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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.

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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.

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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.

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Will the state take all my money if I pass away without a will?

In most situations, this is nothing more than a myth. If one dies without a will, your assets (including your money) will be distributed to your legal or biological next-of-kin surviving you under the Intestate Succession Act (the “Act”). Under the Act, the following persons may be entitled to share in the distribution, under the rules prescribed therein:

  • Spouse
  • Legal or biological child
  • Parent
  • Brother/sister (or if deceased, their children)
  • Grandparent
  • Uncle/aunt

Only rarely, in cases where there is no will and no distribution is possible as there is no next-of-kin as set out above, will the deceased person’s assets be distributed to the state.

Separately, we specify “legal or biological next-of-kin” because, under the Act, only biological or legally adopted children are entitled to claim against their natural parent’s estate. A “child” as defined under the Act does not include step-children, nor does it include persons who are not legally adopted.

In this regard, if you have step-children or children who you have long treated as your own (but did not legally adopt) and you wish your assets to pass to them on your death, we strongly advise that you create a will to provide as such. The law will not otherwise recognise their entitlement to your estate, no matter how the evidence may point to the presence of a paternal/maternal bond between you and them.

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Debts – Death will not part us

Debt and death may seem to bear some (albeit sinister) familiarity or harmony. But this is not one of those “till death do us part” situations.

Should the deceased have personal debts which have not been settled (before he kicked the bucket), the deceased’s estate will still be liable for such debts. Thus the debts do not pass to the deceased’s beneficiaries. The creditor may only make a claim for the debt against the estate; there is no claim against anyone else.  The only exception is when someone is jointly liable (with the deceased) for the debt, e.g. if a mortgage / loan was taken out jointly with e.g., a spouse. If the debt is owed jointly, then the surviving debtor will bear the full burden of paying it off.

Generally, creditors (e.g. banks if credit card bills are owed) will not write off the deceased’s debt unless his estate is worth less than the outstanding debt. If the debt is so small that the cost of recovery is greater than the debt, there is also a possibility that small debts will be written off. This of course will be on a case-to-case basis.

Although the beneficiaries under a will or the intestacy rules do not technically inherit the deceased’s debts, the end result is not very different in practice because the estate cannot be distributed until all the debts are paid.  In the case of a properly drafted will with a gift of residue (so that the entire estate is disposed of in the will) the residuary estate will be utilised first to satisfy the debts.  If that is not sufficient, the law lays down the order in which other portions of the estate may be utilised. If the deceased’s estate is insolvent, then the deceased’s funeral, testamentary and administration expenses will have priority.

There is arguably some tranquillity in death, but such unfortunately does not apply in relation to the deceased’s debts.

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I have property overseas, can I still make a will in my home country?

What happens to my foreign real property/land when I die? Some may say this is a first world problem, and it is hard to fault them. As real estate is typically governed by the law of the land, there may be conflicts of laws issues arising if, for instance, your will is governed by Singapore law while your property is located elsewhere.

Each jurisdiction has its own specific rules for dealing with real property (land) and how it is to be dealt with upon the passing of its owner. For example, Singapore’s Residential Property Act (the “Act”) is designed to restrict or at least control the extent to which foreign persons can own “residential property” (defined to mean, essentially, landed property and not, for example, condominiums). Under the Act, no residential property can be owned by or held on trust for a foreign person without getting appropriate permission from the authorities (this process has been facilitated in the case of residential property located in Sentosa, an island resort in Singapore).

If the owner of residential property passes away, leaving that property to a foreign person in his or her will, that foreign person is effectively prohibited by the Act from inheriting the property. Instead, the deceased person’s personal representative(s) must take steps to sell the property to a Singapore citizen or persons approved by the authorities within 10 years; the proceeds of sale will be passed to the foreign person designated in the will.

Who would have thought that owning property/land overseas would be such a hassle after death?

What can you do? First and foremost, before you make a will, you must remember to list out all your overseas assets carefully and inform your lawyer. Otherwise, notwithstanding that there is often a “catch-all” clause at the end providing for the rest of your assets, your foreign property may be ignored, mismanaged and squandered.

Additionally, depending on whether that foreign jurisdiction will recognise the Singapore will or whether the foreign jurisdiction permits the writing of two wills, you may wish to consider making two (or more) wills, each specific to where your assets are located. However, extreme care must be taken to ensure that the wills do not contradict (or worse, revoke) each other.

Unfortunately, there is no easy and fast rule on managing your overseas real estate nor is there a simple answer to whether a particular foreign jurisdiction will accept a Singapore will. Much will depend on which jurisdiction is applicable In this case, you may wish to appoint a foreign counsel to help you wade through these complicated waters.

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Planning for your stepchildren

5 common mistakes when writing a will

When a non-Muslim person passes on without leaving behind a valid will….

When a non-Muslim person passes on without leaving behind a valid will (or if the will cannot be located), that person is said to have died intestate and the distribution of that person’s estate is governed by provisions of the Intestate Succession Act (the “ISA”). The default rules under the ISA, however, often do not reflect the true intentions of the deceased person, particularly where the deceased had stepchildren to whom he or she wanted to leave his or her inheritance.

Let’s look at the case of Low Guang Hong David and others v Suryono Wino Goei….

This issue was explored in the case of Low Guang Hong David and others v Suryono Wino Goei [2012] 3 SLR 185 (“Low Guang Hong”). In Low Guang Hong, the plaintiffs were one Mr Low (deceased)’s children from his first marriage, and Mdm Lina (deceased)’s stepchildren. Mdm Lina was Mr Low’s second wife, and Mr Low and Mdm Lina had no children between them. Mr Low’s estate was bequeathed to Mdm Lina upon his death.

By way of further background, it was said that the plaintiffs were treated by Mdm Lina as if they were her own children, while an unsigned will apparently leaving Mdm Lina’s estate to the plaintiffs was found in her safe deposit box with a bank after her demise, no evidence was adduced as to how the unsigned will came about.

In Low Guang Hong, the plaintiffs sought a declaration that “child” under the ISA was to be interpreted to include a stepchild. In this way, the plaintiffs would be deemed to be Mdm Lina’s “children” under the ISA and they would then be entitled to Mdm Lina’s estate to the exclusion of her only brother, the defendant in the action.

Under section 3 of the ISA:

“child” means a legitimate child and includes any child adopted by virtue of an order of court under any written law for the time being in force in Singapore, Malaysia or Brunei Darussalam

However, after analysing the ISA and certain other statutes, including the Women’s Charter and the Maintenance of Parents Act, the Court refused the declaration sought by the plaintiffs. Detailed reasons for the Court’s decision are set out in the learned judge’s decision, but what we wish to highlight is this issue arising from not having a valid will, i.e. that the failure of intestacy rules to achieve the outcome that the deceased might have desired.

Since these default rules apply in all (non-Muslim) cases of intestacy, more likely than not, this one-size-fits-all approach results in a distribution that is unlikely to be what the deceased would have desired.

If it was true that the unsigned will was prepared by Mdm Lina (but it was ultimately not properly executed due to some unfortunate reason), it would have meant that Mdm Lina intended to bequeath her assets to her stepchildren on her death, and the rules of intestacy would not have achieved that goal for her.

 

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5 common mistakes when writing a will

5 common mistakes when writing a will

A will is your most important estate planning tool and one of the most critical documents you will prepare.

Erring on the side of caution would be prudent as a small mistake can have severe repercussions on your loved ones, crucially since you will not be around to rectify those mistakes. We have listed below 5 common mistakes to avoid when drafting your will, especially when you have decided to do so without professional help:-

1. Forgetting to update your will when your circumstances change

Under the law, marriage will revoke any will written prior to it, with a few rare exceptions.

A divorce, on the other hand, does not revoke an existing will, so it is important that you update/change your will accordingly to reflect your new circumstances, especially where you have given some part of your estate to your ex-spouse.

The birth of a child is also another situation which renders a review of your will necessary.

2. Omitting a residuary clause

A residuary clause is a catch-all clause that dictates how assets which are not accounted for are to be distributed. This is particularly useful in the event you are not distributing the entirety of your assets by way of specified percentages. A residuary clause covers the rest of your property that is not specifically mentioned in your will, such as those assets you have acquired after the making of the will. Without such a clause, you risk having property that is not covered by the will distributed by the rules of intestacy instead of according to your wishes.

3. Certain assets cannot be distributed through your will

CPF money does not form part of the estate and cannot be distributed by your will. In order to ensure that your CPF savings is distributed in accordance to your wishes, you need to make a separate CPF nomination under the CPF Act.

Property owned by you with another person under a joint tenancy will automatically devolve on the survivor regardless of anything stated in your will; although you can make provisions in the will contemplating the situation whereby your co-owner dies before you, rendering you the sole owner of the property, in which case you will be free to leave it to any person of your choice.

4. Not having 2 witnesses to your will

You need to have 2 witnesses at the signing of your will. Please note that the 2 witnesses must not be beneficiaries in your will, otherwise they risk losing their entitlements under the will. This legal requirement prevents any potential conflict of interests.

5. Failing to consider guardianship of children

You are able to name the guardian who will raise your children (under 21 years of age) in the event of your death in your will. You should choose any guardian carefully and make sure that they are willing to act. Where both parents of the child are still alive, they will typically have to come to an agreement about who is to be the guardian of the child. The guardian is not necessarily the executor, who is tasked with looking after your estate. Guardians and executors have distinctly different roles.
Should you have any questions about the drafting of wills, we will be happy to assist you.

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How is a will dealt with after a death?

Before any petition for a grant of probate is filed, it is imperative that proper inquiries be made as to whether a deceased person left a will.

Once it has been ascertained that the deceased person left a will, the executor can apply for a grant of probate.

What is a Grant of Probate?

A petition for a grant of probate is filed in the name of the executor where is a valid will and where an executor is duly named in the will. In furtherance of his duties, an executor has to furnish the relevant documents, which includes a certified copy of the specific will, to the courts to apply for a Grant of Probate. A Grant of Probate is a court order which gives the executors authorization to administer the estate of the deceased in accordance with his / her will.
Probate matters in the State Courts vs High Court
If the total value of the estate of the deceased person is below S$3 million, the application is made to the State Courts. If the total value of the estate of the deceased person exceeds S$3 million, the application has to be made to the High Court. Where the estate has less than S$50,000 in value, one can apply for the Public Trustee’s Office to act.

Documents required

Typically, it is advisable for the layman to engage a lawyer to manage the application process in view of the relatively complex set of documents required for the probate application.

The documentation required include but is not limited to:-

  1. Ex parte Originating Summons commencing an action in court in the name of the executor. Searches of both the record of caveats and record of probate applications will have to conducted on the day of the probate application. A probate caveat is a caution against the estate to prevent dealings in the estate without the knowledge of the person who files the caveat, typically in a situation where that person intends to challenge the validity of the will. A digital copy of the search report has to be attached to the Originating Summons;
  2. Statement in Form 51 of the Family Justice Court Practice Directions providing certain information in relation to the deceased, his Estate and the applicant(s);
  3. A certified true copy of the Death Certificate;
  4. A certified true copy of the will;
  5. The Administration Oath – the executor who is applying for the right to administer the estate has to give an undertaking to the Court that he/she will distribute the estate and effects of the deceased according to the will’s stipulations and to account for the same;
  6. Supporting Affidavit – The applicant’s Supporting Affidavit has to be filed within a given deadline (usually within two to three weeks from the filing of the Administration Oath); and
  7. Schedule of Assets – the Schedule of Assets has to be filed and exhibited in the Supporting Affidavit. This is essentially a list setting out the deceased’s properties in Singapore as at the date of death and his / her outstanding debts.

Once the above documents are filed, they will be examined. If everything is proper and in order, the Application for the Grant of Probate will be granted and the Grant of Probate can be duly extracted.
Should you require help with the execution of a will after a loved one has passed away, please feel free to contact us.

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INHERITANCE (FAMILY PROVISIONS) ACT & THE IFPA

A will may turn out the way one least expects it to, contrary to an expectation one may have had.

The general rule is that you can leave your property to anyone you want under your will. This encompasses electing to leave nothing to your family members.

However, in some situations, the will does not sufficiently provide for the welfare of the deceased’s dependants. The law therefore seeks to mitigate the harshness of a testator’s freedom to dispose property through the Inheritance (Family Provision) Act of Singapore (“the IFPA”), which was largely inspired by the United Kingdom’s Inheritance Act 1975 (“the IA 1975”).

IFPA offers a recourse to dependents who are inadequately provided for but only when extremely stringent conditions are met as the courts are cautious not to undermine testamentary freedom.

  • Firstly, only four classes of persons are considered as dependants for the purposes of the IFPA:
  • a wife or husband;
  • a daughter who has not been married or who is, by reason of some mental or physical disability, incapable of maintaining herself;
  • an infant son; or
  • a son who is, by reason of some mental or physical disability, incapable of maintaining himself.

It is noteworthy that illegitimate children are not entitled to apply under the IFPA.

Secondly, to highlight the strictness of the application of the IFPA, in APZ v (by his litigation representative MC) v AQA and another, the Court emphasized in 2011 that “the purpose of the IFPA is limited to the provision of reasonable maintenance; the legislation is not for the purpose of obtaining legacies out of the testator’s”.

The test of lack of reasonable maintenance, as noted by the Court, is completely objective and not subjective. Payments which facilitate the dependant’s ability to cover the cost of his or her daily living expenses at whatever standard which is applicable to him fall under “reasonable maintenance” but payments for luxuries would not.

More recently, on 15 March 2017, the IA 1975 in the UK was thrown into the spotlight when the UK Supreme Court in Ilott v Mitson [2017] UKSC 17 overturned a Court of Appeal decision and reduced the maintenance award to an estranged daughter by more than half. In doing so, the Supreme Court reiterated that the concept of maintenance “must import provision to meet the everyday expenses of living” and precludes furnishing the claimant with every resource which would be advantageous his or her quality of life.”

“must import provision to meet the everyday expenses of living” and precludes furnishing the claimant with every resource which would be advantageous his or her quality of life.”

Locally, in AOS v Estate of AOT, deceased [2012] SGCA 30, the testator executed a will which wholly excluded his surviving wife. On the facts, the surviving wife was the owner of several properties gifted by the testator of which she could collect monthly rental income from and was more than sufficient for her monthly expenses. The threshold of reasonable provision had therefore been met by the testator and the Court rejected stepping into the shoes of the testator to interfere with his clear and express wishes. The court reiterated that the discretion under the IFPA is one which should be sparingly exercised.
In deciding whether or not to make the maintenance order, the court will take into account several factors including but not limited to:-

  •  The dependant’s financial situation
  • The conduct of the dependant in relation to the deceased
  • The reason that operated in the deceased’s mind in not making provisions in the will

As such, one should be aware of the possible implications of the IFPA when making a will to avoid having the courts step in to provide for a disposition of one’s estate contrary to one’s intentions.