PATRICK TAN

Chief Executive Officer

T: (65) 6645 4500

E: patrick.tan@fortislaw.com.sg

Fortis Law Corporation

24 Raffles Place, #29-05 Clifford Centre, Singapore 048621

T: 6535 8100

E: mail@fortislaw.com.sg

In Asia, trusts are an increasingly popular vehicle for wealth preservation. Generally, trusts operate to exclude assets placed under the trust (the “trust assets”) from their creators’ (the “settlors”) estates and from claims by the settlors’ creditors. With a stable and robust legal infrastructure, SIngapore is increasingly the jurisdiciton of choice for the establishment of trust instruments.

This article highlights the benefits and drawbacks of various trust structures.

• Private Family Trusts

Private family trusts provide an alternative to the distribution of family assets under the conventional estate and probate the laws. Such trusts also allow for the protection of family assets from the consequences of divorce. The benefits include:

(a) protection of trust assets against creditors’ claims, matrimonial claims, and potential claims by the authorities;

(b) preservation of confidentiality since such trusts can be established abroad or privately; and

(c) a high degree of flexibility in succession-planning owing to the inapplicability of probate/intestacy/matrimonial laws. However, such trusts can be expensive to operate.

• Charitable Trusts

Charitable trusts promote charitable ends, provide tax reliefs/exemptions, and are exempt from rules relating to a trust’s perpetuity and certainty of object. However, such trusts cannot benefit individual beneficiaries directly and can be expensive to operate.

• Irrevocable Trusts

Irrevocable trusts involve the settlor irreversibly transferring legal ownership of assets to the trustee and are known for ring-fencing assets. However, this is irreversible and the settlor cannot unilaterally reclaim his/her trust assets.

• Revocable Trusts

Conversely, revocable trusts can be varied by the settlor and therefore provide the settlor with great flexibility. As a corollary, the legal protection accorded to trust assets is limited and trust assets can be vulnerable to creditors’ claims.

• Discretionary Trusts

Discretionary trusts give the trustees full discretion as to the use of the trust assets. The upsides include:

(a) trust assets being protected against improvidence by beneficiaries; and

(b) the trustee having significant flexibility in accommodating ever-changing circumstances.

However, enforcement of discretionary trusts can become problematic.

• Asset-Protection Trusts

Asset-protection trusts are a species of discretionary trust which specifically safeguards against business/investment risks and ring-fences trust assets against creditors. Such trusts may further stipulate asset-distribution upon various contingencies such as the settlor’s death. However, like discretionary trusts, enforcement of asset-protection trusts can become problematic.

Trusts therefore present a variety of useful options that can be customised to suit a settlor’s needs, and should always be considered as an option in wealth planning and preservation. 

In next month’s issue, we will discuss the use of a “Family Office” for wealth planning and preservation.