In Singapore, a house is often more than just a home; many also see property acquisition as a form of long-term investment. From this perspective, parents may be interested in the question of “how to purchase property for their children.”
Although a child (i.e., a person under 21 years of age) does not have the legal capacity to own property in their own name, their parents can still purchase property for the child by way of a trust. By doing so, the child can be the beneficial owner of the corresponding property.
This article explains what it means to hold property “in trust” in Singapore, the legal implications, and the practical effects of doing so.
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New Additional Buyer’s Stamp Duty Regulations
From April 27, 2023, all transfers of residential property into a living trust will be subject to a 65% Additional Buyer’s Stamp Duty (ABSD).
The ABSD must be paid at the time the residential property is transferred into the living trust, but eligible trustees may apply to the Inland Revenue Authority of Singapore (IRAS) for a refund.
The three conditions for applying for a refund are:
1) All beneficial owners are identifiable individuals;
2) The beneficial ownership of the residential property vests in the beneficial owner at the time of transfer;
3) The beneficial ownership cannot be further divided or revoked, or be subject to any subsequent conditions.
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What Does it Mean to Hold a Property “in Trust” for a Child?
When parents hold a property “in trust” for a child, they remain the legal owners of the property, while the child becomes the beneficial owner.
Simply put, the nature of the child’s beneficial ownership is an equitable interest, which is binding on almost all third parties, with one exception. If a bona fide purchaser acquires the property without knowledge that it is held in trust, the binding effect does not apply.
Ultimately, this means that unless a bona fide purchaser buys the property without being informed that it is held in trust, the child will have full ownership interest in the property.
Implications of Parents Holding Property in Trust for Their Children
When parents hold a property in trust for their child, any of their personal creditors are not entitled to claim the trust property to satisfy any debts owed by the parents.
Holding a property in trust also means that the parents are responsible for managing the trust property for the benefit of the child, such as paying relevant taxes, but any financial benefits derived from the property will belong to the child.
Furthermore, if any income is earned from the property, it is considered the statutory income of the trustee (the party managing the property) and is subject to income tax based on the total chargeable income.
If the beneficiary (i.e., the child) receives a share of the trust income to which they are not entitled, this share is not subject to a second round of income tax.
On the other hand, if the beneficiary is entitled to a share of the trust income under the trust deed, their share of the trust income will be assessed at their own personal income tax rate. At the same time, the trustee will not be required to pay income tax again.
Meanwhile, these beneficiaries will also be entitled to the same tax reliefs and benefits as taxpayers who are resident individuals.
What Can a Trustee Do with the Property?
The powers of a trustee are derived from the terms of the trust instrument, which specifies the trustee’s authority to deal with the property.
For example, a trust deed may stipulate that the trustee has the power to rent out the trust property to generate rental income.
The Trustees Act also specifically grants trustees certain powers, including the power to invest, insure, and maintain minors, as well as the power to advance benefits for the beneficiaries, but these powers only apply if they do not conflict with the terms of the trust instrument.
Can Any Real Estate Be Held in Trust?
While both HDB flats and private properties can be held in trust, establishing a trust over an HDB flat requires prior written approval from the Housing & Development Board (HDB).
When is Legal Ownership Transferred to the Child? Can This Be Specified in the Trust?
For a fixed trust, if the beneficiary has reached the age of majority, is not under any disability, and has an absolute entitlement under the trust, the trust can be terminated, and legal ownership will be transferred by all trustees to the child.
On the other hand, if the parents intend for the child to inherit the property at a later date, the trust deed should clearly state the age or occasion at which the child will inherit the property.
How Can Parents Protect Their Own Interests?
You can choose an alternative beneficiary to prevent the gift from failing in the event that a beneficiary predeceases you.
The Formal Legal Procedure for Establishing a Trust for a Property
A trust is established under the following circumstances:
- A trust deed is signed between the settlor (the person creating the trust) and the trustee (the person managing the trust, who can also be the settlor); and
- The asset is transferred into the trust.
When executing the trust deed, the settlor must decide on the key terms of the trust, which include:
- Who the initial beneficiaries are
- Who will be appointed as the trustee of the trust
- What powers, if any, the settlor wishes to retain
For the establishment of a property trust that does not involve a change in the beneficial ownership of the property (for example, where the child becomes the beneficial owner of the property at the time of purchase), the trust deed will need to be stamped with a fixed duty of S$10.
Parents intending to purchase a property in trust must pay the purchase price in full with cash. Central Provident Fund (CPF) money cannot be used to purchase a property in trust, and banks will not provide loans to parents for such purchases.
(Tip: If purchasing a new launch condominium, full payment is not required at once, as the payment schedule for new launches in Singapore follows the construction progress.)
To protect the interest in the property, a caveat can also be lodged on behalf of the child.
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Frequently Asked Questions
1. What is an identifiable individual beneficial owner?
An identifiable beneficial owner of a residential property held in trust is an individual who:
a. is identified in the trust deed or document as a beneficiary of the residential property; and
b. has, as a result of the trust, a beneficial ownership of the residential property that is not revocable, variable, or subject to any subsequent conditions under the terms of the trust.
2. I have submitted an application for remission of ABSD (Trust). What is the processing time, and when will I receive the refund if my application is approved?
Most applications will be processed within 2 months of submitting the complete information. If the application is approved, the refund will be made within 1 month of approval.
3. I have exercised an Option to Purchase (OTP) for a condominium unit and executed a Declaration of Trust to declare that I hold the property in trust for my child. Can I submit an application for upfront remission instead of paying the 65% ABSD first and then getting a refund?
No, under the Stamp Duties (Trusts for Identifiable Individual Beneficiary) (Remission of Additional Buyer’s Stamp Duty) Rules 2022, the ABSD chargeable on the instrument must be paid before remission can be granted.
Therefore, no remission of ABSD can be granted before the ABSD (Trust) is paid.
If the document is signed in Singapore, please stamp and pay within 14 days of the date of the document. If it is first signed outside Singapore, please stamp it within 30 days of its first receipt in Singapore and make payment before the due date to avoid penalties for late stamping.
4. If I plan to execute a will stating that my residential property will be held in trust for my children after my death, will this trust be subject to the 65% ABSD (Trust)?
ABSD (Trust) applies to any transfer of residential property into a living trust on or after May 9, 2022. A living trust is defined as a trust created by a person (the settlor) during his lifetime, and it excludes testamentary trusts (e.g., a trust created by a will, which takes effect after the settlor’s death).
Since the trust in this situation is a testamentary trust, ABSD (Trust) does not apply.
5. Can I get a loan to buy a property in my child’s name?
No.
6. Can a property purchased in trust for a child be used for a home equity loan?
No.
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