What is a trust?

Under the laws of Singapore, a person who owns a thing (“property”) is said to have an interest in it. This “interest” in property can further be divided into a legal interest and an equitable interest. In this article, we seek to clarify the concepts of legal interest, equitable interest, and trust.

To have a legal interest in a property means that, under the black-letter laws, a person owns that particular property. This is the case in circumstances where, for example, a house is held in the name of a certain person (the registered proprietor). This certain person is the legal owner and possesses a legal interest in the house.

To have an equitable interest in a property means that while a person may not be the legal owner of a particular property, he or she may have a beneficial interest in the property.

A legal interest is enforceable against the whole world. In contrast, an equitable interest generally cannot be enforced against a person known as equity’s darling – a bona fide purchase for value without notice.

Of course, in most situations, property interest in a thing resides in a person or entity as a single interest, without separation into a legal or equitable interest. For example, where a consumer buys a consumer product (e.g. a bar of soap) without any instance of fraud, or without intending to hold it for the benefit of someone else, the property interest in the bar of soap vests in that consumer, being the both legal and equitable owner of a bar of soap.

A common situation in which the legal interest separates from the equitable interest is where a property is held on trust for a beneficiary – the trustee is the legal owner of the property, while the beneficiary is the equitable owner of the property.

What is a trust?

A property is said to be held on trust (by a trustee) for another person (the beneficiary) where the trustee is made the legal owner of the property, but the beneficiary is the person intended to benefit from the trust (and the property) and the beneficial or equitable owner of the property. As such, the trustee manages the trust property for the beneficiary. The person who creates this trust relationship is known as the settlor and maybe the same person as a trustee.

Of course, the trustee is not given free rein to do whatever he wishes to the trust property. A trustee owes a beneficiary certain duties, including the duty to exercise reasonable care and skill in the discharge of his powers, to exercise his discretion properly, and to adhere to the terms of the trust instrument.  

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Due to the features of the trust relationship are commonly used for the following purposes:

  • Estate planning – via a testamentary trust for assets to be distributed by the trustee after your death;
  • Preventing & protecting against depletion of assets – since only the trustee has the power to manage the property;
  • Charitable purpose – to ensure that the trust property is used for the specified charitable purpose;
  • Tax savings – trust structures may face lower taxation rates in certain jurisdictions, as compared to other financial structures.
  • Elements of a trust
  • Several requirements must be met in order for a trust to be formed. These are the three certainties. A trust must also be constituted by either a transfer of trust property or a declaration of trust. Statutory provisions regulating the creation of trust must also be complied with. The settlor must also have the requisite legal and mental capacity for the trust to be validly created.

The three certainties

  • Certainty of intention – the settlor must have had the intention to create the trust obligation;
  • Certainty of subject matter – the trust must be created over specific property; and
  • Certainty of object – trusts must usually be created in favour of legal purposes, with the exception of purpose trusts.

Powers of the trustee

The Trustees Act, and common law principles set out the regulations relating to the operation of trusts and trustees. The powers of a trustee depend on the specific terms of the trust instrument. For example, a trust instrument may give the trustee the power to direct trust funds to funding a beneficiary’s education, or may authorise the trustee to invest in certain financial products.

How We Can Help You

A trust structure may serve a variety of purposes, ranging from estate planning, to ensuring that an errant child does not deplete the family fortune.

If you think that you would require a trust or would like to know more about how a trust could be used for your purposes, please consult Lions Chambers LLC.

Lions Chambers LLC is an established law firm in Singapore. Our team of lawyers specialise in various areas of law and will be able to assist you. Our consultations are free. Please call +65 8777 3677 or click here to WhatsApp us today.