Questions about Trusts
Introduction to Trusts in Singapore
A trust is a useful instrument to leave specific assets to specific beneficiaries, while skipping the need for a lengthy probate process.
A trust is a legal instrument that is used to manage your assets for a particular purpose or recipient known as a beneficiary. This article provides an introduction to trusts in the context of Singapore.
How do trusts work?
In Singapore law, there are two types of rights (known as “interests”) in any asset or property. A legal interest means owning the asset legally - what we informally call “on paper”. An equitable interest means having the right to benefit from an asset without necessarily owning it legally. In Singapore you can split those interests between two or more persons or entities. One way to do it is by creating a trust.
In a trust, a settlor (like you) gives the property legally to a specified person - a trustee. At this time, the settlor gives instructions to provide the benefit of the property to a beneficiary. The trustee owns the legal interest and manages the property. The beneficiary does not own the property, however any income or value to the property is provided to them as set out in the settlor’s instructions.
Trusts and Children
If you have children, trusts are an especially instrument to consider, and they’re not just for the rich. Depending on the age of your children, they may or may not be able to make decisions in their own best interest. The advantage of a trust is that the beneficiary may not use the property in any way directly. A trust can prevent using up the assets too soon, or unnecessarily.
The trustee may also, depending on your instructions, further invest or grow the trust funds while still providing a steady payout for the care of your children. This can continue to grow your assets in your absence.
Having a trust doesn’t mean your children can never have the ownership of your property. A trust can be limited till your children reach a certain age. You can then leave instructions to pass the property to them. Trusts are commonly kept until the beneficiary is 18, 21 or 25.
How do I choose a trustee?
It is important to find a trustee whom you trust to act in the best interests of your beneficiary.
Some qualities to take into account are:
- Does your trustee understand financial management and asset management?
- Does your trustee understand your intentions and know your beneficiaries?
- Are your beneficiaries likely to trust them?
- What are the expenses / costs of the trustee?
You may consider using a relative or a friend as a trustee for simple or easy to manage assets. There are professional trust companies or law firms specialising in managing trusts for a larger or more complex pool of assets. (edited)