Family businesses play the most pivotal role in the Asian economy and almost 85% of the companies in the Asia Pacific region are owned by family groups. Moreover, more than 20% of the top 750 global family businesses ranked by revenue are based in Asia with total revenue of approximately USD 2 trillion.
Trusts, unlike companies and not being a legal entity, have provided an effective structure for holding valuable assets for the beneficiaries and transitioning from the settlor to the trustee like a family business, for a long time. The absence of rigid formal requirements for the creation and operation of trusts, and the high flexibility of trust structures, make them particularly useful for estate and succession planning.
Trusts are being used for holding and passing on family wealth for centuries and providing great advantages of asset protection and disposal of family assets without lengthy probate procedure. Such trusts when combined with a Singapore Private Trust Company (PTC) provide a structure for enabling founders to take continued rapid commercial decisions about their business effectively without sacrificing the validity of the trusts. These private trust companies commonly known as family trust companies form the foundation of the Singapore family office.
If the settlor is willing the board of the PTC can consist of the settlor, members of his family and professional trusted advisors and the settlor and his family members have direct involvement in the decision making processes. A Singapore PTC vehicle thus allows members of succeeding generations of the family to be involved in the management of the PTC providing Management succession planning.
To avoid personal ownership issues, a Purpose Trust is often used to create an entity with no individual owning the structure. Typically, a separate non-charitable purpose trust is used, with the purpose of the trust being to hold the shares of the PTC and especially when control and confidentiality are concerned. The benefit offered is that the Trust can then be used to ensure the board of the PTC is properly controlled. This trust type is formed to hold assets for a purpose and without providing a benefit to any specific individual.
Though Singapore does not have legislation allowing non-charitable purpose trusts, it is possible for the shares in a Singapore PTC to be held by a trust in another jurisdiction with appropriate provisions for the non-charitable purpose trusts formation.
PTC can also hold other assets, such as real estate, private equity and hedge funds appropriate for the family and diversify to optimize assets as and when necessary. As PTCs have no motive for profit-making with no conflicts of interest, the entity can reduce costs of trust administration while ensuring the needed risk management as per the risk appetite of the family. PTC structure with high liquid assets can also invest in and facilitate the best Singapore company incorporation.
There is often slowness or reluctance on the part of the Independent professional trustees in approving certain assets for holding or entering into major transactions or Singapore PTC however provides greater choice to determine investments to be made with the trust fund based on knowledge of family members acting as members of the board.
Continuity of business is assured with a Singapore PTC because even if the administrator changes, PTC remains as a trustee.
In Singapore, the ownership of Singapore companies and PTCs are publicly available on the company register. However, certain confidentiality is maintained and ownership information about trusts is generally not available. A Singapore PTC owned by a purpose trust in a jurisdiction allowing a non-charitable purpose trust structure will maintain confidentiality about the owners of the PTC and the asset holdings of the trust.
As several family businesses in Singapore are focusing on leadership succession, besides wealth succession, a Singapore PTC structure can be beneficial as it familiarizes the family members with the wealth and business interests owned by the trust and provides appropriate instructions to the members in managing such assets.
The island nation with its current trust law and trusted legal system, world-class infrastructure, high level of digitization, openness to foreign talent, attractive tax regime and political stability has come up as a global hub for corporate and financial services activities. The city-state now has become home to many sophisticated wealth management entities including the Single Family Office in Singapore.
