An Introduction to Trust Law in Singapore
TANG Hang Wu*
1

Characteristics of Singapore Trust Law1

1.1 Creation of a trust
Singapore, being a former British colony, inherited the common law legal system.
One of the unique features of the common law model is the dualism which isinherent in the legal system.

Common law legal

systems are largely

precedent-based and the precedents can be divided roughly by their origins, namely,
Law and Equity. Equity may be defined as a body of rules, principles and remedies
initially developed and administered in the English High Court of Chancery before
1873. Both branches of the law are historically distinct although both are now
administered by the same courts concurrently (see section 3 of the Civil Law Act(Cap 43, 1994 Revised Ed.) and section 26 of the Subordinate Courts Act (Cap 321,
2007 Revised Ed.)).

Another unique feature of the Singapore system is thatsyariah law applies to Muslims domiciled in Singapore with regard to theirinheritance (see section 111 of the Administration of Muslim Law Act (Cap 3, 2009
Revised Ed)).

Thus, it is possible for Muslims domiciled in Singapore to create

Muslim charitable trusts i.e. a wakaf in their wills.

All wakafs are administered by

the Islamic Council of Singapore (Majlis Ugama Islam Singapura).

This paper will

not explicate the principles governing wakafs.
One of the unique features of the common law system is the existence of a dual
ownership of property. Ownership of property can be divided into the following: alegal interest and an equitable interest. A legal interest is enforceable against thewhole world while an equitable interest is enforceable against the whole worldexcept for the bona fide purchaser for value without notice. For example, where the*Professor and Director Centre for Cross-Border Commercial Law in Asia, School of Law,

Singapore Management University. I am grateful to Rita Lam and Charlotte Gill from the SMU’s
Li Ka Shing Library and Carolyn Wee from NUS CJ Koh Law Library for assistance in locatingsome of the material relied on in this paper. For purposes of full disclosure, I am a director of
the Special Needs Trust Company which is discussed in this paper.
1

Some parts of this paper are adapted from the Equity and Trusts chapter written by the authoron www.singaporelaw.sg

1

property is held on trust, a trustee holds the legal title of the trust property, whereas
the beneficiary has the equitable interest in the trust property. It must be noted thatin matters of priority, the position might be decided by the relevant statute e.g. theLand Titles Act (Cap 157, 2004 Revised Ed.) will govern issues of priority with regard
to registered land. The duality of property ownership also enables the creation of
security interests such as mortgages, floating charges and fixed charges. Usually inthese security interests, the debtor is the legal owner whereas the creditor is theequitable owner of the property. The equitable ownership can be asserted as aproprietary claim if the debtor becomes insolvent. It must be noted that somesecurity interests must be perfected under the relevant statutory regime (see e.g.
Companies Act (Cap 50B, 2006 Revised Ed.).
This paper concentrates on the express trust. An express trust is a trust which isexpressly created to achieve certain desired consequences. The usual pattern of an
express trust is as follows: a settlor transfers trust property to the trustee on trust forthe beneficiaries and specifies the terms of the trust. A settlor may also declarehimself or herself to be a trustee for the beneficiaries.
1.1.1

Elements of a Valid Express Trust

The initial transfer of the trust property must comply with relevant formalities (e.g.
see section 7 of the Civil Law Act (Cap 43, 1999 Revised Ed) which requires a trust
in respect of immovable property to be manifested and proved in writing signed bysome person who is able to declare such trust. Apart from real property, there are
no formalities associated with the declaration of an express trust. In order to beconsidered a validly constituted trust, the `three certainties´ must be met (seeJoshua Steven v Joshua Deborah Steven and others [2004] 4 SLR(R) 216 at [12]).
First, the intention of the settlor to create the trust must be certain. Second, theidentity of the trust property must be certain. Finally, the identity of the beneficiaries
must be defined with some precision.
With regard to certainty of intention, it is not necessary to use the word “trust” tosettle a trust.

Rather, the focus of the inquiry is “whether it was possible andappropriate to infer an intention to create a trust by looking at evidence not only of
the alleged settlor's words and conduct, but also of the surrounding circumstances
and the interpretation of any agreements that might have been entered into” (per2

Menon CJ in Guy Neale and others v Nine Squares Pty Ltd [2015] 1 SLR 1097 at[58]).
The issue surrounding certainty of subject matter revolves around the question
whether the subject matter of the trust is defined with sufficient clarity. For example,
a trust fails if a settlor declares a trust over a ‘bulk’ of his or her estate.

Such a trust

is not valid because the subject matter is not described with sufficient certainty andthe court would not be able to enforce the trust.
regarded as invalid.

A trust over future property is also

Future property is property which the settlor does notpresently own but property which the settlor hopes he or she will own in future.

An

illustration of future property is property which the settlor may inherit in future.
Thus, if a person purports to declare a trust for certain beneficiaries over property
which he or she may inherit from his or her parents, this is not regarded as bindingon the person as there is no certainty of subject matter.

This means that even if theperson actually inherits the property in future, he or she is not obligated to settle theproperty on trust.

The fact that it is not possible to create a trust over future

property does not mean that the settlor may not transfer further property into thetrust after the trust has been created.
over an initially nominal sum.

It is quite common for a trust to be declared

Further transfers of property will then be made fromthe settlor to the trustee.
With the exception of a charitable trust, the general rule with regard to certainty ofobjects means that a trust must be declared for the benefit of identifiable legal
persons.

In Singapore, it is possible to declare a trust where the beneficiary is acompany (see Goi Wang Firn (Ni Wanfen) and others v Chee Kow Ngee Sing (Pte)
Ltd [2015] 1 SLR 1049).
A trust may be created by a contract between the settlor and the trustee.

In

Singapore, this is the common arrangement between settlors and professional
trustees.
An express trust may be a fixed or discretionary trust.

A fixed trust is a trust where

the shares of the beneficiaries are fixed from the outset.

In contrast, a

discretionary trust is a trust where the potential beneficiaries and their shares are
not fixed.

Instead, the trustee is given the discretion to decide on potential

beneficiaries and their shares.

A typical discretionary trust confers on the trustee a3

wide power of selecting potential beneficiaries from anyone in the world and thediscretion to determine the amount to be paid to each beneficiary.

This power of

appointment may be drafted as a general power, special power or hybrid power.

A

general power of appointment allows the donee to appoint anyone he or she wishes.
In contrast, a special power authorizes the donee to exercise his or her discretion infavour of a defined class of persons.

Finally, hybrid powers are powers which

entitle the donee to appoint anyone in the world except members of a specifiedclass.

In addition, the settlor might wish to include a protector i.e. a third party who

will have a role in the administration of the trust.

Typically, the protector is given

the power to veto or authorise a trustee’s action in certain matters. A pictorial
representation of the discretionary trust is shown below in Figure 1.
Power to vetoorDiscretionary

trustee’s action

Settlor

Letters ofwishesauthoriseProtector

TrusteeNon-binding

Discretion

expression of

to choose

wishesPower to add
Beneficiaries

beneficiaries

Figure 1
A common reason why a settlor might wish to declare a discretionary trust is that such atrust is able to cater to the settlor’s change of circumstances such as divorce, theaddition of new family members etc.

If the class of beneficiaries is drafted widely

enough, the settlor might even be regarded as a potential beneficiary through an
exercise of the trustee’s discretion. In addition to these benefits, the settlor may also
inform the trustee of his wishes from time to time through a letter of wishes as to theappointment of beneficiaries.

Although the letter of wishes is often drafted as being

non-binding, the settlor’s wish is certainly a factor which the trustee may legitimately
4take into account in exercising his or her discretion.

Thus, the letter of wishes gives

the settlor a degree of influence over the trustee’s exercise of discretion in theappointment of the beneficiaries. Due to its inherent flexibility, the discretionary trust is a
popular method of wealth transmission for high-net worth individuals.
1.1.2 Creation of trust by will
Besides a lifetime declaration, a trust may also be created by a will as long as itcomplies with the Wills Act (Cap 352, 1996 Revised Ed.).

There are reported casesin Singapore where a trust is created by a will (see e.g. Foo Jee Seng v Foo Jhee
Tuang [2012] 4 SLR 339).
1.1.3 Declaration of trust (self-trust)
While it is more common to ask a third party to be a trustee, it is also possible for thesettlor to be the trustee for the beneficiaries of the trust.

Outside real property, there

are no formalities associated with a declaration of a trust. For settlors who wish toprotect their assets, it is more common to use a discretionary trust and appoint a third
party to be the trustee.

Under a discretionary trust, it is possible for the settlor to bea potential beneficiary depending on the wording of the trust deed.

However, if thesettlor is meant to be the primary beneficiary, then the trust may be subject to attackby the settlor’s creditors or divorcing spouse (see HW Tang, “An Impregnable
Fortress? Possible Attacks on the Singapore Trust?” (2011) 25 Trust Law
International 66).
1.2 Fundamental structure of a trust
1.2.1 Trust property legally separated from trustee’s individual property
A trust is not regarded as a separate legal entity.

However, the conventional

understanding is that once a trust is declared over property, title to the property is split
into legal and equitable title. The trustee holds the legal title while the beneficiaries holdthe beneficial title.

Therefore, the personal creditors of the trustee are not entitled toreach the trust property to satisfy the personal claims of the trustee. There is norequirement for trust property to be registered as trust property.
1.2.2 Beneficial interest and its nature
The nature of beneficial interest under a trust is still a debated concept.

A recent

English textbook has helpfully summarized the four different ways to conceptualise the5beneficial interest in a trust (see G. Virgo, The Principles of Equity and Trusts, (OUP,
2012), 51 – 57).

This is a much debated issue and it is only possible to present anoutline of the arguments here.

First, the beneficial interest is characterized as a rightin rem. However, it has been pointed out that the in rem model is inconsistent with thefact that the beneficial interest under a trust is not good against the whole world.

It isan axiomatic principle that an equitable interest is only good against the whole worldexcept for the bona fide purchaser for value without notice.

Second, the beneficiary’s

equitable rights have been regarded as personal (in personam) rights against thetrustee.

The difficulty with this approach is that it does not provide an explanatory force

as to why the beneficial interest is capable of binding third parties who are not good faithpurchasers.

Third, some scholars have argued the beneficial interest is a right againstrights (see B. McFarlane and R. Stevens, “The Nature of Equitable Property” (2010) 4
Journal of Equity 1).

In other words, the beneficial interest describes the beneficiary’s

rights against the trustee’s right of ownership. It is said that this right against rights
model explains why the beneficiary’s rights bind third parties.

When the property istransferred to a third party who is not a good faith purchaser, the beneficiary continues
to assert a right against the third party’s right of ownership. The main weakness with thismodel is that the case law has never used the language of a right against rights.
Finally, the beneficial interest is seen as a unique form of proprietary right.

It is a lesser

right as compared to a fully-fledged in rem right because it does not defeat all third party
interests i.e. a beneficial interest is defeated by a bona fide purchaser for value without
notice.
1.3 Administration of trust
1.3.1

Trustee’s power

1.3.1.1 Trustee’s power in general
The trustee’s power is derived from the trust deed.

Certain powers are also found in

the Trustee Act (Cap 337, 2005 Revised Edition).

The trustee may be empowered

under the trust deed to decide as to when to sell the trust property.

However, thecourts may intervene with the decision not to sell the trust property in appropriate
circumstances where the trustee has ignored relevant considerations and taken on
board

irrelevant

considerations

(see

Foo

Jee

Seng

v

Foo

Jhee

Tuang

[2012] 4 SLR 339).
1.3.1.2 Delegation of trustee’s power to a third party
Under section 27 of the Trustee Act (Cap 337, 2005 Revised Ed.), a trustee may bypower of attorney delegate his or her power to a third party.

Such a delegation may
6continue for a period of 18 months or any shorter period provided by the instrument
creating the power. The delegation permitted by section 27 is to accommodate trustees
when they are unable to perform his or her duties for a period of not more than 18 months.
An illustration of such a situation is when the trustee is abroad for a short period of time.
Section 27 of the Trustee Act (Cap 337, 2005 Revised Edition) is almost identical tosection 25 of the English Trustee Act 1925.
1.3.2 Trustee’s Duties
1.3.2.1 Duty of Loyalty and Conflict of Interest
A trustee is a fiduciary of the beneficiary.

It has been said the ‘standard of duty

imposed by law on a fiduciary is the highest standard known to the law. It is a duty to act
for someone else’s benefit by sacrificing one’s own personal interest to that of the other.
If the fiduciary is not prepared to make such sacrifice he will never be able to protect andadvance the interest of the other. Selfishness is the antithesis of selflessness. The officeof a fiduciary is founded on selflessness. Selfishness is absolutely prohibited’ (per GP
Selvam in Kumagai-Zenecon Construction Pte Ltd and Another v Low Hua Kin [1999] 3
SLR(R) 1049 at [13]; upheld by the Court of Appeal in Low Hua Kin v Kumagai-Zenecon
Construction Pte Ltd (in liquidation) and another [2000] 2 SLR(R) 529). Thus, a fiduciaryhas a duty not to put himself or herself in a position of conflict of interests, not to misusetrust property and confidential information, and not to make an unauthorised profit byreason of his position as a fiduciary. It has been suggested that the test of "merepossibility" of conflict is the preferable test in Singapore (per Rajah JA in Ng Eng Gheeand others v Mamata Kapildev Dave and others (Horizon Partners Pte Ltd, intervener)
and another appeal [2009] 3 SLR(R) 109). The remedies against a fiduciary who makes
an unauthorised profit may be personal or proprietary. A fiduciary may in appropriate
circumstances be made to account for an unauthorised profit or to hold a property
acquired in breach of a fiduciary duty on a constructive trust for the plaintiff.
Furthermore, a fiduciary may be ordered to make equitable compensation to theprincipal for losses suffered.
A trustee is not allowed to engage in self-dealing i.e. to purchase trust property or sell his
or her property to the trust. Such a transaction would be voidable due to the inherent
conflict of interest because the trustee acts as both the vendor and purchaser. The law
is less strict when it comes to a beneficiary selling his or her interest in trust property to
the trustee. Such a transaction is not set aside automatically at the beneficiary’s option.
Instead, such a transaction is allowed to stand if the trustee can demonstrate that he or7she has not taken advantage of the beneficiary, disclosed all relevant information to thebeneficiary and the price was fair.
1.3.2.2 Duty of care
Not all breaches of duties by trustees are necessarily breaches of fiduciary
obligations.

A breach of fiduciary duty must be distinguished from mere

incompetence. The latter does not attract equitable rules but is governed by tort
principles. In other words, a breach of duty care would attract a remedy whereby thetrustee must compensate the beneficiary for his or her loss instead of an account of
profits or a declaration of a constructive trust. Although there is no direct case law inpoint in Singapore, it is likely that it is possible to exempt a trustee’s liability for a duty ofskill and care. Only fundamental duties of a trustee may not be excluded. Suchfundamental duties include the duty to carry out the trust honestly and in good faith.
1.3.3

Expenses of trust administration

A trustee is in a different position from an agent because a trustee acts as principal inconnection with the administration of the trust and incurs personal liabilities to thecreditors. Where a trustee incurs a liability towards a creditor in the proper discharge ofthe trust, the trustee is entitled to an indemnity out of the trust property to meet thatliability. There are two types of a trustee’s indemnity – a right to be indemnified out of
the trust property and a personal indemnity against the beneficiary which extends
beyond the trust assets (see EC Investment Holding Pte Ltd v Ridout Residence Pte Ltd[2013] 4 SLR 123).

The existence of the personal right of indemnity against thebeneficiary is somewhat controversial (the debate is summarized in R. Flannigan, “Trustor Agency: Beneficiary Liability and the Wise Old Birds” in Equity and Contemporary
Legal Developments, (S. Goldstein, ed), (Hebrew University, 1992), 275)). The right tobe indemnified out of the trust property is effected by a lien or charge over the trust
property and confers an equitable interest in the trust fund to the extent of the amount of
the liability. Hence, the trustee’s right of indemnity takes priority over claims of any
beneficiary.

1.4 Beneficiary
1.4.1 The Nature of the Beneficial Interest (already explained above)
1.4.2 Acquisition of Beneficial interest
In a fixed trust, where the beneficiaries are fixed from the outset, the beneficial interestis acquired once the trust is properly constituted.

This means that the beneficiaries
8would obtain a beneficial interest once the three certainties are satisfied (certainty ofintention, subject matter and objects).

However, in a discretionary trust where theshares are dependent on the exercise of the trustee’s discretion, a potential beneficiary
does not acquire a beneficial interest until the trustee exercises his or her discretion.
Up until the time of the exercise of the trustee’s discretion, the potential beneficiary
merely has a hope or spes of acquiring a beneficial interest.
It is possible to stipulate in a trust deed that a particular beneficiary enjoys a life interestand the remainder to another beneficiary.
perpetuity rule.

This means that the trust will only be valid if it is vested in thebeneficiaries within the perpetuity period.
years.

Non-charitable trusts are subject to the
The perpetuity period in Singapore is 100

Thus, if a settlor declares a trust for the benefit of A, A’s first born and A’s firstborn grandchild, the trust will only be valid if it vested in each person within theperpetuity period.
1.4.3 Trust Administrator, Trust Supervisor, Agent of the Beneficiary
In Singapore, there is no concept of trust administrator, trust supervisor andbeneficiary’s agent.
1.5 Termination of a trust
For a fixed trust, a trust may be terminated by all the beneficiaries if they are of full age,
under no disability and absolutely entitled under the trust (see Saunders v Vautier(1841) 4 Beav 115).

This rule probably does not apply in the context of a discretionary

trust.
1.6 Special types of trust
1.6.1 Trust without beneficiaries
Singapore follows the English law position that a non-charitable purpose trust is
generally regarded as void.

There are several exceptions to this rule.

The most

well-known case being the Re Denley [1969] 1 Ch 373 trust (discussed in Goi Wang
Firn (Ni Wanfen) and others v Chee Kow Ngee Sing (Pte) Ltd [2015] 1 SLR 1049). Re
Denley was a trust over land to be “maintained and used as and for the purpose of arecreation or sports ground primarily for the benefit of the employees of the company”.
Goff J upheld the trust and said: “[w]here, then, the trust, though expressed as a
purpose, is directly or indirectly for the benefit of an individual or individuals, it seems to9

me that it is in general outside the mischief of the beneficiary principle”.
However, there are some exceptions to the rule that a non-charitable purpose trust isinvalid.

Notable exceptions include trusts for the maintenance of animals, trusts formaintenance of monuments and graves and trusts for the performance of certain
religious rites provided they do not offend the rule against the perpetuities.

For

example, a trust for the performance of Sin Chew rites in the memory of settlor was
upheld (see In The Matter of The Estate of Khoo Cheng Teow, Deceased [1932] SSLR
12). However, trusts for the performance of Sin Chew rites are rare these days. Thereis one case where the court had to terminate the trust because all the children had
become Christians and refused to perform the Sin Chew rites (see Bermuda Trusts(Singapore) Ltd v Wee Richard and others [1998] 3 SLR(R) 938).
1.6.2 Charitable trust
A charitable trust is exempt from the beneficiary principle and the rule against perpetuity(on charities see generally R. Leow, “Four Misconceptions about Charity Law inSingapore” [2012] 1 SJLS 37).

The method of creation of a charitable trust is similar toa non-charitable trust. A charitable trust is subject to governance by the Commissionerof Charities and Charities Act (Cap 37, 2007 Revised Edition). In modern times, it isincreasingly common to structure a charity by way of a company limited by guarantee
instead of declaring a charitable trust.
２ Trust Business in Singapore
2.1 License for trust businessIn order to carry out trust business in Singapore, a company must be a licensed trust
company (see Trust Companies Act, Cap 336, 2006 Revised Ed.). The licensing regime
is governed by the Monetary Authority of Singapore.

Banks which are licensed underthe Banking Act (Cap 19, 2008 Revised Ed.) are also entitled to carry out trust businessin Singapore.
2.2 Commercial trusts and trusts in wealth management
Singapore is one of the leading preferred places of residence for high net worth
individuals in Asia. The Monetary Authority of Singapore reports that assets undermanagement in Singapore have grown from S$ 864 billion dollars in 2008 to S$ 1.8
trillion dollars in 2013.

A breakdown of these figures is shown in Figure 2 below.

Although the Monetary Authority of Singapore’s report does not give a precise10breakdown of the proportion of these assets which fall within the ambit of private clientbusiness, these figures certainly suggest the emergence of Singapore as a major
wealth management centre in Asia.

Indeed, the fact that many international banks

and trust companies and Singapore banks have set up specialized private banking arms
in recent years is a testament to the rapid growth of the business of wealth managementin Singapore.

Figure 2
There are several anecdotal reasons to account for Singapore’s recent emergence as amajor wealth management centre in Asia.
non-legal factors.

These include a combination of legal andFrom the legal perspective, Singapore’s comparative low income tax(the maximum income tax rate in Singapore is 22 % for income above S$ 320,000 for
the year of 2017 onwards), comparatively liberal immigration policies for high net worth
individuals and the relatively few legal restrictions on foreigners purchasing Singapore
property make the country an attractive place of residence.

Further, the existence ofstrict banking and trust secrecy laws coupled with amendments to Singapore’s trust11laws ensure that the needs of these high net worth individuals are protected especiallywith regard to privacy considerations.

The favourable legal regime coupled with

non-legal factors such as the existence of a multitude of excellent international schools,
good air quality, low crime rate and stable political environment render Singapore to bea popular choice of residence for high net worth individuals especially those with school
going children.
The trust is used in both in wealth management and in business.

In the sections below,

I will elaborate on the Real Estate Investment Trust, Business Trust and the Special
Needs Trust Company.
2.3 The Real Estate Investment TrustSingapore is a major centre for the listing of the Real Estate Investment Trust (REIT)(see generally J. Koh, “Singapore Chapter” in Real Estate Investment Trusts, (GlobeBusiness Publishing, 2006), (Booth and Boyle, eds), 175). Singapore was one of theearliest Asian jurisdictions to change its regulatory framework and tax incentives in
1999/2000 in order to encourage the listing of the REITs. The REIT market in Singapore
has been nothing short of phenomenal.

Currently, there are 28 REITs and six stapled

trusts listed on Singapore Exchange, with a combined market capitalisation of S$66.7
billion. The following diagram in Figure 3 explains the REIT:
Unit Holders
Management

Acts for unit holders

TrusteeManager

REIT
Income from property

Property
Manager

Properties
Management

Figure 3
Essentially, the REIT involves large real estate like shopping complexes, factories,
hotels or hospitals which are settled on trust and sold to investors.

The owner of theseproperties would sell the property to a REIT; shares or beneficial units in the REIT would
then be sold to investors who hold shares or beneficial units in the REIT as unit holders.
12Income generated from these properties (e.g. rental income) would eventually be paid
to the unit holders after paying off the various fees involved in running the REIT. The
REIT is usually managed by a trustee and a manager while the underlying property
would be managed by a property manager.

For listed REITs, this is subject to listing

requirements prescribed by the Singapore Stock Exchange.
Why would property owners want to divest their property into the REIT structure? There
are several commercial advantages to the owner in divesting the property to a REIT.
First, the owner eliminates the property holding costs of a large piece of real estate by
selling it to the REIT.

In other words, the REIT removes the following risks for theowner: (i) fluctuating interest rates associated with borrowing costs; (ii) voids in rental;
and (iii) potential falls in the value of the property.

Second, a related point is that bydivesting the property, the REIT frees up valuable capital to the owner which can beused more profitably elsewhere.

This is especially vital for property owners who have

many building projects in markets like India and China.

Thus, a successful owner canbuild a commercial property, divest it into a REIT structure and move on to the next
building project.

Third, the REIT also overcomes the difficulties in locating suitable

institutional investors to purchase the property.

Many of the properties managed by

REITs are worth hundreds of millions of dollars.

As such, it may not be so easy to findlarge institutional investors who have the financial muscle to purchase the properties.
Furthermore, negotiations for the purchase of such properties may be unduly protracted.
In contrast, the REIT is not sold to a single institutional investor but to members of the
public via the unit holding structure.

Therefore, it could be easier to structure a REIT

than to actually sell the property to an institutional investor.

Finally, the REIT assures

the owner a steady stream of income even after the property is transferred to the REIT.
Usually, the owner or its subsidiary company remains as the management company orproperty manager.
playing this role.

Fees are payable to the owner or its subsidiary company for

It could be argued that these fees represent an income that is ‘locked

in’ free from the risk associated with ownership of the property.
would a unit holder wish to invest in the REIT?

First, the REIT allows the individual

investors to invest in a diversified property portfolio.
advantages in investing in a REIT.

Correspondingly, why

Second, there are sometimes tax

And finally, before the economic crisis, the returns

on the REIT have been generally quite favourable.
2.4 The Singapore Business Trust

13

Eager to repeat the success of the REIT, Singapore’s authorities changed its laws tofacilitate the listing of other assets to accommodate businesses which manage non-realestate assets.

Since the REIT only deals with real estate or real estate related assets,

it is conceptually difficult to structure other income generating assets such as ships andinfrastructure projects as a REIT.

The business trust appears to be a logical extensionof the REIT due to the fact that the business trust can accommodate various kinds ofassets.

The business trust was introduced to create a new asset class for investors,

and potentially add depth and sophistication to Singapore’s capital markets.

As such,the Business Trusts Act (Cap 31A, 2005 Revised Ed.) was enacted in October 2004
after a consultation paper was published seeking views of various stakeholders in
Singapore.

A simplified pictorial representation of the Singapore Business Trust is shown in the
Figure 4 below.

In order to structure a Singapore Business Trust, the sponsor would

transfer income generating assets to the trustee-manager for a consideration which
would be raised from the unitholders.

Thus, the unitholders own a proportionate shareof the underlying assets and a corresponding share in the returns generated.

The

trustee-manager would manage the assets and income generated from the assets
would be distributed to the unitholders after paying off the trustee-manager’s fees.
Unit Holders

Trustee

Income from assets

andmanagement

TrusteeSponsorSells assets to
the
Trust

-ManagerBusiness TrustManages

Business

AssetsFigure 414

It can be argued that the Singapore Business Trust is essentially an orthodox trust
where legal and beneficial interests are split between the trustee-manager and theunitholders.

In other words, the trustee holds the legal interest in the underlying assets

whereas the unitholders hold the equitable interest. Therefore, conceptually there is no
distinction between orthodox trust principles and the Singapore Business Trust.

Themain difference between a traditional trust and the Singapore Business Trust lies
essentially in the purpose in which the trust is constituted. The traditional form of trust isusually constituted as a form of gratuitous transfer whereas the Singapore Business
Trust is constituted primarily to manage an income generating asset for the purpose ofgenerating returns for the unitholders.
following scenarios.

The traditional trust normally involves the

The settlor will transfer property to a trustee to manage the asset

for the benefit of certain named beneficiaries or a discretionary class of beneficiaries.
Alternatively, the settlor may declare himself or herself as the trustee for certain
beneficiaries or a discretionary class of beneficiaries.

Once the trust is constituted, thetrustee will have the duty to manage the assets in order to bring in the best possible
returns for the beneficiaries according to the standard of the prudent man of businesstest. In contrast, the Singapore Business Trust is constituted primarily for a profit making
purpose.

The sponsor would transfer certain assets to the trustee for consideration

and units representing shares in the beneficial ownership in the trust property of thebusiness trust will be offered to members of the public.

Thus, the primary objective of

the Singapore Business Trust is not a gratuitous transfer of property but a profit making
venture utilizing funds raised from members of the public.

Since there is the added

element of raising funds from members of the public, the Business Trusts Act provides
the main regulatory and governance framework in setting up the fundamental rights of
the unitholders and the duties and accountability of the trustee-manager companies andthe directors who sit on these companies.

These duties are explored elsewhere (seeHW Tang, “The Resurgence of “Uncorporation”: The Business Trust in Singapore”(2012) Journal of Business Law 683).

One major difference between the Singapore

Business trust and the orthodox trust is the extent of liability of the beneficiaries.
Section 32 of the Business Trusts Act explicitly provides that a unitholder’s liability is
only limited to the amount which the unitholder expressly agreed to contribute to the15Business Trust.

This limitation of liability shall apply notwithstanding any provision to

the contrary in the trust deed or in the event of the winding up of the Singapore
Business Trust. Section 32 of the Business Trusts Act is an extremely important
provision because it effectively limits the unitholders’ liability.

Therefore, even though

the Singapore Business Trust is not a separate legal entity, the liability of the unitholders
is limited by reason of the statute.

Having outlined the basic features of the Singapore Business Trust, the question is this:what is the attraction of the Singapore Business Trust as an organization structure overthe company?

First, the Singapore Business Trust allows the trust to pay returns to theunitholders from its cash profits.

In contrast, a company can only pay dividends out of

its accounting profits i.e. non-cash expenses such as depreciation must be taken into
consideration.

Therefore, the Singapore Business Trust is particularly suited to

manage income generating assets with high levels of depreciation.

Second, theBusiness Trusts Act prescribes an onerous threshold before a trustee-manager may bechanged.

Section 20 of the Business Trusts Act provides that a trustee-manager may

be removed by the unitholders only by a resolution approved by not less than
three-fourths of the voting rights of all the unitholders who are entitled to vote in person
or where proxies are allowed, by proxy present at a meeting of the unitholders of theregistered business trust.

A three-fourth majority at a meeting is not an easy figure toachieve and this provision makes it difficult for the unitholders to remove thetrustee-manager.

It may very well be that this particular feature makes the Singapore

Business Trust attractive to the sponsoring entity.

Since the sponsoring entity is likely

to control the trustee-manager company by way of majority shareholding, a sponsoring
entity may prevent the possibility of removal of the trustee-manager by retaining 25 % of
the units plus one.

Finally, the Singapore Business Trust provides a very well-definedand understandable picture to potential investors on the investment portfolio of thebusiness enterprise.

For example, in a shipping trust, it is very clear to the investor

that the business is essentially managing a particular fleet of ships owned by theBusiness Trust in order to obtain returns for the unitholders.

162.5 The Special Needs Trust Company
Parents with children with special needs often worry what will happen to their children
after they pass away. Even if these parents are financially able to bequeath their childwith a sizeable estate, there is the concern as to who should manage their estate for the
benefit of the child.

In Commonwealth jurisdictions where the trust exists, the obvious

solution would be for the parents to settle a trust in favour of the child with special needs.
However, this solution only gives rise to a whole host of further questions which may
include: (i) who should be the trustee?; (ii) should a lay trustee be used or a professional
trustee be engaged?; (iii) what are the fees associated with engaging a professional
trustee?; and (iv) is the value of the estate sufficient to afford the fees of a professional
trustee?

Of course, the perennial fear of every parent in this situation is that a trustee

may mismanage or embezzle the estate leaving the person with special needs
impoverished when the parents are no longer around.

Unlike other beneficiaries, aperson with special needs does not have the ability to take the trustee to task if theestate is mismanaged or embezzled.
In Singapore, the concerns highlighted above have led to the setting up of a non-profit
company called the Special Needs Trust Company (“SNTC”).

Essentially, SNTC is agovernment funded non-profit charity which works with the Insolvency and Public
Trustee’s Office (“the Public Trustee”) to hold and manage funds on trust for the benefitof persons with special needs.

SNTC is subject to several layers of governance. First,

SNTC as a company limited by guarantee is overseen by a board of directors. The
current board of directors comprise of members from government, civil service, themedical profession, the legal profession and the business community.

As such, SNTC

is able to tap into the board of directors’ expertise in various fields to deal with difficult
issues which may arise from time to time.

Second, SNTC as a registered charity isalso overseen by the Commissioner of Charities.

Third, since the government

provides SNTC with funding, SNTC works closely with the Ministry of Social and Family
Development in developing the trust scheme.

Finally, the trust monies are not kept by

SNTC but are actually deposited with the Public Trustee.
The basic idea is that the parents will develop a care plan and letter of intent before
settling a trust account with SNTC.

Monies settled into the trust account would be

deposited with the Public Trustee who will manage the fund.

As such, SNTC does not17manage the investment aspects of the trust fund.

The scheme is represented

pictorially in Figure 5 below:

Settles a trust

Parent/Settlor

Deposits trust fundPublic

SNTC

Trustee
Instructs the Public Trustee

Beneficiary

Disburses
funds

Persons with Special Needs/Beneficiary

Other

Figure 1
Caregiver/Home

Expenses

Figure 5
When the parents are no longer around, the trust is then activated.

Under the careplan and letter of intent, the parents would have stipulated how the money ought to be
disbursed. For example, SNTC would disburse stipulated sums to the caregiver of
persons with special needs, fees for their home (if they are staying in a home) andperhaps a monthly stipend to the persons with special needs if they are high functioning
individuals.

Of course, the letter of intent is stated to be not binding on SNTC and

SNTC is able to depart from the letter of intent if it is in the beneficiary’s best interest to
do so. An illustration of this would be if the beneficiary requires funds for a medical
emergency which is not provided in the letter of intent.

In these circumstances, SNTC

may depart from the letter of intent if SNTC is of the opinion that such medical treatment
is in the best interest of the beneficiary.
Legally, this structure is easily achieved through settling a fixed trust where the personwith special needs is named as the life beneficiary of the trust.

With regard to potential

surplus of the trust fund, the settlor would name people whom the surplus funds are to
be distributed after the life beneficiary passes on.

It is made clear in the trust deed thatthe persons entitled to the surplus are not regarded as beneficiaries of the trust.

This

alleviates SNTC from the burden of having to manage the trust fund while balancing the18interest of a life interest and remainderman.

Also, by stating explicitly that the funds

are to be placed with the Public Trustee, SNTC is also freed from the tricky task ofmanaging the investment of trust assets especially in a volatile and complex financial
environment.

These points are important because they lessen SNTC’s litigation risk.

SNTC also explains to the parents that this trust scheme is not meant to grow the asset
through the modest interest rate provided by the Public Trustee.

Instead, the scheme

is meant to protect the asset for the benefit of the person with special needs.
There is no need for the parents to settle all their assets into the trust from the onset.
After settling a trust with SNTC with a modest sum, the parents may provide thenecessary bequest by Will to the relevant trust account.

An example of how thespecial needs trust may be used is represented pictorially in the Figure 6 below.
SNTC

Parent/Settlor

Directs assets to be
paid

to

accountthetrust
Liquidates
assets and pay

Executor

themoniesOf the Will

SNTC

to

Person with Special Needs/
Beneficiary

Figure 619