Introduction

When a parent acquires property in their own name but formally states that they are holding it in trust for their child, the legal and beneficial ownership are split. The parent becomes the legal owner and trustee, responsible for managing the asset, while the child is the beneficial owner, entitled to the benefits arising from the property—such as rental income and proceeds from a sale.

Legal Implications:

• If the trust deed does not specifically authorize the trustee (the parent) to sell, lease, or reinvest the trust property, they must seek court approval to undertake such actions.
• The court’s primary consideration is always the best interests of the child, regardless of the financial or personal circumstances of the trustee.

Case Study: Re Cai Jinhong [2024] SGHC 295

In a recent Singapore High Court decision, an applicant sought judicial consent to sell two properties held in trust for his children—a daughter aged 8 and a son aged 13 – one for $1,434,000 and another $975,000, each with roughly half of the purchase price still owing. Although the properties were registered under the applicant’s name, the trust deeds signed on 21 December 2020 clearly stated they were for the children’s benefit.

The applicant cited severe financial strain as his reason for wanting to sell:

• His savings were nearly exhausted.
• He faced job insecurity due to economic volatility.
• He was financially supporting elderly parents and paying the mortgage on the family home, in addition to financing the purchase of the properties.

Fortunately, the court referred to Section 56(1) of the Trustees Act, which enables the court to grant additional powers to trustees when the trust deed lacks clarity or authority. Under this section, the court assesses whether the proposed action—here, the sale—is expedient, meaning it supports the efficient management and preservation of the trust.

In this case, the court ruled that selling the properties would serve the children’s long-term interests, preventing possible financial losses from mortgage defaults or foreclosure.

Approval was granted, subject to the condition that the applicant establish separate trust accounts for each child. After deducting sale-related expenses, the net proceeds from each property were to be deposited into the respective account for the sole benefit of that child.

Cai Jinhong’s case highlights the constraints and responsibilities associated with purchasing property in trust for a minor. Although the parent may be funding the purchase, they cannot freely manage or benefit from the asset unless explicitly permitted by the trust instrument or empowered by the court.

What are Key Considerations for Parents Setting Up Property Trusts for Children

Parents intending to hold property on trust for their children should carefully consider the following:

1. Scope of Trustee Powers

The Authority of a trustee primarily stems from two sources:

• The trust instrument (i.e., the trust deed), which outlines what the trustee can and cannot do; and
• Applicable statutory provisions, such as the Trustees Act 1967. These legal provisions generally act as a supplement to the trust deed, but do not override its terms unless expressly provided for.

2. Implication of a Bare Trust

In a bare trust arrangement, the parent holds the legal title solely for the benefit of the child, without any right to modify, benefit from, or revoke the arrangement. Any attempt to do otherwise could trigger legal and tax scrutiny, particularly around issues such as sham transactions or potential tax avoidance.

3. Rights of Beneficiaries Upon Adulthood

Once a child beneficiary turns 21—or where multiple adult beneficiaries are in agreement—they may invoke the legal principle established in Saunders v Vautier. This allows them to apply for the trust to be terminated and for the assets to be transferred into their names, even if the trustee disagrees.

4. Stamp Duty and Tax Considerations

Under current regulations, purchasing property in trust for a child triggers a 65% Additional Buyer’s Stamp Duty (ABSD) payable at the time of purchase. This requirement did not apply in earlier cases like Re Cai Jinhong, where the trust was created before the current rules came into effect. Parents may apply to IRAS for a remission or refund, but approval depends on whether specific conditions are met.

Final Thoughts:

Using a trust structure to buy property for a child is generally suitable only when the parent truly intends to make an irrevocable unconditional gift of the asset, with no plans to retain control or unwind the arrangement later. However, unforeseen life events such as financial hardship, divorce, or even the death of a family member can lead to outcomes that may not align with the original intention of the parent.