An offshore trust functions in the same manner as a normal trust. It is a legal arrangement where a settlor transfers assets to a trustee. The trustee becomes the legal owner of the assets and is responsible to manage the assets for the benefit of the beneficiaries. Just like a trust, an off-shore trust is a good vehicle to protect and distribute your estate. The term “off-shore” means that the location of the trust is outside your jurisdiction. For example, if you are a Thai citizen, Singapore can be an off-shore location for you. If you are a Singapore citizen, Brunei can be an off-shore location for you.
If you are a foreigner reading this article, you might want to consider parking your assets in Singapore through an off-shore trust. This is illustrated in the example below.
Peter is a businessman in a South East Asian country. He runs a successful beverage factory. He is concerned about the political stability of his country, as there has been much social unrest in the past few years, and the currency has also experienced much volatility. Currently, all of his personal properties and assets are located in his home country, and these assets are valued based on the home country’s currency.
Peter has a wife and 2 school-going children. He wants to transfer part of his assets out of his country to protect the value (i.e. monetary value) and use it as a base for his family just in case the political situation in his country goes out of hand. In this situation, he intends to take his family to Singapore to live.
Peter then sets up an off-shore discretionary trust in Singapore. A corporation is appointed as trustee, and the beneficiaries are his wife and children. The trust assets are monetarily based in US$ and S$; and they are well diversified into income distribution funds, life policies, and bank deposits.
What assets can be held by an offshore trust in Singapore?
- Shares of companies
- Investment portfolios
- Real estate
- Life insurance policies
- Bank deposits of various currency
Advantages of using Singapore as an offshore trust location
- Confidentiality. Trust deeds in Singapore are not publicly registered.
- Wealth protection
- Strong and stable currency (i.e. Singapore dollar)
- Political stability and well-established laws
- Low tax regime. There is no estate duty & capital gain tax in Singapore.
- For Muslims, a trust is an acceptable wealth transfer tool in Singapore.
- Wide range of financial products to diversify your trust assets.
Considerations for setting up an offshore trust
- You want to preserve your wealth against political, social or currency uncertainty
- You want to consolidate your assets into one location
- You want to transfer your wealth to your beneficiaries according to your wishes
- You want to minimise estate taxes
- You want confidentiality on your net-worth
If you are a Singaporean who wants to set up an off-shore trust outside of Singapore, Brunei is one location you can consider. The types of assets and advantages of using Brunei as an off-shore trust centre are similar, except that the range of financial products is narrower, and the political structures of Brunei and Singapore are also different.
If you are a not a Singaporean and want to set up an off-shore trust outside of your home country, Singapore and Brunei can both be seen as options. Though the Singapore dollar and Brunei dollar are traded on par, the exchange rate between the Brunei dollar and your home country’s currency might not be the same as exchange rate between the Singapore dollar and your country’s currency. Do survey your options fully before making a decision.