Introduction of Singapore Trust
Singapore is a well-established trust jurisdiction and an international finance centre. It is an independent, economically strong and politically stable country. Singapore has committed to complying with Organisation for Economic Cooperation and Development (OECD) guidelines and is part of OECD’s white list.
Singapore has tax efficient legislation with a broad treaty network of more than 70 double taxation agreements. There is no capital gains tax and estate duty in Singapore. Taxation of income in Singapore is assessed on a territorial and remittance basis. Only income accrued in or derived from Singapore or income derived overseas but received in Singapore is subject to tax. All foreign sourced income received by individuals in Singapore is tax exempt given that the settlor and all the beneficiaries are not a citizen or resident of Singapore.
Singapore trust companies are strictly regulated by the Monetary Authority of Singapore (MAS). Trust law in Singapore is governed by the Trust Companies Act of 2005 (revised in 2006).
A Singapore Foreign Trust is exempt from tax on income derived from designated investments. The extension of the tax exemption for income of a foreign trust, which must be administered by a licensed trust company in Singapore, is limited to underlying companies which are not incorporated in Singapore.
A Singapore Trust may be created by a Trust Instrument setting out the terms of the trust in which the settlor transfers the assets to the trustee on trust for the benefit of the beneficiaries.
The Settlor of the trust is the owner of the assets who settled the assets into a trust. The professional corporate Trustee is the company which is the legal owner of the trust assets. The Trustee has the power to hold, administer and distribute the trust assets in accordance with the terms of the trust. The Trustee holds the trust assets for the benefit of the beneficiaries of the trust. The Settlor can be one of the beneficiaries but he cannot be the sole beneficiary of the trust.
The trust assets constitute a separate fund and do not form any part of the property of a trustee. The Trust Law also imposes fiduciary duties on trustees, regulates the administration of trusts and provides rights of beneficiaries.
- Benefits of a Singapore Trust：
(1)
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Succession planning: the Trustee can hold the trust assets and distribute the trust assets to the beneficiaries in accordance with the terms of the Trust Deed. The Settlor may give a letter of wishes as a guidance regarding the timing, amount and manner of distribution to the Trustee. The Trustee can hold the shares of a family business for concentration of shareholding of family business and to ensure that the family business can pass to future generations.
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(2)
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Asset protection: by transferring the assets to the trust, the Settlor segregating the trust assets with his own assets, protect the trust assets from creditor’s claims provided that the intention of setting up a trust is not to defraud creditors and the Settlor does not reserve to himself unrestricted powers to revoke the trust, a trust can serve as an important asset protection functions. In addition, the trustee can appoint the spouses of the descendants as excluded persons of the trust who cannot benefit from the trust. The Trustee may cease to make distribution to the beneficiaries who have the risk of divorce.
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(3)
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Avoidance of probate: assets owned by an individual usually pass on death in accordance with the terms of a will. If the assets are held in a wide variety of countries, it may be necessary to obtain a grant of probate with respect to the will in each country where assets are located. This can be an onerous, lengthy and costly process which can last between six months to two years. Moreover, there may be estate duties and taxes payable before the estate can be settled and the assets distributed to the heirs of the deceased. If such assets are settled on trust, the trust can enable the trust assets to be passed on future generations smoothly and according to the wishes of the settlor.
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(4)
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Tax planning: During the existence of the trust, under the current tax regulations of Hong Kong, Singapore, Cayman Islands, British Virgin Islands, and Jersey, there is no tax reporting obligation for the income generated by the trust assets. However, when a beneficiary receives a trust distribution, there may be tax reporting obligations depending on the tax residency status of that beneficiary. Trust can be used to protect or exclude property settlements for UK inheritance tax purposes and foreign grantor trusts for US tax purposes.
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(5)
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Avoidance of forced heirship rules: to guarantee that the trust assets can be distributed to the beneficiaries according to the wishes of the Settlor. An individual from a country with rigid legal or religious inheritance laws may implement a scheme of distribution of assets among his heirs that differs from that prescribed by his domiciliary law. By establishing a trust in common law jurisdictions such as Hong Kong, Singapore, Cayman Islands, British Virgin Islands, Jersey and Guernsey, the desired distribution plan can often be implemented.
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(6)
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Confidentiality: a trust does not need to be registered and it is a private legal arrangement between the Settlor and the Trustee. The information relating to the trust is not accessible by the general public.
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(7)
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Philanthropy: a trust can be set up for charitable purpose in which the beneficiary of a trust can includes charitable organizations or for charitable purposes.
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(8)
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Commercial uses such as Employee Benefits Trust, Pension Funds, Investment Funds, etc.
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- Different kinds of Singapore Trusts
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Discretionary Trust
A discretionary trust is the most common type of trusts which gives the trustees wide powers to administer the assets and to distribute the assets to the discretionary beneficiaries at their discretion. The trustees will usually be guided by a non-legally binding letter of wishes from the settlor setting out wishes of the settlor regarding the manner in which the trust fund is to be administered and distributed. The letter of wishes can be updated from time to time. A Singapore Trust may have a perpetuity period of 100 years.
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(2)
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Reserved Powers Trust
The Settlor of Singapore Trust may reserve the power of investment and asset management to themselves or confer the powers on the Protector, without invalidating the trust.
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(3)
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Singapore Private Trust Company
A Private Trust Company (“PTC? is a company established with the sole purpose of acting as trustee of a specific trust or group of related trusts. PTCs are popular to those who wish to retain control of the management of the family trust, which can be achieved by appointing members of the settlor’s family or his advisors to the Board of Directors of the PTC. The Settlor or his advisors are advised to have proper governance and succession planning of the Board to ensure wealth preservation for future generations. A Singapore PTC is exempted from the requirement to hold a trust business licence. This exemption is built on the principle that the PTC only provides trust services to the family trust or its related trust and that it does not solicit trust business from or provide trust services to the public. A Singapore PTC adopts the form and substance of a Singapore company. A Singapore PTC is required to engage a licensed trust company to carry out trust administration services for the purposes of complying with the prevention of money laundering or countering the financing of terrorism issued by the MAS.
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Reference: Trusts Companies Act of 2005
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