Setting Up A Trust Company

What is a Trust?

• In short, Trust is a legal concept involving the holding of property for the benefit of others
• The Personnel involved in a trust are:
  • Beneficiaries- The Beneficiaries are those who can receive benefits from the trust
  • Trustees – The trustees are the individuals (or trust company) who own property held within the trust, which is administered for the benefit of the beneficiarie,
  • Settlors – The settlor is the person who creates the trust and originally owns the property which is transferred to it.

Creating a trust under the Singapore Law

1. As a result of a written document
   E.g. A trust deed or will (A trust only comes into existence on date of death, not the date the will was signed),
2. By operation of Law, no written document
   E.g. A bare trust arising from intestacy when funds are held for a young child.

Types of Trust

Listed below are the available types of trusts, though this list is non exhaustive :

1. Non-Resident Trust – also known as « offshore trust » ,
2. Express Trust – Via a deed,
3. Bare Trust – More like a nominee arrangement instead,
4. Discretionary Trust – Trustee decides how much beneficiary receives,
5. Business Protection – or Succession Trust.

Regulations of Singapore Trust

• Trustees Act (Cap 337)
  • The trusteed Act specifically confers certain powers on theTRUSTEE..
• Trust Companies Act (Cap 336)
  • The Trust Companies Act provides for the licensing and regulation of Trust Companies.

Trustees Act

1. Investments
   • Under the former position, a trustee is permitted to invest the trust funds in a restrictive list of relatively conservative investments,
   • The Act abolishes the previous list and replaces it with a general power of investment on the premise that narrow powers are likely to impede trust administration,
   • The trustee is thus now :
     

     Empowered to make any kind of investment that he could make as if he held the assets of the trust absolutely.

2. Powers to employ agents, nominees and custodians
   • The trustee may delegate aspects like the investment management function to an asset or investment manager,
   • Agent’s exercise of such functions to be reduced in a written agreement and for a policy statement that: Gives guidance on how the functions should be exercised.
3. Renumeration
   • The Act deals generally with 2 situations:
     • (a)where there is an express charging clause
     • (b)where there is no provision in the trust instruments for charging
   • When it comes to charging fees, trust corporations have a slight advantage over trustees, meanwhile lay trustees are not entitled to be renumerated as they are volunteers
     • a) Express charging clause – Trustee is entitled to payment where the trust instrument provides for receipt of payment out of trust funds,
     • b) No provision for charging – Both a trust corporation and a trustee is both entitled to receive reasonable renumeration out of the trust funds.
4. Others
   • a) Powers to Insure Trust Property: Payments can now be made either from income or capital funds of the trust,
   • b) Perpetuities and Accumulation: There is now a new 100-year perpetuity period in the rule against perpetuities,
   • c) Settlor’s Reservation of Powers of Investment or Asset Management: Reservation by the settlor to the powers of investment or asset management functions of the trust will not render the trust invalid.

Trust Companies Act

Background

1.  The Act provides for matters such as:
   • Mandatory Licensing and supervision of trust companies
   • Exemption for certain entities
   • Measures to counter Money Laundering and Countering Financing of Terrorism
   • Imposing high standards of regulation
2. Mandatory Licensing
   • The following Business constitute Trust Business for this Act and thus must be licensed:
     • The provision of services in creating an express Trust
     • Arranging for any person to act as trustee in respect of an express Trust
     • The provision of trust administration services in relation to an express Trust
     • Acting as trustee in relation to an Express Trust
3. Exemptions for certain persons
   • The following persons are exempted from having a trust business license in respect of their carrying on of trust business:
     • Private Trust Companies
     • Advocates & Solicitors
     • Public Accountants
     • Persons carrying out introducing activities

Benefits of setting a Singapore Trust

1. Delegation – Facilitates the modern trend of delegating the investment of asset management functions to qualified advisers of managers,
2. Restrict – As powers of investment are now very wide, the client want to restrict the parameters of the investment in the trust deed,
3. 100 years – Client may specify the duration of his Singapore trust for a period of up to 100 years,
4. Anti-forced Heirship – Can be applied where client is a foreign and wishes to pass on wealth that may otherwise be not possible under the law of his domicile.

Singapore Private Trust Company

Singapore Private Trust Company (PTC) is a form of trust that is available clients who would like their family members to be involved in the management of the family trusts for several generations.

Singapore Private Trust Company – Features

• Conceptually, the Singapore PTC is similar to PTCs allowed in some offshore jurisdictions, to give broader breadth and scope to the trust industry in Singapore
  • The PTC operates a structure which is best described as hybrid company cum trust that bears the features of a company and yet is trustee for specific family trust or trusts
  • PTC can be a suitable trustee for a family trust to address:
    • Family wealth succession
    • Asset protection
  • Requires at least one resident director
  • Shares can be issued to the family shareholders of held under a purpose trust

Foreign Trusts

To encourage foreigners to create SG trusts under a conductive tax environment, the tax regime which applies to « Foreign Trust » was created.

• A trust shall only be regarded as foreign if all settlors and beneficiaries are neither citizens nor resident in Singapore,
• Foreign trusts will be able to avoid forced heirship,
• Foreign rents, royalties, premiums
• Foreign gains or profits

Using a Foreign Trust in opening an Investment/Corporate Account

There are generally two ways to go to about it:

1. Direct Trust Holding
   • This entails the corporate trustee opening the investment account directly with the financial institution. Often requires the submission of a copy of the trust instruments, which may cause a confidentially concern
2. Indirect Trust Holding
   • This entails the use of company to own and open the Investment account. Financial Institutions often regard such structures as another corporate account opening, helping reduce the hassle of requiring documents at the trust level. The structure can be seen in the next slide.

Below are some common FAQs on Trust in Singapore :

Q1. Possible Factors that may threaten the validity of a trust

• As there is no independent person acting as a trustee, the settlor may have continued to treat the assets as his own, no different from the time before he declared the trust
• The client is unable to demonstrate that the trust was operating for the benefit of the specified beneficiaries
• The beneficiaries do not even have any knowledge of the existence of trust
• There is no documentation prepared in relation to the various aspects of the trust administration

Q2. What constitutes « Life Insurance Trust » ?

• When a trust is designed with the ownership of a policy and its benefits principal or only function

Q3. Why should Trusts be used instead of other instruments?

• Trust can provide liquid funds to meet liabilities of the deceased’s estate that would otherwise have to come from selling the assets of the state
• When a life policy is settled into a trust and under certain conditions, it is an asset that can be protected against creditor claims
• A life policy settled in trust could prevent minor beneficiaries from having control of the proceeds under the policy until such time when they are financially competent tom manage such funds

Q4. Trust in the context of Business Succession

• Many business owners are likely to be Sole Proprietors. It is in their business interests to plan for the smooth transfer of business owners in situations such as retirements, disability to continue running the business or their death.
• In such a situation, one may consider a buy-sell agreement. It is illustrated as follows :

For any information on how to set up a trust, please contact our team by email at info@opkofinance.com or by phone at +852 2654 8800.