What Is Living Trust Singapore? 3 Facts You May Not Know

by | Oct 20, 2022 | Knowledge & Insights

What is living trust singapore

A living trust is a legal document that designates a trustee to manage an individual’s assets for the eventual beneficiary’s benefit. Living trusts allow for easy transfer of the trust creator’s assets.

In Singapore, a property living trust can include assets like cash, shares, valuables, family heirlooms, private businesses, etc. The asset owner is referred to as the “settlor” who plans to legally transfer assets to a trustee.

As the legal owner, the trustee holds management responsibilities over the assets, eventually going to a beneficiary. Remember that the settlor and beneficiary can be the same.

One distinct feature of living trusts is that assets can be transferred while the settlor is alive. The arrangement differs from a testamentary trust, in which a will is made and will take effect only after the settlor’s death.

Living trusts also differ from fixed trusts in which the settlor has already pre-arranged the asset distribution.

However, in a discretionary living trust, the trustee can choose the beneficiaries from a list of names or classes (i.e., children, spouses, parents, etc.).

1. What Is The Singapore Trust Law?

Singapore property living trust

Singapore’s trust framework was initially established to solve a land ownership issue and has since evolved to adopt modern concepts and meet compliance standards.

There are different legislations governing trusts in Singapore, including:

  • Civil Law Act and Trustees Act
  • Trust Companies Act
  • Business Trusts Act

Similarly, Singapore’s trust framework offers several benefits, effectively reducing the red tape commonly associated with the transfer of assets.

Below are some unique benefits and features of a Singapore trust:

  • Strictly confidential
  • Settlor’s assets are protected from forced heirship laws.
  • Absence of inheritance tax or estate duty
  • Absence of capital gains tax
  • Mitigation of income tax for foreign trusts
  • No requirement to formally register the trust
  • The settlor has an active role in managing or investing the assets as they wish.

2. Benefits Of Setting Up A Discretionary Living Trust

Benefits Of Setting Up A Discretionary Living Trust

Likewise, there are critical benefits to setting up a living trust in Singapore. Many Individuals prefer this option to other legal arrangements for transferring assets. One primary reason is its convenience.

Another is the fiduciary advantages it brings. A living trust can benefit corporations and private individuals regarding financial planning and management.

Here are other benefits to setting up a living trust in Singapore:

Protect Your Assets

Living trusts provide secure asset protection. When the settlor transfers the trust deed or legal title to the trustee, the latter withholds any right to the assets.

If there are any future claims of bankruptcy or insolvency against the settlor, creditors will not be able to claim such assets. This applies, especially if the trust was established more than five years ago without any fraudulent findings.

Plan For The Future

A living trust also allows you to plan for your future. Since it is not a fixed trust, the trustee holds discretionary powers to distribute the assets according to changing circumstances.

For example, the trust can benefit even future generations. Say you’re a father and a trustee, and your son or daughter wishes to pursue graduate studies.

As the trustee, you can use the assets from the living trust to pay for your child’s tuition fee or purchase other miscellaneous items required for their classes.

Simply put, a living trust allows for long-term planning of the future. Circumstances can change over time, and a discretionary trust offers flexibility to plan for such events.

Hassle-Free

Ideally, before someone dies, they would have already written a Will. A will is a legal document that outlines how you want your estate and assets to be distributed after death.

But before the estate executor can execute the will, they will need to secure the relevant legal documents. This process is also necessary to apply for a Grant of Probate.

Applying for probate can be a lengthy and costly undertaking. It can take 2 to 6 months for non-contentious probate to be approved, not to mention complex cases wherein the deceased has many assets which need to be found and identified.

But a living trust allows families to bypass such laws. Instead of applying for probate, an individual can simply set up a trust and allow for immediate distribution of the assets.

Pay Fewer Taxes

If you establish a foreign trust in a country with minimal-to-no taxes, you’ll have more savings in the long run.

Singapore does not impose capital gains, estate duty, or withholding tax when distributing assets to the beneficiaries. Further, various income tax savings are available to eligible foreign and domestic trusts.

3. Guide To Setting Up A Discretionary Living Trust In Singapore

Guide to setting up Living Trust

A discretionary trust is considered a legal arrangement only when it satisfies the requirements in Section 7 of the Civil Law Act. One of the formalities states that the trust must be put into writing.

Aside from this, a discretionary trust is valid only if it meets the following certainties:

  • There is an intention to set up a trust.
  • The assets are explicitly indicated (i.e., real property, cash, shares, investments, etc.).
  • The parties must also be expressly indicated (i.e., settlor, trustee, and beneficiary)

The settlor should indicate all this information using plain and unambiguous language. For example, if real estate is included as a trust asset, the settlor must indicate its specific address.

The same goes for money stored in bank accounts. The settlor must avoid using vague language that can cause confusion when transferring funds in the future.

Aside from the assets, there must also be an easily identifiable beneficial owner. Boxing classes of people into categories, like “friends” or “aunts and uncles”, can prevent the Court from clearly establishing the intended beneficiaries.

It can be difficult to determine who the settlor points to when saying “friends” or “aunts and uncles”.

Additionally, the settlor will need to write a Letter of Wishes. The Letter of Wishes serves as the trustee’s guiding document. It outlines information regarding the settlor’s wishes concerning the assets included in the trust.

A Letter of Wishes is not legally-binding. The settlor can change its terms as they see fit.

Conclusion About Living Trust In Singapore

Discretionary living trusts often involve the distribution of the settlor’s assets.

If you’re looking to set up a trust in Singapore, it’s vital to engage the services of a professional trust lawyer in Singapore.

Trust lawyers can assist with securing the proper documentation and ensure you meet all legal requirements regarding trusts. This is to ensure the trust remains valid before the Courts.

Contact Singapore Family Lawyer now for more information. We offer a free 30-minute legal consultation to discuss the details of your case.

Frequently Asked Questions About Living Trust In Singapore

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

Set-up costs for a living trust in Singapore usually range between $4,000 to $5,000 (in SGD).

The trustees will need to assess their responsibilities based on the property’s value (i.e., single vs multiple properties).

Regarding maintenance of these properties, some firms may charge 5%, for instance, of the estimated rental income. Meanwhile, the rate for a residential property will be determined by comparing properties of the same type.

What Is A Buyer’s Stamp Duty?

A buyer’s stamp duty is a tax on all residential properties transferred into a living trust. The buyer’s stamp duty has been in effect in Singapore since 9 May 2022, at 35%.

How Much Will Trust Maintenance Cost In Singapore?

If you appoint trust companies or firms to manage your assets after death, they will charge an annual fee as low as 0.5% of the total value of assets.

Does Singapore Tax Trusts?

Singapore imposes a flat tax rate of 20% for trust incomes. Also, any distributions to the beneficiaries will be deducted from the taxable income. Instead, the distributions will be taxed according to the applicable personal tax rates.

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.