THE trust structure has increasingly gained traction with Singaporeans as a wealth planning tool in the last 10 years.
Experts believe this is because of a greater awareness of the need to plan for the inter-generational transfer of family wealth.
Mr Ronald Choo, a trust practitioner and partner at Rajah & Tann's private client services group, said his firm has noticed a substantial rise in the number of trusts being established and administered in Singapore.
However, he said the foreigners setting up trusts still greatly outnumbers the Singaporeans.
Trusts are also used for a variety of reasons including tax planning purposes. But Ms Dawn Quek, senior associate at Baker & McKenzie.Wong & Leow's tax and wealth management practice, said that because Singapore has a relatively benign tax regime for individuals, tax is not a major driver for Singaporeans in setting up a trust.
She said wealthy families who set up trusts tend to be motivated by other considerations. For example, they want to ensure a smooth transition of wealth and businesses to the younger generation while retaining some element of control.
Asset protection is another consideration, especially at the wealth creation stage when businesses have high levels of debt.
A typical trust adopts this structure: The person who establishes the trust, or the settlor, signs a trust deed with the trustee. The deed also identifies the beneficiaries.
The trustee is the person who will hold, manage and disburse the funds and assets that are put into the trust, according to the terms and guidelines set out in the deed.
One advantage is that the trust structure is highly flexible and can manage different objectives.
Typically, parents set up trust structures for their children to ensure that in the event of their own untimely death, the children's needs will be provided for, and the family's assets can be distributed to them progressively at appropriate ages. Settlors can also put their business into a trust, to ensure the operating business can be kept intact as the generations move on.
Mr Ong Sim Ho, director at Drew & Napier and head of the firm's tax and private client services group, said that by divesting ownership of the assets to the trustee, the settlor legally ring-fences the assets from future threats.
'For example, assets ring-fenced in a trust for an adult child will ensure that these assets are insulated from any future matrimonial disputes he may have,' he said.
Average people have shied away from setting up trusts, given the costs involved, which may be prohibitive, especially if the settlor's pool of assets is not large.
Before deciding on whether to set up the trust, a cost-benefit analysis should be done to see if the benefits or convenience of the trust outweighs the price to pay.
The set-up fee for a simple trust is about $3,000 to $5,000. For complex structures that span many different jurisdictions, it can be several hundred thousand dollars.
Mr Francis Goh, head of wealth planning at Harry Elias Partnership, said the annual costs vary depending on the asset amount and the choice of structure.
Mr James Aitken, managing director and head of private wealth solutions South Asia, HSBC Private Bank, said the administration is then carried out by the licensed trust company, which continues to keep in touch with the settlor to make sure the trust continues to meet his intentions.