๐๐๐๐ถ๐ป๐ด ๐ฃ๐ฟ๐ผ๐ฝ๐ฒ๐ฟ๐๐ ๐ณ๐ผ๐ฟ ๐ฌ๐ผ๐๐ฟ ๐๐ต๐ถ๐น๐ฑ ๐ผ๐ป ๐ง๐ฟ๐๐๐ ๐ถ๐ป ๐ฆ๐ถ๐ป๐ด๐ฎ๐ฝ๐ผ๐ฟ๐ฒ โ Donโt Lose Their Soul!
Beyond the Numbers, Tax Planning or Investment Opportunities: The Human Side and Fuller Picture of Buying Property on Trust for Oneโs Children in Singapore
A parentโs love for their child knows few boundaries.
In Singapore, this love is often expressed in buying property for a child, even at a tender age.
As those below 21 lack legal capacity to own property, the property must be held on trust by a parent.
However, stamp duty, the tax on legal documents for the sale, purchase, or lease of property, can be a major hurdle.
The government uses it, specifically, the additional buyerโs stamp duty (ABSD) to cool an overheated property market.
Previously, no ABSD applied, but the loophole was closed in May 2022, when a 35% ABSD rate kicked in, rising to 65% in April 2023.
This means that a S$1 million house bought on trust for your child will cost around S$1.67 million, including S$24,600 in buyerโs stamp duty and a whopping S$650,000 in ABSD, not including legal fees and the agentโs commission!
And banks wonโt lend you that S$674,600, so youโll need that in ready funds.
๐ง๐ต๐ฒ ๐๐ผ๐ผ๐ฑ ๐ก๐ฒ๐๐
ABSD can be fully remitted (refunded) if conditions are met, such as:
โข It is paid upfront
โข the application for remission is made within 6 months
โข the child is already born, named as beneficiary and owns no other Singapore property
โข the child has an immediate, vested beneficial interest in the property
It means that the child is the ultimate owner from the start โ full ownership, free of conditions like โif he reaches 40โ and the trust canโt be terminated for the parent to โtake backโ ownership.
๐๐๐บ๐ฎ๐ป ๐ณ๐ฎ๐ฐ๐๐ผ๐ฟ๐, ๐ป๐ผ๐ ๐ท๐๐๐ ๐๐ฎ๐
As a lawyer who advises on these trusts, handles the property purchase and the ABSD remission application, I could just focus on the legal work (and clients pay well for it).
But as a human-centred family wealth lawyer, I canโt ignore the human factors and the well-being of families, especially of their rising generation.
Many parents are drawn to this trust structure for investment and tax reasons โ they already own property and want to buy more without incurring ABSD.
Trusts are powerful tools for family wealth planning, including for asset protection and tax planning, but these should only be incidental benefits and not come at the expense of a childโs character, drive and autonomy.
There are implications of a person owning a multi-million-dollar home and being able to sell, mortgage, and even lose it to creditors from the age of 21.
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Instilling responsibility and financial maturity is key, since few at that age can handle such wealth, and definitely not without apt preparation.
So, if you want to buy property on trust for your child, be ready and willing to proactively instil a stewardship mindset in them.
We parents canโt always make perfect choices, but those that deeply impact our children warrant wisdom, care and clarity on what truly matters.
After all, what profit a man to gain lucre but forfeit his childโs soul?
P.S.
Here are key takeaways on buying property on trust for a child, mainly on the legal and tax aspects.
โข ๐๐ฟ๐ฒ๐ฎ๐ธ๐ฑ๐ผ๐๐ป ๐ถ๐ป ๐ฅ๐ฒ๐น๐ฎ๐๐ถ๐ผ๐ป๐๐ต๐ถ๐ฝ: In two separate court cases in 2022 and 2023, two fathers who bought property on trust for their respective sons tried similar sham trust arguments to void the trusts.
They had set up the trusts in happier times, but when their marriages ended, and their relationship with their sons had likely soured, they thought โ wrongly โ they could โtake backโ the properties.
While these two trusts were set up in a pre-ABSD period, they offer invaluable lessons on the irrevocability of fixed trusts โ the only type that is eligible for the remission or refund of ABSD.
A fixed trust is a legal arrangement where the beneficiary and their exact entitlements to the trustโs income and assets are clearly and permanently set out in the trust deed; the parent (trustee) has no discretion to change who receives what, or in what proportions, or to โtake backโ the trust asset, even if they paid for it.
โข ๐ช๐ฎ๐๐ฐ๐ต ๐๐ผ๐๐ฟ ๐ฏ๐ผ๐ฟ๐ฟ๐ผ๐๐ถ๐ป๐ด!: A dad who bought properties on trust for his children with loans, sought court approval to sell them due to struggles to service the loans; the sale was permitted but he had to deposit the proceeds in trust accounts for his children.
In this case, the court reviewed the background and ascertained that it was not in the interest of the children for the father to default on the loans and have the properties be foreclosed by the bank lenders, and so permitted the sale of the properties, but the father still had no access to the sales proceeds โ one of the most paramount of principles in trust law is for trustees to act in the best interests of the beneficiaries, even if it is at great cost to the trustee.
Also, a High Court application was needed to authorise the sale, and these sorts of legal actions tend to involve significant costs.
โข ๐๐ผ๐ปโ๐ ๐ง๐ฟ๐ฒ๐ฎ๐ ๐ง๐ฟ๐๐๐ ๐๐๐๐ฒ๐ ๐ฎ๐ ๐ฌ๐ผ๐๐ฟ ๐ข๐๐ป ๐๐๐๐ฒ๐: A mother who bought a condo on trust for her infant son applied to court to terminate the trust on the grounds of realising capital gains; it was rejected โ trustees cannot treat trust assets as their own.
This case was interesting because a sale of the trust property was permitted in another case highlighted above, but the difference here is that
While there was no commentary on the taxmanโs response to this motherโs attempt to terminate the trust โ the judgeโs comments on certain suspicious conduct of hers, and the entire tenor of the judgment lead me to wonder if the taxman might perhaps investigate her.
In particular, the judgment seems to suggest that the court was unconvinced that the trust wasnโt created as a means to evade the additional buyersโ stamp duties.
Buying property on trust for your child shouldnโt just be a tax planning or investment exercise.
If poorly carried out, it could even lead to tax exposure โ if the taxman deems your arrangement as purely for the purpose of reducing or avoiding ABSD โ it has the power not only to claim the full ABSD, but levy a 50% surcharge, i.e. you end up paying 97.5% ABSD!
Courts prioritise beneficiaries, trustee duties and genuine intent, and parents should prioritise their children, and weigh the person-centred factors.
