What You Need to Know About Buying Properties via Trusts

Buying properties via trusts is a strategy used by high-net-worth individuals, families, and investors to manage assets, minimize taxes, and ensure proper succession planning. 

However, it is essential to understand the benefits, legal implications, and financial considerations before making such a move. In this article, we will break down the process of purchasing a property via a trust and use a real-life scenario to illustrate its practicality.

What is a Trust?

A trust is a legal arrangement in which a trustee holds and manages assets on behalf of beneficiaries. Trusts can be set up for various purposes, including estate planning, asset protection, and tax efficiency. When it comes to property investment, trusts can help ensure that assets are managed according to specific intentions, even after the original owner's passing.

Types of Trusts for Property Purchase

There are different types of trusts that can be used for purchasing properties, each serving a unique purpose:

1. Revocable Trust – Allows the grantor to retain control over the trust assets and make changes at any time. However, it does not provide tax advantages or protection against creditors.

2. Irrevocable Trust – Once established, the grantor cannot modify the trust. This type of trust can offer estate tax benefits and protection from creditors.

3. Living Trust – Created while the grantor is still alive and used for asset management and seamless succession planning.

4. Testamentary Trust – Created through a will and only takes effect after the grantor’s death.

   
   
   
   

Benefits of Buying Property via a Trust

Purchasing property through a trust provides several advantages:

• Asset Protection: Shields the property from creditors, lawsuits, or bankruptcy claims.

• Estate Planning & Succession: Ensures seamless transfer of assets to beneficiaries without going through probate.

• Tax Planning: Can help minimize estate duties and capital gains tax, depending on jurisdiction.

• Confidentiality: Keeps ownership private, as properties owned through trusts do not appear under an individual's name in public records.

• Control Over Asset Distribution: Provides structured management of assets for minor beneficiaries or individuals with special needs.

Case Study: Amy Lim's Experience

Consider Amy Lim, a Singaporean parent with substantial financial resources. Amy intends to purchase a condominium for her 15-year-old son, Ben, to secure his future housing needs. 

Given Ben's age, he cannot legally own property. To address this, Amy decides to establish a trust with Ben as the beneficiary.​

Steps Amy Undertook:

1. Establishing the Trust: Amy engaged a legal professional to draft a trust deed, appointing herself as the trustee and Ben as the beneficiary. The deed outlined the trustee's powers and the terms under which Ben would gain control of the property.

2. Funding the Purchase: Amy was aware that properties acquired through trusts must be paid for entirely in cash, as financing options like bank loans or CPF funds are not available for such transactions. She allocated the necessary funds accordingly.

3. Navigating ABSD (Trust): At the time of purchase, the Additional Buyer's Stamp Duty (ABSD) for trusts was 35%. Amy paid this amount upfront but later applied for a refund, as the trust met specific conditions:​

   • Ben was the identifiable and sole beneficiary.​

   • The trust was irrevocable, ensuring Ben's absolute entitlement.​

4. Upon approval, Amy received a refund equivalent to the difference between the 35% ABSD paid and the ABSD rate applicable to Ben's profile.

   
   
   
   

Potential Challenges of Buying Property via Trusts

While trusts offer numerous benefits, they also come with challenges:

• Legal & Setup Costs: Establishing and maintaining a trust requires legal assistance and administrative fees.

• Tax Considerations: Some jurisdictions impose higher taxes on properties held in trust.

• Loss of Direct Control: Depending on the trust type, the grantor may not have direct ownership rights over the property.

• Regulatory Restrictions: Some countries impose limits on the types of properties that can be held under trusts.

Conclusion

Buying properties via trusts can be a powerful tool for wealth management, estate planning, and asset protection. However, careful consideration of legal, financial, and tax implications is crucial. Seeking professional advice from legal and financial experts will help ensure that your trust structure aligns with your long-term objectives. Whether you are a high-net-worth individual or planning for generational wealth, using a trust for property investment can provide peace of mind and long-term security.