Tax Planning for Singapore
Is Singapore the Best Jurisdiction for Trusts?
The Singapore Trust model – Enacted in 1967 but updated in 2005. A strong contender to New Zealand as strengths are similar but NZ’s is newer. New Zealand’s Trust Act was last updated in 2019. The new Act, which came into effect on January 30, 2021, makes a number of significant changes to the law of trusts in New Zealand. Weaknesses of Singapore’s trust law include –
- Firstly, HNW families wish to put in place succession plans which may be multi-generational. In most of the sophisticated trust jurisdictions the Rule Against Perpetuities has been abolished, and this includes Hong Kong. Whereas in Singapore the Rule Against Perpetuities remains and the trust period cannot extend beyond 100 years.
- Secondly, for the HNW families seeking long term and potentially multi-generational structures, many are establishing a Private Trustee Company (PTC) to act as the Trustee of their family trusts. The PTC is particularly attractive to families in Asia, as it allows families who are accustomed to being in control, to retain control of the Trustee (by in effect being the trustee). The problem with a PTC is that there must in turn be an owner of the PTC itself, and the succession of the owner must be managed. The simple solution to the PTC ownership is to utilise a specialised form of trust called a Purpose Trust. The principal advantage of a purpose trust is that unlike other forms of trust where there are Beneficiaries and where the Beneficiaries have enforcement rights over a trustee, a Purpose Trust does not have Beneficiaries, and the solution to enforcement rights (which is a requirement of a trust) is handled by a party called the Enforcer (which will typically be a committee of family members with appropriate succession rules as to how to maintain this governance feature in the long-term). The Enforcer has the ability to exercise some controls over the Trustee of the Purpose Trust (which is usually the regulated Trust company which is required for regulatory/AML purposes to administer PTCs). So, in the perfect world, a simple solution: Singapore Purpose Trust – Singapore PTC – Singapore Regulated Trust Administrator – Singapore Trusts – Singapore Bank and Custodial Accounts – Singapore Trading Companies – the potential is for the entire eco-system to be located in one high quality jurisdiction. However! The Singapore Trustee Act does not allow for the use of Purpose Trusts.
- The third issue is that for HNW Families it is vital that the Trust, and the structure it relates to, can stand up to scrutiny and attack. To attack a Trust on behalf of a creditor client, the first thing a good Barrister is going to look at is to see if he/she can prove that the Trust is invalid and does not exist, and one of the best ways to do this is to show an abuse of power by parties to the Trust such as Settlors, Protectors and Beneficiaries which would invalidate the trust. Whilst the Singapore Trustee Act deals with investment powers fairly explicitly, it does not have robust language as it relates to other powers of the Settlor or Protector such as the power to revoke, vary or amend, add or exclude beneficiaries and consent to trustee’s actions. If this detail is not included in the Act, then the Singapore Courts are placed in a quandary as it relates to litigation – if the law is not explicit, then the basis of Common Law is to look for precedent under the Common Law system elsewhere, the most obvious choice being the United Kingdom, and it is apparent from litigation occurring elsewhere that interpretations and means of attack are evolving. The answer to this is to make the Singapore Trustee Act far more explicit as it pertains to reserved powers which will then ensure that a confused and uncertain situation does not result, and will no doubt be a relief to the Singapore Judiciary.
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