Singapore: A Trust Companies Overview

Hedging Jurisdictional Risk: Singapore’s Case for Being a Jurisdiction of Choice for International Families

Singapore offers a stable and well-respected jurisdiction hedge upon which long-term structures can be built to ensure that family capital remains safe. As a result, wealth anchored within a Singapore framework is becoming an attractive option for families considering their options. In an increasingly uncertain world, there are many types of risks that may have an impact on a family’s wealth. For families with cross-border footprints, such as a business in one country, family members being educated in another, and capital being deployed across a third jurisdiction, the geographic location of their assets may be a risk factor in itself, independent of how well any asset performs from an investment perspective. This is because the value of a family’s assets is vulnerable to these countries adopting different legal, political and fiscal policies. The past few years have made potential concerns around such developments impacting a family’s wealth no longer merely theoretical for them, particularly as they witness changes occurring faster than the family can respond to them. To counter this vulnerability, families are pursuing a strategy of jurisdictional risk diversification, particularly from the vantage point of the structures holding their wealth. Singapore is emerging as a leading jurisdiction of choice for wealth planning structures, in part, due to its stable rule of law, reputation for high regulatory standards, wealth planning structuring options, and tax regime.

Judicial independence combined with racial and religious harmony

For Singapore, its reputation as a stable nation is a foundational asset. Its independent judiciary is respected for its consistency in enforcing legal rights and contractual arrangements, providing legal predictability to families considering a Singapore-based legal structure. In addition, as a multi-racial and multi-religious society, ensuring continuing racial and religious harmony remains one of the key priorities of the government. Such features work together to create confidence that wealth-holding structures in Singapore will be subject to established principles rather than shifting priorities. Just as important to families, from a reputational perspective, is what Singapore is not: it is not an underregulated country trading on light-touch supervision.

The role of the Monetary Authority of Singapore

Professional trustees operating in Singapore are supervised and licensed by the Monetary Authority of Singapore (MAS). The MAS imposes meaningful capital adequacy, competency and strong anti-money requirements on professional trustees assisting families with their wealth-planning structures. For example, there is a prescribed method for calculating minimum thresholds for professional insurance of trust companies, which ensures that a trustee’s insurance coverage levels are tailored to the actual business of the trustee. The MAS is also an engaged regulator, looking to understand developments and difficulties being experienced within the wealth management and trust industry in Singapore, as well as providing clear guidance of its expectations around the activities being carried out by institutions supervised by MAS. The high standards required of Singapore professional trustees from a regulatory perspective mean that the onboarding of clients and assets, particularly around the corroboration of source of wealth and funds information, is genuinely rigorous and families may sometimes find it demanding. However, this same rigour provides Singapore wealth planning structures with reputational credibility in dealing with banks and other counterparts around the world. This is crucial, as a key consideration when hedging jurisdictional risk is ensuring that structures will be accepted across the world due to assets, business and family members being located across multiple jurisdictions.

The private trust company framework

While family members may be outside of Singapore, Singapore law also provides avenues for families to retain influence over their wealth planning structures such as trusts without undermining the integrity of these structures. In particular, Singapore’s private trust company framework allows a family to establish its own dedicated Singapore trustee entity to act as a trustee of the family’s trusts. For assets of special meaning to a family, such as a business founded by a family member, this approach allows the family to separate legal administration of the structure (with decisions running through the trustee as a separate legal entity) without excluding family judgement from being applied to the assets. Families preferring to establish a private Singapore trust company are required to engage a licensed Singapore trust company to assist the family’s private trust company in complying with its various regulatory obligations under Singapore law. Alternatively, other families prefer to engage a professional trustee to act as the trustee for their trusts and, if appropriate for their circumstances, for individuals to retain defined rights or powers under the terms of the trust. These reserved decision-making powers can include reserving investment decisions in respect of trust assets to the settlor of the trust.

A well-regulated tax environment

In addition to options being available for families to retain influence over their wealth planning structures, Singapore’s attractive and well-regulated tax environment is an important consideration for families. Singapore has a territorial tax regime and does not impose gift or wealth tax. Trusts and certain asset-holding vehicles may be structured to satisfy certain conditions that allow them to receive the benefit of income tax exemption regimes under Singapore law, such as through a fund vehicle that is managed by a Singapore-based single family office or a Singapore institution with a capital markets licence. These regimes continue to be reviewed and enhanced by the Singapore government. Furthermore, Singapore maintains an extensive network of double-tax agreements that are often valuable for international families. Such features work together to make it attractive for wealth planning structures to have proper substance in Singapore.

Long-term certainty and practical flexibility

For families whose wealth, residence or business interests span more than one country, jurisdiction diversification using Singapore-based structures has become an important part of their wealth structuring. When choosing a jurisdiction to hedge risk, a family needs to feel confident that their wealth holding structures will be administered and interpreted in accordance with established principles rather than shifting priorities. The jurisdiction should be selected independently of where family members may choose to reside and without sacrificing operational agility. Against this backdrop, Singapore is an attractive jurisdiction for families seeking both long-term certainty and practical flexibility in the stewardship of their wealth.