Trusts, Settlements and Estates
a. Trusts – These are arrangements under which the doner/ settler transfers property to trustees who is under a duty to deal with such property for the benefit of the beneficiaries. Generally, trusts are set up for specific purposes.
Different types of trusts structure in Singapore –
- Real estate investment trust
- Designated unit trusts and CPF approved unit trusts
- Approved unit trust
- Trust funds
- Foreign trusts
- Philanthropic purpose trusts
- Prescribed locally administered trusts
- Registered business trusts
Taxation mechanism – Income from trade/ business will be taxable at the prevailing corporate tax rate at the trust level and any distributions from such taxed income will not be taxable on the beneficiary.
b. Settlements – A settlement is normally set up to transfer the income or capital of a person (the settlor) to another person (the beneficiary). Example – Transfer of money by parent to his child’s account.
The settlor by transferring the amount tries to reduce his/ her tax liability. Income arising from the following settlement is deemed to be the income of the setter, thereby negating the tax benefit –
Settlement for minor child, Settlement containing power of revocation or Settlor or any relative of the settlor or any of his/ her relatives makes use of any income or accumulated income from the settlement to which he/ she is entitled
c. Estates –An estate is generally formed on the death of an individual. If there is a will, the individual is said to have died testate and if no will was made, he/ she is said to have died intestate. An executor is appointed to administer the estate until the estate is finally distributed to the beneficiaries.
In the year there will thus two basis periods, one for the deceased (from 01 January to the date of death) and another for the estate (from the date of death to 31 December).
Taxation mechanism – For Income upto the date of death – The executor must ascertain the income of the deceased and is responsible for paying the tax due by using the funds from the estate.For Income accruing during the administration period – The chargeable income of the estate shall be determined in accordance with the provisions of the tax laws and will be taxed at prevailing corporate tax.