​Estate planning: What is a trust?

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17 Oct 2018 | 2 min. read

A trust is an alternative way to distribute your estate. Learn about the various types of trusts available.

Key takeaways

  • Creating a trust is an alternative way to distribute your estate.
  • A trust arrangement provides for the needs of vulnerable family members.
  • A living trust protects your assets from creditors if you're ever made bankrupt.

Why set up a trust?

You may consider setting up a trust if you want to:

  • Control and protect your family assets. You may also want the money held in trust to be invested.
  • Buy a property for your child. Specify the age to have it transferred when your child grows up.
  • Provide for a child who is a minor, or has special needs.
  • Provide for an adult child who is careless with money.
  • Protect your money in the event of a divorce.
  • Protect your assets from creditors.

If you have a dependant with special needs, you can approach the Special Needs Trust Company (SNTC) to help you set up a trust for him.

How does a trust work?

A trust is a legal arrangement between you (the settlor) and a trustee.

When you set up a trust, your appointed trustee takes ownership of your assets and manages them in the best interest of your beneficiaries. You can decide the terms of the trust including who your beneficiaries are, and how much power you wish to retain over your trust.

As assets placed in a trust are not part of a deceased’s estate, probate is not required, and disputes over the assets can be avoided.

Types of trusts

Setting up a trust during your lifetime

A living trust is set up during a settlor's lifetime, where the assets are transferred to the trust. Examples are inter vivos, discretionary or revocable trusts. It is done by executing a trust deed together with the transfer of assets to the trustee.

The settlor can revoke or terminate the trust at any time.

Testamentary trust

A testamentary trust is made using a Will and takes effect after the settlor's death. This is useful where you have:

  • Young children
  • Dependants with special needs
  • Beneficiaries who may inherit a large sum of money but are unable to manage it

Once this trust is in place, it is irrevocable.

Tax matters

The statutory income of a trustee is subject to income tax.

If you're a beneficiary of a trust you'll be:

  • Assessed on your share of entitlement of income at your personal income tax rates.
  • Getting the same tax exemptions and concessions given to taxpayers who are residents.

If you're a non-resident beneficiary in Singapore, the trustee is required to pay tax on your share of entitlement at the prevailing trustee rate for that year of assessment.

For more details, refer to IRAS' guide to trusts.

Last updated on 05 Nov 2018