Trusts and additional buyer’s stamp duty

Trusts made a rare appearance in the press the other day, in the context of an amendment to the rules on Additional Buyers’ Stamp Duty (“ABSD”).

The Straits Times on 10 May reported that “[c]ash rich buyers who have been circumventing [ABSD] regulations by making residential property purchases via trusts that are conditional or revocable may no longer be able to use that loophole.”

The use of the word “may” suggests a degree of ambivalence or uncertainty about the new rules. Actually there is no real uncertainty. And there is one actual certainty: cash-rich buyers are likely to be one category of purchaser who will not necessarily be deterred from utilizing valid and enforceable trusts.

The IRAS website sets out the situation clearly enough.

“On 8 May 2022, the Government announced that ABSD of 35 % will apply on any transfer of residential property under a living trust i.e. a trust that is created by a person during his or her lifetime, with effect from 9 May 2022. This will be known as ABSD (Trust).”

“ABSD (Trust) is payable upfront but in appropriate circumstances a remittance will be paid by IRAS.”

The real interest in this story is what are the circumstances in which a remittance applies. This is why cash-rich buyers who are well advised will not necessarily be deterred from proceeding with their purchases by utilising a trust.

The answer to that question is provided by the Stamp Duties (Trusts for Identifiable Individual Beneficiary) (Remission of ABSD) Rules 2022 (the “Rules”).

The Rules provide that a refund may be available if the trust in question is for the benefit of an “identifiable individual beneficiary” or beneficiaries. If that is the case, the question of whether a refund is available will depend on the “residential property count” of that beneficiary. So the position may not actually change; if the beneficiary owns no residential property, he only difference from the position before the implementation of the Rules will be the upfront payment.

There are some aspects to the new position that are worth considering.

First, a preliminary point about “living trusts“. There are all sorts of categories of trust – express, implied, fixed, discretionary, etc – but essentially a trust can only be created in one of two ways. It is either created by a living settlor, (a “living trust” or an inter vivos trust) or it is created by a settlor in his or her will and comes into effect on his or her death (a “will trust”). Wills are not subject to stamp duty ; leaving aside the issue of stamp duty payable on the purchase, the creation of an inter vivos trust will itself be a stampable event as a trust relating to land has to be evidenced in writing.

The critical issue in the Rules is the need for an “identifiable, individual beneficiary “or beneficiaries if a remittance is to be sought. On the face of it this seems strange because it is not possible for a private trust to be valid under Singapore law in the first place unless it is for the benefit of an identifiable, individual beneficiary or beneficiaries.

A trust is not a thing. It is a relationship between a trustee or trustees and a beneficiary or beneficiaries. The trustee owns and manages the trust property on behalf of the beneficiary. In the case of a private trust there has to be an identifiable beneficiary or beneficiaries. This is the effect of the so-called beneficiary principle. A trust without a beneficiary will be unenforceable against the trustee, and it will be void. Public, charitable trusts are different. A trust for a charitable purpose is valid, as long as it ticks the legal boxes for being charitable; it will be enforceable by the Attorney-General, (and of course regulated by the Commissioner for Charities).

Under Singapore law, it is not possible to have a private trust for a purpose, as opposed to a beneficiary, subject to minor irrelevant exceptions. But other, offshore, jurisdictions have taken a different view. In places like the Channel Islands purpose trusts are perfectly acceptable. It seems highly unlikely, however, that a purchaser of residential property in Singapore would utilize a trust that was demonstrably ineffective as a matter of Singapore law.

Enlightenment is to be found in the definition of “identifiable, individual beneficiary” in Article 3 of the First Schedule to the Stamp Duties Act 1929. Such an individual is “an individual who, because of the trust, has beneficial ownership of the estate or interest (whether solely or together with another) that is not, under the terms of the trust, revocable, variable, or subject to any condition subsequent, but excludes an individual who is entitled to any estate or interest in property in remainder or reversion.” (Paragraph (1A) (b)). (Emphasis added.)

Three categories of individual are expressly excluded from the definition of “identifiable individual beneficiary” under Paragraph (1B): an individual who is not born on the date of the declaration of trust, an individual who is entitled only to income, and an individual whose estate or interest is a contingent or discretionary one or who becomes entitled to an estate or interest only upon revocation of the trust.

The interesting thing here is that each of the categories of person who does not qualify as an identifiable individual beneficiary in respect of whom a remittance can be sought is, as a matter of fact and law an identifiable individual beneficiary. The best example is a beneficiary under a discretionary trust. Discretionary trusts are popular because they enable the trustee to make decisions about the deployment of trust assets based on the changing needs and fortunes of individual beneficiaries. There is a “class” of beneficiaries. It could be a big class – all the employees of a major company – or it could be a small one – all the children and grandchildren of the settlor, in each case in such proportions as the trustee shall determine. This is very different from a fixed trust – “to the grandchildren of X in equal shares”. In the case of a discretionary trust, no beneficiary has an interest in the trust property unless and until a distribution is made to him or her by the trustee.

It can immediately be seen that there are several references to discretionary trusts in the definition quoted above. But it is equally clear that a beneficiary under a discretionary trust is an “identifiable individual beneficiary”. All trusts have to satisfy a test for “certainty of objects”, so that there is no doubt about who the beneficiaries are. In the case of discretionary trusts the test is that it must be possible to say of any given individual whether he or she is or is not a member of the class.

By definition then a beneficiary under a discretionary trust is an identifiable individual. But there are strong public policy reasons why a discretionary trust should be excluded from provisions relating to remittance of ABSD. The most obvious point is that the settlor himself can be a beneficiary. A discretionary trust could certainly be used to circumvent the policy objectives of the ABSD regulations.

The same is true of the other exceptions, though they may be more obscure than discretionary trusts. A purist might question if a revocable trust is actually valid. They are not uncommon, predictably, in offshore jurisdictions and the trusts industry in Singapore seems to have accepted them. Such a trust, however, would clearly again make nonsense of the ABSD regulations. On revocation the trust property would revert to the settler. The same is true of the rarified notion of a trust subject to a condition subsequent. For now there is an identifiable individual beneficiary. But if the condition is breached the property reverts to the settlor. Trusts subject to a contingency, or future trusts where the property is held in remainder or reversion are perfectly valid, subject to the rule against perpetuities, but there are questions about the location of the beneficial interest in the meantime.

In short, the impact of the Rules is that the new ABSD regulations relating to trusts should not deter potential purchasers who want to employ what you might call plain vanilla trusts to capitalize on the fact that the intended beneficiary owns no residential property.

There are only two downsides. One is the upfront payment but that is not going to deter the genuinely cash-rich purchaser.

The other is that once the beneficiary (ies) Is (are) 21 years old or over and fully legally capable, he, she or they can call for the trust to be terminated and for the legal estate in the property to be transferred to him/ her / them. This needs to be borne in mind by any purchaser thinking of using his or her child or children as nominee beneficiaries.

Communication is key – Appointing of guardian

One would have heard more than once: Communication is key.

Unfortunately, there may be some instances when separated (or divorced) parents fail to communicate their choices of guardian(s) for their children in the event they pass away. In such situations, there may be conflicting choices of guardians in each parent’s will. What happens then?

While not an ideal situation, particularly for the child(ren), pursuant to section 7 of the Guardianship of Infants Act (Cap. 122, 1985 Rev Ed) (the “GIA”), each parent has separate authority to appoint any person to be the guardian of the infant after his or her death, by will or by deed. In this regard, we would clarify that while the term “infant” is not defined in the GIA, a “child” is defined in the Women’s Charter (Cap. 353, 2009 Rev. Ed) as a “child of the marriage as defined in section 92 but who is below the age of 21 years”.

Where one parent passes first, then the surviving parent shall be guardian of the infant, either alone, or (subject to objection by the surviving parent) jointly with any guardian appointed by the deceased parent.

An alternate situation may occur if both parents appoint the same guardians. In such instances, the guardians, after the death of the surviving parent, are required under section 7(5) of the GIA to act jointly.

If, there should be a dispute between the joint guardians, then any of them may apply to the High Court or a Family Court for that Court’s direction under section 8 of the GIA. Such Court also has the power under section 10 of the GIA to remove any guardian from guardianship and appoint another guardian in his/her place. In exercising such power, the Court is to have regard to the welfare of the infant and shall, where the infant has a parent or parents, consider the wishes of such parent or both of them.

At the end of the day, and as set out in the Singapore Court of Appeal case of Re C (an Infant) [2003] 1 SLR (R) 502, there exists an “overriding power of the court, in exercise of the jurisdiction conferred under the Act of either removing that parent as a guardian over the child, if it is established to the satisfaction of the court that it is not in the welfare of the child to be in the custody, care and control of that parent, or appointing another person as an additional guardian to act jointly with the surviving parent”.

As the cardinal principle is succinctly encapsulated at section 3 of the GIA, the welfare of the infant is to be the first and paramount consideration.

Absence of an executor

In drafting a will, one is often advised to consider every possible situation conceivable so that the “what happens now?” situation does not arise. For instance, what if one’s husband perishes in a common accident? What happens if one’s children who inherits the house do not agree on what is to be done with it? What happens if one’s child loses his mental capacity?
What happens if one’s executor rejects the appointment? Even if one appoints alternate executors, the question may still arise. What if (even) my alternate executor renounces his right to act as such?
There are several reasons why there may be no executor to administer the estate:
(a) No executor is appointed by the will;
(b) The executor(s) appointed are legally incapable of or have renounced the right to act as such;
(c) No executor survives the testator (i.e. the person making the will);
(d) All the executors die before probate is obtained or before the estate is completely administered; or
(e) The executors appointed do not appear and extract probate.
Pursuant to section 13 of the Probate and Administration Act (Cap. 251) (the “Act”), on the failure of appointment of an executor in the situations set out above, the Court may grant letters of administration to person(s) which the Court deems fittest to administer the estate (in accordance with the terms under the will).
In this regard, the Act also sets out an order of priority of right to a grant:
i. The sole beneficiary of an estate or a beneficiary who receives the residuary estate under the will.
ii. If the beneficiary described in (i) above is deceased, the legal personal representative of that (deceased) person
iii. Such person or persons, being beneficiaries under the will, as would have been entitled to a grant of letters of administration if the deceased had died without a will.
iv. A beneficiary having a beneficial interest.
v. A creditor of the deceased.
Regardless whether the priority of right described above is acceptable (or even ideal) to you, we would recommend that thought be nonetheless given to who one’s executor should be, and at least who the alternate executor should be in the event that the first appointed executor is unable to act, for whatever reason. This would remove the stress and anguish that one’s loved ones may otherwise have to be confronted with having to (possibly) appear in Court for an application for the letters of administration. Needless to say, please also obtain the appointed executor’s agreement to act before penning down his or her name so that he or she can be prepared for the duties and responsibilities well in advance!

Rights of a beneficiary under a will

There is no dispute that wills are generally regarded as documents of a private nature. Unlike in the movies where the deceased’s lawyer comes to the house to read out the gifts made under the will, there is generally no requirement for anyone to do so.

You may have been told by your late mother before she passed that your family home was yours to inherit. But she did not name you executor of her will, nor are you aware of the terms of the will. You only know that you are to receive a part of her estate, and that your uncle was made executor of your late mother’s will. Unfortunately, you have not always been on good terms with your uncle. Could it be that he is delaying the process to prevent you from receiving what is rightfully yours?

If asking the executor is a futile exercise, what are your entitlements as a beneficiary? Are you entitled to a copy of the will?

Notwithstanding the (generally) private nature of wills, the will becomes a public document after it is filed in Court. By way of background, before the executor is entitled to administer the deceased’s estate, the executor must file an application in Court for the grant of probate, which requires, amongst other things, the executor to file the will.

In this regard, since the will becomes a public document, beneficiaries may apply to Court to request for inspection of the will. This may involve the filing of a sworn (or attested) statement by you of your knowledge of the existence of (and details of) the will.

However, please note that this does not automatically mean that the will will be made available for your inspection. Whether or not the Court grants the application will depend on the circumstances. Generally, if there is strong evidence to show that you are a beneficiary under the will or are otherwise entitled to the estate, the more likely an application will be granted.

Can I be an Administrator?

Our sincere condolences if you have just lost a loved one.

What happens now? To your knowledge, there is no will (and therefore no executor appointed), and you have been told that your loved one’s estate will be distributed according to the Intestate Succession Act (Cap. 146) (the “Act”).

But who will administer the division of assets?

Generally, the persons who are entitled to apply to be appointed as administrator of the deceased’s estate (and are granted with the letters of administration) are the persons who are entitled to receive distributions under the Act, i.e. in the following order of priority:

  1. spouse;
  2. biological or legally adopted children;
  3. parents;
  4. brothers and sisters;
  5. nephews and nieces;
  6. grandparents; and
  7. uncles and aunts.

What if the persons ahead of you in the list are still in grief, incapable of administering the estate, or are simply not interested in doing so?

Even if you do not have the highest priority in the order above, you may still be appointed as administrator if you obtain the consent of the beneficiaries who rank more highly in the list than you. Their consent, however, should be recorded in writing and attested (i.e. signed under oath).

Please let us know if you require our assistance.

Who should be my executor?

Technically speaking, anyone of sound mind above the age of 21 (and who is not a bankrupt) can be your executor.

Briefly, an executor is the person responsible for carrying out your wishes as set out in your will in the event you pass on. Their duties typically include making funeral arrangements, applying to Court for a grant of probate to allow them to start distributing your estate, locating your assets, settling any debts which you may owe and distributing your assets per your wishes under the will. Considering the duties of an executor, you would probably prefer to pick someone who you know personally and whom you trust. Crucially, a close relative or friend will often be in the best position to know you and your wishes well, as well as being fond of your beneficiaries.

That said, what happens if after your death your executor decides to reject his or her appointment? Particularly at a time of mourning, being faced with various administrative responsibilities and possibly a court appearance may be seen as burdensome and stressful.

A possible solution could be to alternatively, or in addition to your relative/friend, appoint a professional executor to guide your personally appointed executor through the process and/or to take charge of the more complex administrative duties. This will prove particularly useful in situations where more complex legal matters arise such as where it may be likely that relatives challenge the will (where they are intentionally left out without their knowledge), where assets are located overseas, or where there are trust instruments involved.

Please let us know if you require our assistance.


Food For Thought: Can Frequent Flyer Miles be inherited?

I came across an interesting question the other day. Can one will away one’s air miles?

Odd as it may seem, with the increased utility of air miles as the equivalent of “cash” in modern times, could air miles be considered personal property such that a person was entitled to bequeath them to another upon his demise?

After all, air miles today are not simply a currency to redeem air tickets, but can often be used for, amongst other things, in-flight purchases, or conversion to cash vouchers for groceries! Since air miles are (almost) as versatile as traditional currency, and if converted to personal property would be in a form fit to be bequeathed as inheritance, what is stopping air miles from being bequeathed in their original form?

Though air miles are “crypto-currency”, they are fundamentally borne out of airline membership programmes. Therefore, the rules governing the use or transfer of air miles will typically be found within the terms and conditions of that membership programme.

In respect of our national carrier’s membership programme, KrisFlyer, having reviewed the Terms and Conditions of the KrisFlyer programme, it seems that the question has already been duly considered. The relevant clause is set out below:

Membership will terminate immediately upon death of the member. Miles and rewards earned but not redeemed at the time of death, as well as benefits and privileges, will be automatically forfeited on the death of the member. Miles and rewards do not constitute personal property and may not be bequeathed or otherwise treated as personal property.

So the answer, insofar as it relates to KrisFlyer miles, is clear: KrisFlyer miles cannot be inherited.

Better redeem those miles quickly!

Caveat: We should mention that our observations above are subject to any changes which may be made to the terms and conditions of the airline’s rewards programme.

Old technology, but new age of wills?

With the world talking about the movement into a paperless digital age, cryptocurrency and blockchain technology, the technologizing of wills is still up for debate.

As written earlier, the proposal that text messages be accepted as a medium for wills was rejected by the United Kingdom’s Law Commission.

On the contrary, the Supreme Court of Queensland has in October 2017 accepted an unsent, draft text message on a dead man’s mobile phone as an official will. While we emphasise that the text message was unsent and in draft form, the Court there made some useful comments as to the amount of evidence which they needed to be satisfied that the deceased drafted the text message as a will. This included, amongst other things, the wording of the text message, e.g. the use of the words “my will”. The deceased also made clear references to his house and superannuation, while specifying that his wife was to take her own things, all of which indicated that he was aware of the nature and extent of his estate.

While we cannot comment substantively on Australian law, we understand that the law in Queensland was changed in 2006 to allow less formal types of documents to be considered as a will. We also understand that in Australia there has generally been movement away from strict compliance to traditional will formalities.

Further to the foregoing, while there seems to be a divergence in views (i.e. between English and Australian law) as to whether wills by text can be accepted, given that there has yet to be any legislative change in Singapore similarly allowing less formal types of documents to be considered as wills, it is unlikely, in the event someone tries to apply for a grant of probate in Singapore using an ‘unsent, draft’ text message as a will, that that unsent draft text message will be recognized as a will.

That said, if you would like to draft a will, take note to ensure that the formal requirements are met. This includes, inter alia, signing the will in the presence of two witnesses (both of whom should not be beneficiaries under your will).

Wills by Text

WARNING: Morbid description

Imagine, god forbid, that you are involved in a serious car accident, and help is too far away. At that point, you know you would not be able to make it back home alive, but you want to ensure that your assets are passed on to your loved ones in a specific manner, for instance, your grandmother’s wedding ring is to pass to your eldest daughter, and your holiday home to your brother. But you have not yet made a will to that effect.

Under Singapore law, strict requirements must be complied with in order for a will to be valid. For one, every will must be signed at the end by the testator (or by some other person in his presence and by his direction) in the presence of two witnesses present at that time.

Taking a step back, what if, hypothetically, you could, draft a valid will by way of text message, or, dare I say, by voicemail?

This is precisely what has been proposed by the Law Commission in the UK earlier this week. Armed with a warning that the current legislation on wills is out of step with the digital world and puts people off writing a will, the Law Commission has proposed that text messages, emails and voicemails be considered legally binding records when dividing deceased’s estates. If accepted, this would no doubt rock the world in an overhaul of the pre-existing Victorian laws on wills.

While this proposal is a breath of fresh air in the midst of old laws generally (and gives effect to people’s wishes particularly in situations of emergency), it may create more problems than it solves. At the outset, are these digital memos verifiable? To elaborate, can one conclusively say that the testator was the person creating and/or sending the voicemail/text message? What if there are no witnesses to the act?

The Law Commission has, in this regard, proposed that judges be empowered to decide on the balance of probabilities whether the recording or note is an accurate summary of that person’s wishes. But if the issue is commonplace, would that then not give grieving families more grief, since any ambiguity (where so challenged) will be conclusively decided by an outsider?

At the end of the day, while it may well be time to overhaul the Victorian laws on wills (including the Singapore Wills Act), it cannot be adequately stressed that safeguards must be put in place to ensure that the distribution of an estate goes smoothly without having to put a grieving family through more pain.

Update: The English government has rejected the proposal that the laws surrounding wills be changed to allow people to send wills by text message, citing reasons of potential fraud and exploitation. In light of the numerous practical difficulties associated with the proposal, we would tend to agree with their decision, at least until adequate safeguards against the risks of fraud and/or exploitation are put in place. Stay tuned!