secure and stable residence for your family members, especially children, in the event of divorce.
  • Investment Properties: If you own investment properties, a testamentary trust can help shield these valuable assets from being divided in divorce proceedings, allowing you to maintain control and ownership.
  • Business Interests: If you are a business owner, you can protect your business interests by placing them in a testamentary trust. This ensures that it remains separate from marital property and can continue to operate independently.
  • Inherited Assets: Assets that you’ve inherited from family members can be safeguarded through a testamentary trust, preserving them for future generations and preventing them from becoming part of a divorce settlement.
  • Financial Investments: Various financial investments, such as stocks, bonds, and savings accounts, can be placed in a testamentary trust to protect them from being subject to division in divorce proceedings.
  • Valuable Personal Property: Valuable personal items like artwork, collectables and jewellery can be secured within a testamentary trust, ensuring they are not subject to division during divorce.

It’s important to note that the effectiveness of asset protection in divorce through testamentary trusts vary depending on the circumstances as well as the legal advice you receive. Consulting with a legal professional experienced in Singapore family law is essential to protect your assets effectively.

Management For Loved Ones Who Are Big Spenders

Testamentary trusts are an effective tool for protecting assets from being squandered by beneficiaries who may not handle substantial sums responsibly. With specific instructions, these trusts can guide the use of assets, ensuring that they are used for essential needs, education, or other designated purposes.

If you have a beneficiary, perhaps a young adult or someone with a history of financial irresponsibility, who you believe may not handle a substantial inheritance wisely.

In this case, you can establish a testamentary trust with specific instructions to ensure the assets are prudently used.

  • Educational Expenses: You can stipulate that a portion of the trust funds be allocated exclusively for educational purposes. Specify that the trust will cover tuition fees, books, and related expenses for higher education, thus ensuring that the beneficiary invests in their future.
  • Monthly Allowance: To prevent reckless spending, set up a monthly allowance that the beneficiary can access. This allowance can be tailored to cover essential living expenses, such as rent, utilities, and groceries, but restricts access to a surplus amount to discourage frivolous spending.
  • Age or Milestone-Based Releases: You can structure the trust so that the beneficiary can access only a portion of the assets when they reach a certain age. Another option is if they achieve specific milestones, such as completing a degree or a stable job. This gradual release of funds ensures responsible financial management.

Adding these specific instructions is typically done through legal documentation while creating the testamentary trust. Consulting with a qualified legal professional experienced in Singapore trust law is crucial to ensure that your wishes are accurately articulated and legally binding

Investment Purposes

For those interested in investing, testamentary trusts offer a structured approach. They provide a means to participate in various investment vehicles.

Within the trust, you can allocate assets to different investment vehicles, such as Real Estate Investment Trusts (REITs), mutual funds, stocks, bonds, or other financial instruments. This diversification not only spreads risk but also offers the potential for higher returns.

To leverage testamentary trusts for investment purposes, working closely with financial advisors or investment professionals who can guide asset allocation and investment strategies is essential. Their expertise can help you make informed decisions within the trust framework, ultimately contributing to the growth of your wealth and financial goals.

Tax Planning

Using testamentary trusts can be a strategic move for tax planning purposes. This approach may offer potential tax advantages, as income generated within the trust can be assessed at a beneficiary’s lower tax rate.

Effective tax planning can lead to substantial savings over time, making testamentary trusts an attractive option for those looking to minimise tax liabilities within the bounds of legal compliance.

Imagine you have a substantial estate and want to ensure your beneficiaries receive the maximum benefit while minimising tax liabilities. In this scenario, you set up a testamentary trust within your will.

Within the trust, you allocate a portion of your estate, including income-generating assets like rental properties and investments. After your passing, these assets continue to generate income, typically subject to Singapore’s progressive tax rates if received directly by your beneficiaries.

However, channelling the income through the testamentary trust becomes subject to the beneficiary’s tax rate, which might be lower than the rates applicable to the trust creator.

Note that specific tax implications can vary based on individual circumstances and the prevailing tax laws. Therefore, consulting with a qualified tax advisor is essential to ensure your testamentary trust is structured optimally to achieve the tax benefits within the legal framework.

2. Testamentary Trusts And Living Trusts Have Different Terms Of Activation And Operation

In Singapore, a Testamentary trust (or will trust) is activated only after the trustor’s passing, handling assets per the terms set in the will and the Grant of Probate process. It is inexpensive to set up but cannot distribute assets if the trustor is mentally incapacitated.

On the other hand, an Inter vivos trust (or living trust) is established during the trustor’s lifetime and becomes a legal entity immediately. It can manage assets for dependents, even in the case of the trustor’s mental incapacity or death, and allows for the amendment of asset distribution wishes anytime.

However, a living trust requires higher setup and annual administration fees due to its active management and ongoing nature.

It involves more complex handling since it’s operational during the trustor’s lifetime, including managing assets, handling amendments to the trust, and protecting assets from creditors and taxes. These activities demand regular administrative work and legal oversight, thus incurring higher costs.

3. Understanding The Singapore Trust Law Is Necessary When Setting Up Testamentary Trusts

Understanding the intricacies of Singapore’s trust laws is important when setting up testamentary trusts. With its historical roots and contemporary adaptations, Singapore’s trust framework forms the foundation for these trusts.

Here’s why comprehending Singapore Trust Law is of utmost importance:

Historical Evolution and Modern Relevance

Singapore’s trust framework traces its origins to resolving land ownership issues. Over time, it has evolved to incorporate modern concepts and adhere to international compliance standards.

This evolution ensures that testamentary trusts established within this framework benefit from a legal environment that combines historical wisdom with contemporary relevance.

Legislations Governing Trusts in Singapore

Several key legislations govern trusts in Singapore, including the Civil Law Act and Trustees Act, Trust Companies Act, and Business Trusts Act.

These legislations establish the legal framework for creating and administrating trusts, dictating their rules and regulations.

Streamlined Asset Transfer

One of the standout advantages of Singapore’s trust framework is its ability to streamline the transfer of assets. Testamentary trusts established within this framework benefit from reduced bureaucracy and administrative red tape, making the asset transfer process more efficient.

Unique Benefits and Features

Singapore’s trust framework offers numerous unique benefits and features advantageous for testamentary trusts. These include:

  • Strict Confidentiality: Testamentary trusts in Singapore are maintained with high confidentiality, ensuring privacy for both settlors and beneficiaries.
  • Asset Protection: Assets within the trust are protected from forced heirship laws, allowing for more flexibility in asset distribution.
  • No Inheritance Tax or Estate Duty: Singapore does not impose inheritance tax or estate duty, making it an attractive jurisdiction for preserving family wealth.
  • No Capital Gains Tax: Gains on the sale of assets within the trust are not subject to capital gains tax, allowing for tax-efficient wealth management.
  • Mitigated Income Tax for Foreign Trusts: Foreign trusts established in Singapore can enjoy income tax mitigation benefits, making it an appealing choice for international estate planning.
  • No Formal Registration Requirement: Testamentary trusts are not required to undergo formal registration, reducing administrative burdens.
  • Settlor’s Active Role: Settlors can actively manage or invest trust assets in alignment with their specific intentions and wishes.

Guide To Setting Up A Testamentary Trust In Singapore

1. Basic Requirements 

Establishing a testamentary trust carries significant implications for your beneficiaries, and it is imperative to proceed correctly.

Suppose your goal is to safeguard your children’s inheritance from potential legal disputes or divorce proceedings in the future.

In that case, ensuring that the trust aligns with your intended protective measures is essential. This entails adhering to all the prerequisites for a legally valid will and complying with Singapore’s trust laws.

Here’s a breakdown of the key requirements and considerations:

  • Mental And Legal Capacity: The testator (the person creating the trust) must have the mental and legal capacity to draw up a will and create a trust. This means they must be of sound mind and at least 21 years old in Singapore.
  • Clear Intent: It should be evident that the testator intends to create a testamentary trust. This requires a clear expression of the intention in the will.
  • Clear Purpose: The trust’s purpose must be well-defined and unambiguous. You should specify why you are creating the trust, whether it’s for your children’s education, financial security, or other specific goals.
  • Specific Assets: Clearly identify the assets that should be included in the trust. This ensures that there is no confusion about what should be held in trust for your beneficiaries.
  • Identified Beneficiaries: The trust’s beneficiaries must be clearly identified in the will. This ensures that your wishes regarding who benefits from the trust are clearly outlined.
  • Formalities Of The Wills Act: The will creating the testamentary trust must comply with all the formalities of the Wills Act in Singapore.

These include having the will in writing, the testator’s signature at the bottom of the will, and the presence of at least two witnesses who must also sign in the testator’s presence.

Importantly, these witnesses should not be beneficiaries or spouses of beneficiaries to avoid any conflict of interest.

2. Choosing The Right Trustee

A trustee is a crucial figure in a testamentary trust, responsible for managing and distributing assets according to your wishes. When selecting a trustee, consider their financial acumen, trustworthiness, and willingness to take on this role.

Trustees can assume various forms, including individuals, professional fiduciaries, or corporate entities with expertise in trust management. Regardless of their form, all trustees are bound by a legal duty to act in the best interests of the beneficiaries and to uphold the terms of the trust.

Importantly, the flexibility of testamentary trusts allows for the replacement of trustees under certain circumstances. Suppose a trustee’s circumstances change or they prove incapable of effectively fulfilling their duties.

In that case, mechanisms can be established to appoint a new trustee to carry out the trust’s objectives that align with your original intentions.

Moreover, you may wonder if trustees get paid. Trustees can indeed receive compensation for their services, especially if they are professionals or corporate entities with expertise in trust management. The terms of their compensation, if any, should be clearly defined in the trust document, ensuring transparency and alignment with your intentions.

3. Identifying Beneficiaries

Identifying beneficiaries is a pivotal step in creating a testamentary trust, as they are the ultimate recipients of the trust’s assets. While you have the freedom to specify beneficiaries according to your wishes, it is imperative to provide clear and precise instructions to minimise the potential for disputes in the future.

Beneficiaries can encompass various individuals, entities, or even designated purposes. Typically, beneficiaries may include family members such as spouses, children, or grandchildren, ensuring that your loved ones are provided for in a structured manner.

Moreover, friends, charitable organisations, or specific causes that are personally significant to you can also be named beneficiaries within the trust.

4. Compliance With Legal Requirements And Taxation

Setting up a testamentary trust in Singapore entails meticulous adherence to the country’s specific legal requirements and taxation regulations, which may involve various facets such as registration with relevant authorities, payment of applicable fees, and filing essential documents.

First and foremost, the trust may be required to register with pertinent regulatory bodies or government authorities to ensure its legal recognition and compliance with local laws. This registration process typically includes providing essential details about the trust, its beneficiaries, and trustees to the relevant authorities.

Additionally, fees might be associated with establishing and maintaining the trust. These fees could encompass registration fees, annual filing fees, and other charges imposed by the authorities or regulatory agencies.

Furthermore, filing relevant documents is a fundamental aspect of trust compliance. This may involve the submission of trust deeds, financial statements, and tax returns to demonstrate transparency and adherence to tax laws.

Accurate record-keeping and timely submission of these documents are imperative to maintain the trust’s legal status and fulfil tax obligations.

Given the intricate nature of these legal requirements and taxation regulations in Singapore, it is strongly advisable to engage qualified legal and tax professionals with expertise in trust matters.

Their guidance will ensure the trust’s compliance with all relevant laws and regulations and facilitate the efficient and legitimate operation of the testamentary trust while minimising potential legal and tax risks.

5. Dispute Resolution

While testamentary trusts are intended to be clear and specific, disputes can still arise among beneficiaries, trustees, or other stakeholders. Common disputes may relate to asset distribution, trustee conduct, or interpretation of trust terms.

To resolve these disputes, parties can seek mediation, arbitration, or, if necessary, take legal action. Including dispute resolution mechanisms within the trust document is advisable to streamline the process.

6. Updating Your Testamentary Trust

Periodically reviewing and updating your testamentary trust is essential to ensure it remains aligned with your objectives and the needs of your beneficiaries.

Life circumstances, family dynamics, and legal requirements may change over time, necessitating adjustments to the trust structure. Regular updates help maintain the trust’s relevance and effectiveness in fulfilling your intentions.

Conclusion About Testamentary Trust In Singapore 

In this comprehensive exploration of testamentary trusts in Singapore, we’ve covered the essential elements for those considering these trusts.

We clarified what testamentary trusts entail and highlighted their diverse benefits, from providing for minors to asset protection and tax planning advantages.

Additionally, we emphasised the significance of comprehending the Singapore Trust Law, which underpins the legal framework for testamentary trusts.

Lastly, our article provided a practical guide for setting up these trusts, ensuring you’re well-prepared to navigate the complexities, make informed decisions, and create trusts that align with your future objectives and aspirations.

For those needing legal advice, it’s worth noting that you can access a free 30-minute consultation with Singapore Family Lawyer. We have trusted legal experts to assist you in your testamentary trust journey.

Frequently Asked Questions About Testamentary Trust In Singapore

Can’t I Create A Testamentary Trust On My Own Or Use Online Templates To Save On Legal Fees?

While online resources and templates are available, testamentary trusts involve complex legal and financial considerations.

These one-size-fits-all solutions may not adequately address your specific circumstances or ensure compliance with Singapore’s trust regulations. A lawyer tailors the trust to your unique needs, reducing the risk of costly errors and potential disputes.

What Are The Potential Consequences Of Not Seeking Legal Advice When Setting Up A Testamentary Trust?

Failing to engage a lawyer can lead to various issues, including improper trust execution, inadequate protection of assets, and potential legal disputes among beneficiaries.

Errors or omissions in the trust document may result in unintended outcomes or difficulties in administering the trust as per your wishes. Legal advice helps safeguard your interests and ensures a smoother trust establishment process.

How Can I Find A Reputable Lawyer Experienced In Testamentary Trusts In Singapore?

To find a reliable lawyer for testamentary trusts, you can seek recommendations from trusted sources, such as friends, family, or financial advisors.

Additionally, legal directories and bar associations often list qualified attorneys. It’s essential to conduct interviews, evaluate their expertise, and discuss fees to choose a lawyer who aligns with your specific needs and budget.

How Much Does It Cost To Set Up A Trust In Singapore?

The cost of setting up a trust in Singapore can vary significantly depending on various factors, including the complexity of the trust, legal fees, trustee fees, and ongoing administration expenses.

Typically, legal fees for drafting and establishing a trust can range from a few thousand to several thousand Singapore dollars.

Trustee fees may also apply, depending on the trustee’s role and responsibilities. It’s advisable to consult with legal and financial professionals to get a tailored estimate based on your specific requirements.

Does Singapore Tax Trusts?

Singapore generally does not impose taxes on trusts, making it an attractive jurisdiction for trust planning. However, tax implications may arise at the beneficiary level, depending on the nature of income distributed from the trust.

Income received by Singapore tax-resident beneficiaries may be subject to income tax, but the tax treatment can vary. For foreign beneficiaries, Singapore typically does not impose income tax on income received from foreign trusts.

Nevertheless, it’s essential to seek advice from tax professionals to understand the tax implications based on your trust structure and beneficiaries’ tax residency status.

About the author

About the author

Jonathan Wong

Jonathan is the Founder and Managing Director of Tembusu Law. He is also the founder of LawGuide Singapore, a prominent legaltech startup which successfully created and launched Singapore’s first legal chatbot in 2017.