In this insight, Marilyn See, BD Director in our Singapore private client team, discusses the advantages of integrating a trust structure with a family office.
The landscape of the trust industry has undergone significant changes in recent years, and the rise of family offices and their interplay with trusts has been an important driving force in this. While family offices have garnered much attention, their connection to trusts has often been overlooked. As discussions surrounding family offices evolve, the strategic inclusion of a trust within wider complex structures is an increasingly apparent trend.
As family offices continue to grow in Singapore, what impact does that have on the trust industry in Singapore?
Singapore's family offices have witnessed remarkable growth since their inception. While revisions to the Section 13 Tax Exemption Schemes around 2019 acted as a real catalyst for growth in the number of family offices in Singapore, trusts have had a longer-standing presence in the jurisdiction, with professional trust companies becoming regulated in Singapore back in 2005.
As demand for trust structures has increased, we have seen a corresponding growth in the number of trust companies operating in the market. In particular, the introduction of family office incentives has led to substantial growth in the trust industry, with the number of trust companies operating in Singapore increasing by around 10% since 2019. Having been present in Singapore since 2010, Trident cannot be categorised as a new market entrant, but we can say that we have seen a rich vein of demand for trust services in the same period, in large part triggered by the surge in family offices.
The sophistication and complexity of trust structures have also developed, both in terms of the types of trust structures and the assets held within them. While a decade ago trusts mostly held bankable assets and insurance policies, today we regularly see trusts holding a diversified range of assets that might include bankable assets, real estate, shares in private operating businesses and listed companies, and even works of fine art. These changes have certainly been propelled by family office developments, as family office clients see Singapore as a base to consolidate their assets, prompting a natural integration with trust structures.
The formation and operation of trusts has also clearly evolved in several ways. The gestation time of a trust takes much longer, from the early discussions to the actual establishment of the structure. This is partly because a family office usually takes time to set up as it goes through the regulatory process for approval. As a result, clients put more consideration into how they will structure their setup. Another reason is that many families have more complex needs, and the analysis and planning process necessarily lengthens to accommodate this.
Many families across Asia demonstrate a growing desire for formal governance mechanisms across all areas of their operations, businesses, and wealth management. In the initial stage, our role is that of a trusted advisor, collaborating with various stakeholders, such as bankers, tax advisors, and lawyers, to tailor structures that meet their clients’ needs. Thereafter, the trustee continues to be involved in the governance structure as an independent coordinator, enforcer, or mediator for the family when conflicts arise. This means occasionally taking a step back from the day-to-day administration of the trust to ensure we understand the family’s evolving circumstances and aspirations, so that we can continually reassess their needs and where necessary, adapt their structure.
To learn more about this trend, please read our article on The Future of Family Offices in Asia: the Rise of Governance.
The way the trustee interacts with clients has also evolved. Previously, trusts in Singapore catered more to overseas clients. While Singapore trusts are still very attractive to wealthy international clients, we have noticed an increase in families relocating to Singapore as they set up their family offices here. With clients that are now based in Singapore, there is a greater opportunity for trustees to engage more actively in person with clients, building stronger relationships with beneficiaries and having more regular discussions on trusts and family matters.
What are the benefits of using a trust to hold a family office set-up?
The integration of trusts into family office setups yields several benefits. First, it addresses the issue of ownership transition and probate. Every single-family office and s13 tax-exempt vehicle needs to undergo an approval process, which looks at the shareholder(s) of the vehicles, amongst other requirements. If it is an individual (or natural person) holding the shares of the family office, this means that when they pass away, there will be a lengthy probate process before the change in ownership is made. During this time, the activities of the family office may be affected. Holding the family office under a trust provides continuity of ownership and negates the complexities of the probate process.
Secondly, a family office structure alone is insufficient to achieve succession planning and transgenerational wealth transfer objectives. Having a trust provides the possibility for a client to plan how the wealth and management powers should be distributed to the next generation after his or her lifetime.
Thirdly, trusts are valuable tools for individuals and families to consolidate assets under a unified umbrella, while protecting and preserving wealth for generations to come.
Moreover, trusts are excellent vehicles for philanthropic purposes. By utilising trusts, family members can fulfil their charitable objectives through a structured framework, fostering a philanthropic legacy.
When deciding whether to set up a trust for the family office, what are the key considerations to make?
Several factors need to be taken into consideration when deciding to establish a trust for a family office. Even if the assets of the family office are still beneficially owned by the client as perhaps a beneficiary, transferring assets into a trust makes the trustee the legal owner of the assets. It is therefore essential that the trust structure is aligned with the family’s long-term objectives and set up according to the family’s wishes about how the assets should be managed or distributed.
With a trust owning the shares of the family office, it is important to consider what the family’s objectives are with regards to passing wealth down to future generations. It is vital to question whether the distribution would be a split of the shares of the family office or of the income derived from the family office setup. For the family office to work, the assets must be held within a single-family office structure, and so it will not be easy to divide the assets into separate trust structures for different family members. Because of this, it is essential to carefully consider how these economic benefits will be shared, while ensuring the family office can function cohesively within a singular framework.
An additional level of complexity relates to two different layers of investment - one within the trust structure and one within the family office structure. Striking harmony between investments at both trust and family office levels is essential. The trustee will need to work with the family to agree how the two mechanisms will work hand-in-hand to best suit the client, so that the two investment structures will run well in parallel.
The jurisdiction and location of the trust are also crucial considerations. Very often with Singapore family offices there is a tendency to assume that any trust structure should be established under Singapore’s trust law. However, this should not always be the go-to solution, and other vehicles - for example, under Jersey or the BVI law - may offer relevant attributes, such as permitting the trust to exist for a longer time period, or providing greater clarity on the types of power that the settlor can retain over the trust assets.
In conclusion, the synergy between family offices and trusts is undeniable. As Singapore's family office sector flourishes, the trust industry evolves in tandem, offering solutions that transcend conventional wealth management to serve as integral components of comprehensive family management strategies. By understanding and addressing these considerations, clients can harness the full potential of trusts within the context of Singapore family offices.
How We Can Assist
Our team has significant experience in helping clients structure their family offices in Singapore.
We provide a wide range of corporate services, which includes incorporating the Singapore family office and asset holding companies, providing ongoing corporate secretarial support and resident director services, EP applications and fund administration.
We are an experienced professional trustee and can assist clients in establishing an overlying family trust to own the family office and fund for asset protection and succession planning purposes.