What Exactly Is A Trust?

A trust refers to a legal arrangement wherein an individual (the settlor) can authorise another individual (the trustee) for holding on to the various assets on behalf of a beneficiary (or beneficiaries). The trustee has the responsibility of managing the trust as per the benefits of the beneficiaries. 

The trust can include properties, stocks, cash, family businesses, etc., giving beneficiaries or beneficiaries the right to have family members, charities, or organisations.

The trustee has a statutory obligation that requires them to act in the best interest of the beneficiaries. One can also appoint a “Protector” responsible for safeguarding the trust and preventing the trustee from abusing their powers. The Singapore Trust Law has a strong foundation in the English Trust Law and Principles.

All the trust matters are governed by the Trustees Act (CAP 337). According to the Trust Companies Act, the Monetary Authority Of Singapore is responsible for issuing licences and regulating the trust companies.

An individual must invest in Trust planning in Singapore as it offers multiple benefits and advantages. This blog will help you understand the various advantages of Trust Planning In Singapore.

1.Regulatory Framework

Trust offers a simple solution for various vital concerns such as asset protection, confidentiality, estate planning, etc. The concerns were alleviated due to a practical and legal regulatory framework.

All trusts in Singapore are regulated by the Trustees Act that is constantly renewed and updated to accommodate the evolving needs of the trust market and ensure that all provisions are strong enough to uphold the trust’s purpose. The Trustees act ensures that the trustees do not abuse their trust powers and is administered by the Ministry of Law.

The Monetary Authority Of Singapore controls the conduct of trust business and the licencing and regulations of trust companies. MAS grants licences to only those trust companies that meet the highest standards in quality, financial reporting, operational control, etc.

The Trust Companies Act (TCA) governs all trust businesses in Singapore, offering a legislative and regulatory framework for all trust companies irrespective of whether they are established under Singapore Law or foreign law.

2.Tax Benefits

In Singapore, a trust’s income is taxed at a rate of 20%. The distributions made to the beneficiaries are then deducted from the said taxable income and subjected to tax in the beneficiary’s hands at the relevant personal tax rate. 

Specific income types, such as the trust’s dividend income, are not subjected to taxation at the trust level. However, if the said income gets distributed among the beneficiaries, then it becomes a taxable income.

You can also alter tax liabilities on assets and enjoy tax savings by transferring income-yielding assets into a trust where your family members with marginal tac liabilities are your beneficiaries.

3.Wealth Management And Transfers

A Trust can act as a secure source for passing accumulated wealth across generations. Rules made for the trust determine the distribution of assets among the beneficiaries, including your children and grandchildren and great-grandchildren.

4.Protecting The Interests Of Young Or Vulnerable Beneficiaries

Trusts are primarily used for protecting the interests of young or vulnerable beneficiaries. It includes children who are minors and beneficiaries who for any reason are incapable of handling their financial affairs, such as special needs children, spendthrift beneficiaries, etc.

Trust also helps to avoid legal delays faced by beneficiaries while gaining access to assets bequeathed under a will.

5.No Capital Gain Tax, Estate Duty Or Exchange Control

Singapore does not have a capital gain tax. Also, Estate Duty was abolished in 2008. It means that the distribution of all capital from Singapore trusts are exempted from tax. Successors of a Singapore trust can be included as beneficiaries without estate duty, with only the distribution of income from the estate being taxable.

Singapore is also free from an exchange of control, allowing funds to be freely remitted to and from Singapore.

6.Asset Protection & Anti-Forced Heirship

Forced heirship is a common issue in certain jurisdictions, all of which is addressed under Singapore trust law that offers anti-heirship provisions. This benefits foreigners setting up local trusts as they are exempted from forced heirship and can leave all their money to beneficiaries of their choice.

A Singapore trust can be termed as a void in the event of a settlor’s bankruptcy or liquidation. But, the court has the power to set aside a trust against all the claims made by the settlor’s creditors if it gets proven in a Singapore court that the said trust was created to defraud the settlor’s creditors. Apart from being assured asset protection, the settlor can also ensure all control over assets management via reserving some powers.

According to the trustee act, a trust shall not be termed invalid if the settlor reserves all or any powers of investment or asset management functions under a trust.

7. Protection From Creditors And During Divorce Proceedings

Some trusts can protect assets intended for the beneficiaries in the unfortunate event of divorce legal proceedings—only those trusts where the settlor no longer has any asset rights for those transferred into the trust. 

It means that a standby trust can be helpful for your children and ensure the asset’s protection if they marry or divorce in the future.

8.Strict Confidentiality

Trusts require no registration in Singapore, making them strictly confidential. Foreign trusts too require no registration or any government authority for governing.

Singapore’s Banking Act And Trust Companies Act effectively protect clients’ information allowing only bona fide requests that satisfy all the requisite conditions of legitimacy and relevance. Singapore Courts have the sole power to lift the veil of banking and trust confidentiality.

Services Singapore: Lighthouse Legacy Planners

Lighthouse Legacy Planners guarantees to set up a value-driven trust for your family and loved ones via analysing your relationships with your family members and organising before advising and creating a trust.