All About Trusts
Insights on Trust Set-Up
What is a Trust set-up
A trust is a legal arrangement not a legal entity where one party (the trustee) holds and manages property for the benefit of another (the beneficiary).
At its core, a trust creates an equitable obligation: The trustee is legally bound to manage the trust property in the best interest of the beneficiary, who has the right to enforce this obligation.
What are the Duties of the Trustee
Trustees play a critical role in the proper management and protection of trust assets. In Singapore, their responsibilities are governed by both statutory and fiduciary principles, with professional trustees held to a higher standard.
Non-Fiduciary Duties
Under Section 3A(1) of the Singapore Trustee Act and the First Schedule, trustees must exercise the care and skill that is reasonable in the circumstances — with higher expectations placed on professionals and those with relevant expertise.
Key Non-Fiduciary Duties:
1. Duty of Care (Act prudently and competently, especially in matters like):
- Investing trust funds
- Buying or selling land
- Appointing agents or professionals
- Valuing or insuring assets
- Settling liabilities
Must not act mechanically or under influence — must independently assess what’s in the trust’s best interest.
3.Duty to Invest Prudently
Investments must align with the trust’s objectives and acceptable risk levels.
4.Preserve vs. Grow
Must balance preserving the value of trust assets with opportunities for reasonable growth
5.Diversify Trust Assets
Trustees are expected to diversify investments unless the trust deed specifies otherwise
6.Accountability
Maintain accurate records and account to beneficiaries on request.
7.Strict Adherence to Trust Terms
Trustees must act in accordance with the express terms of the trust deed at all times.
Fiduciary Duties
Fiduciary duties reflect a higher moral and legal standard trustees must act with undivided loyalty to the beneficiaries.
Key Fiduciary Duties:
1. Act Prudently and Independently
Manage trust affairs as a prudent person would manage their own.
Duty is owed to beneficiaries not the settlor and must be exercised fairly among them.
3.Avoid Conflicts of Interest
- No mixing of personal interest and trustee duty (e.g., cannot deal for both self and trust in same transaction)
- Avoid conflicting duties if serving multiple trusts
- Defence: Only valid if beneficiaries gave fully informed consent
Trustees cannot profit from their role beyond agreed fees even from opportunities discovered while acting as trustee
5.Strict Liability Standard
Breaches may occur even with good intentions if a trustee fails to follow fiduciary obligations (e.g., Boardman v Phipps, Regal (Hastings) v Gulliver)