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.

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.


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.

What is a Trust?

What is trust - Incisive Law

A trust is created upon the transfer of assets (“the trust property”) by the settlor to a person (“the trustee”) on the basis that the trustee shall hold the assets for the benefit of other people (“the beneficiaries”).

The trustee is now the legal owner of the assets and has a fiduciary obligation to act in the best interests of the beneficiaries.

What is a Trust - Incisive Law

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The settlor can settle most types of property into the trust, although there are exceptions such as HDB flats and CPF funds, amongst others. The trustee has management control of the trust property but it is the beneficiaries who are entitled to use and enjoy it.

There are two forms a trust can take. A fixed trust is one where the settlor has already allocated the proportions of benefits each beneficiary gets, with no discretion available to the trustee, while a discretionary trust is one where the trustee is granted the power to exercise discretion with respect to which beneficiaries benefit under the trust and the amount they get.

The benefits of a trust arrangement over a will are listed below.

Avoidance of Probate

Probate is the name given to the court document which certifies the authenticity and validity of your will and confirms the powers and authority of your appointed executors to administer your estate. It is compulsory to produce this document to be able to sell and transfer the deceased’s assets. This can be burdensome and inconvenient as many assets will be frozen pending the completion of the process.

However, in a trust arrangement, in the event of the settlor’s death, the assets settled into a trust will not form part of the deceased’s estate. Hence probate is not required on these assets and disputes over the assets can be avoided.

Protection of Assets

A trust is a useful tool to protect your assets and preserve them for the use and benefit of future generations. As the ownership of the trust assets is with the trustee and not with the settlor, a trust structure can protect a settlor’s assets from the grasp of the settlor’s creditors. However, if you are made bankrupt within 5 years after transferring assets to a trust, your creditors will be easily able to unwind the trust and claim the assets toward satisfaction of the sums due to them.

Family wealth planning

If there is a need to provide for financially irresponsible family members, a trust may be particularly useful. The beneficiary’s interest can be made terminable on the occurrence of a certain event, such as the beneficiary’s insolvency, at the trustee’s discretion.

Whether or not a trust or a will is more suitable for you depends on your individual concerns. We will be happy to sit down and discuss your options with you. Do drop us a message here.