Wealth has been passed on for many generations and passed down through generations. However, the experience of the most wealthy families is often only three generations from shirtsleeves to shirtsleeves. According to statistics from the U.S. Federal Reserve, 70% of wealthy families lose their wealth after one to two generations, and 90% of them are lost after three generations. It can be seen that wealth protection and inheritance planning is very important for wealthy families but also requires a certain degree of heart and professional planning. In the past, Singapore’s tax environment was rigid and expensive, without family trust, and it was even more difficult for family trusts to be popular among the people. In the past decade, Singapore has taken a series of tax cuts and implemented a series of tax incentive measures. Family trusts have once again entered the legal field and presented business opportunities for various financial institutions.
In recent years, how wealthy individuals manage, protect, and transfer wealth among family members has become an issue of deep concern. Alverne invested more than 200 hours in 2018 learning and optimizing tools such as trust and estate planning and tax solutions to jointly tailor trust solutions for many customers. This is an exclusive high-value-added service tailored for family offices and high net worth individuals. This article outlines the highly sought-after requirements of high net worth individuals and different options for establishing trusts based on the needs of different wealthy customers.
Benefits of Private Trust Companies in Singapore
The formation of a trust with board members who are strategic long-term partners such as private trust companies (PTCs) and family members often provides a solution that is not cost-effective for licensed corporate service providers. The long-term relationships often necessitate extensive pre-transactional planning, establishing investment strategies, initial appointment of trust literature such as protectors, guardians, and startup terms. This preplanning activities fit well in the PTC structure as family members can share decision making with other professional advisors and service providers or provide decision making rights/criteria as to when they want to be involved in managing specific issues. The flexibility of co-directorship is extremely important to some settlor families when considering succession planning, as the family leaders might use the PTC structure as a succession planning platform to pass on skills and knowledge to the next generation family members. The role may, over time, be handed over to the family members who are becoming more involved.
The flexibility to custom tailor solutions. For example, a specific trust need might require provisions commonly incorporated in Singapore fly-in trusts, within the Singapore structure itself, for example, succession planning solutions for family leaders/entrepreneurs with foreign resident beneficiaries. Alternatively, the need might suggest the establishment of a completely new shared trust entity, which is managed on a collaborative basis by the family leaders and other stakeholders. The management and control hierarchy is then established within the entity’s operational structure, featuring different committees and participating in decision making on matters such as distribution of trust assets and remuneration of service providers.
Enhanced Privacy and Confidentiality
For reasons of privacy and confidentiality, the settlors of private trusts often prefer their underlying assets to be held in a jurisdiction other than that in which they reside. Given the worldwide cooperation where tax authorities could access each other’s tax records, we have seen under the Automatic Exchange of Information (AEOI) and Rule 110 in Singapore, even an innocent person could find themselves needing to provide explanations relating to the foreign-held assets, often being subject to suspicion or even guilt of malpractice. This is particularly relevant where the jurisdiction has a history of substance or legitimacy in the eyes of western tax authorities. Furthermore, there is difficulty in choosing the right jurisdiction. Given that various secrecy jurisdictions have shut their doors and impeded their previous “I Don’t Know Where It Went” systems, these IFCs, many regarded as parting with dirty money for sub-par transactions, then chased the low-hanging fruits that would service the changing regulatory demand.
Private trust companies, as their name suggests, are non-commercial administrators of trusts. However, it is more than that. The tailored nature of a PTC allows the settlor, that is the creator of the trust, to put additional restrictions, obligations, or stipulations on how the trust is to be managed or run. Given that a trust is an inherently confidential and private document, the additional layer offered by PTCs gives the family additional privacy and confidentiality, given that PTCs are highly discreet and confidential organizations used for the management of wealth for high-net-worth families. So, while a private company could be struck off the register and a family business could be exposed as it undergoes its title change, the trust document managed by PTCs remains confidential. However, any proposed new trust statute has to balance the desire for privacy by affluent families against transparency initiatives placed to combat corruption.
Flexibility in Tailoring Trust Structures
The PTC can be structured in a way that permits or tailors its role in the management of various aspects of the trust. For instance, the PTC could be structured so that it plays a key role, such as having a controlling interest in the underlying company from set up. The settlor may not possess the requisite expertise and the PTC’s broad powers can come to the fore by intervening with the distribution of income or assets or the management of the trust assets to the benefit of the underlying company. This not only serves to preserve the settlor’s underlying interests, but also empowers the PTC with the expertise and authority to ensure the continued success of the underlying company, enhancing the confidence and indispensability of the PTC. This, in turn allows the Settlors to convey their intention for the management of the underlying company, and preserves the underlying company’s viability and contributions to the settlor and addressees. With the right planning, a PTC can also extend to the Settlor’s for the wider community or benefit, ensuring the longevity and success of the family endeavour.
One of the main draws of employing a PTC in Singapore is that the entity is able to represent a trust or multiple trusts. This allows the settlors of a trust and their successors much flexibility in tailoring trust structures. Among the flexibility these structures allow for include the setup of discretionary, unit, charitable and purpose trusts. The ability for different trusts to share a common trustee also allows for effective succession planning. PTCs can also have wide general powers which allow to do anything that a natural person can do for the purpose of trust management and administration.
Efficient Wealth Management
By diversifying the client’s wealth portfolio, a trust body is delegated to prevent mismanagement of the assets by the successor. Efficient wealth management strategies provide discovery in five primary investment platforms available, namely equities, fixed investments, mutual funds, variable annuities, and defined benefit pension plans. A mutual trust business can serve as an extremely effective financial company. These companies manage assets on behalf of the interests of beneficiaries while specializing in trust, wealth transfer, and estate planning. With regular client prosperity programs, private trust firms help in fostering trust relationships with wealth and financial advisors. Client prosperity programs can include equity rewards, time reduction, planning and educating finance, training, networking events, and balanced designates strategic company referrals. The term “Succession Planning” refers to the process by which people of all levels plan for the succession of their clients, their business, and their assets. Experts from a private trust company ensure that the accumulation not only occurs for this generation but also for the transfers of wealth and values.
Managing one’s wealth is a complex and necessary task. Individuals require the insight, capabilities, and expertise of professional managers who are capable of providing personalized investment and financial advice to enable clients to preserve, grow, and eventually transfer their wealth to future generations by acting according to their needs. In addition, individuals need to manage and coordinate different wealth management services, products, and business offers from time to time. The types of services include wealth management, retirement planning, trust services, and insurance planning. All of these are important in order to facilitate individuals towards having a wealthy retirement.
Regulatory Framework for Private Trust Companies in Singapore
The advent of PTCs is a significant development which comes on the heels of a shift within client families, especially for those clients with increasing wealth sophistication and client-service demands who seek a more meaningful family governance solution. A PTC board can deliver services in a proactive and effective way that is typically not matched by the largely passive approach of banks when they are asked to provide a director to sit on the family’s council. More recently, wealth clients increasingly demand collaborative, thoughtful governance models and the PTC’s more tailored management structure is well placed to cater to the growing wealth market family office needs. Not only can a Singaporean PTC manage the family’s offshore trusts as part of its administration, it can also manage family foundations and businesses, further aligning an individual’s and family’s structures and needs with the more tailored trust solutions possible in the region. For the client, the use of a PTC whose operations and principal administration are carried on in Singapore gives the assurance that they are accessing private client services in a reputable and well-regulated jurisdiction that has appropriate corporate structures, operational controls, confidentiality laws and, often overlooked, business continuity measures.
Question: What is the regulatory framework for private trust companies in Singapore? The legality of a structure designed to benefit from Singapore’s financial landscape—yours may differ—is left to the professionals to discuss. However, the use of a Singaporean private trust company, or PTC, as a vehicle for overseeing an offshore client’s family’s wealth has brought a level of sophistication and service to sophisticated clients not obtainable with standard “either/or” tax approaches that have been written about for years. Relatively recent regulatory changes in Singapore now enable a Singapore-incorporated PTC to manage and administer offshore private family trusts with a more flexible regulatory environment without being subjected to the full range of regulatory requirements pursuant to the Trust Companies Act and to the MAS’ TRM for a Trust Company.
Monetary Authority of Singapore (MAS) Guidelines
Further, MAS’s expectations and guidelines for PTCs are established in a key set of basics. These are practical and comply with the principles for AML/CFT for trust companies, PTC risk management, and MAS notices. The objective of these guidelines and requirements is to offer standards for PTCs to avoid MAS risks. Therefore, PTCs in Singapore must be part of the families and able to perform frequent personal follow-up or family matters; therefore, external trustees are not seen by the family residents. With a wide range of customers with interests or multifaceted purposes, there are undoubtedly complex administrative structures. The fact of contemplating Singapore’s leading home advantage and historically individual family assets, it really provides exceptional trust solutions with private trust solutions. Not only do family members have the most personal affairs related to trust legislation, but they also want to ensure that their familiar events are strategically planned, although it is feasible to get approval for tailored trust purposes that emphasize the MAS guidelines. In addition to PTC’s PTC events that are essential in private trust countries, the manual creation process further explanations of the family’s particular convention and legacies, often in the leading juxtaposition with PTCs.
By way of its comprehensive approach, in Singapore, the Monetary Authority of Singapore (MAS) keenly understands the unique circumstances surrounding family dynamics and values to provide specific and tailored potential trust solutions through its guidelines. The guidelines on page V-X. This universally emulates international themes and ensures engagement, flexibility, and trust accountability.
Requirements for Setting up a Private Trust Company
Section II.C.1 on Security Measures sets forth the detailed requirements that a PTC must satisfy in order to receive the approval of the Registrar. They include the commitment at all times to maintain operating in Strait Street in Valletta, a fire safe or fire-resistant safe deposit box or other similar safe storage facility, separate and distinct from the premises where a private trust company carries out its trust business. Where the private trust company takes custody of a will relating to a trust, it is stated that the exploration facility should be the joint registered office of the private trust company and another licensed fiduciary company, or a joint registered office or entity in a member state or other third country recognized for the purposes of a cross-border money transfer, or a registered trust company, or a joint registered office or entity recognized for the purpose of a computer-to-computer money transfer. It must be authorized and regulated to provide trust and company services and shall be registered with the Financial Intelligence Analysis Authority in accordance with the provisions of the Prevention Act (CAP. 373).
The prerequisites for setting up a private trust company Singapore are the same as setting up a company. In addition, the approval of ACRA must be sought. The names of a private trust company may take the form of ‘Private Trust Company’ or ‘PTC’, with the former needing approval from the Registrar. Depending on the type of activity permissible to be conducted by the PTC, which would most likely be limited to acting as a trustee of trusts in favor of related corporations, certain relevant key stakeholders would be required to attain minimum standards of competency as outlined in MAS Guidelines, Notices, or Guidance Papers. If the PTC desires to engage in licensing-regulated activities typical of licensed trust companies, then there would be further requirements applicable, and the PTC must either apply for a trust company license personally or explore other options present in the legislation, such as a licensing exemption.
