The Ministry of Finance on 8 May 2022 announced that an Additional Buyer’s Stamp Duty (ABSD) of 35% will be imposed for the transfer of residential property into a living trust. Essentially, the Ministry said that the ABSD (Trust) of 35% is being imposed to close a gap where residential property is being transferred to a living trust without an identifiable individual beneficiary.
The move came as a surprise, especially to clients of estate planners who have set up Standby Trusts — a type of living trust — with pour-over Wills. In particular, the clients were concerned about whether the pour-over from their Will to the Standby Trust upon their passing will be subject to the 35% ABSD (Trust).
The situation was clarified by Mr. Liu Hern Kuan, Director of ZICO Insights Law LLC – Head of Tax, at a recent webinar. He noted that ABSD (Trust) applies to “conveyance, or transfer”, while a property passing under a Will is a “transmission”. There is therefore no ABSD (Trust) for such a transmission of property from the estate of a deceased person via his or her Will to the trust.
Mr. Liu’s view is consistent with the general understanding about applying stamp duty in relation to the transfer of property assets via a Will. The Inland Revenue Authority of Singapore (IRAS) says on its website that documents relating to the “transfer of property by way of assent to the beneficiaries in accordance to the Will, Intestate Succession Act or Muslim Law of Inheritance” is no longer liable to fixed or nominal duties.
In other words, the new ABSD (Trust) regime will not affect clients who have set up Standby Trusts with pour-over Wills that will transfer their residential properties into their Standby Trusts upon their passing.
Property investors’ behavior may be affected
The ABSD (Trust) regime is expected to change the behaviour of property investors who wish to purchase a property through a trust. Since the 35% ABSD (Trust) must be paid upfront and any remissions would apply subsequently, this would mean that investors/ settlors will need to ensure they first have sufficient liquidity to pay the ABSD (Trust). The trust will also need to fulfill the requirement of having an identifiable individual beneficiary, or else the investor/ settlor will not be able to get a refund on the ABSD paid.
It may also be worthwhile for estate planners to rethink provisions in Wills. To futureproof Wills against any sudden and drastic changes in laws and taxes, executors/ trustees should be given additional powers to sell an asset or property, and need not be limited to transferring the asset or property in specie to a beneficiary.
This latest move by the Ministry of Finance underscores the need for estate planning practices to be reviewed and updated periodically and systematically, to keep up with changes in laws and/or taxes to ensure that estate plans are not only cost effective, but also remain aligned to the needs and desires of clients.
Leong Mun Kid
Head of Department, Trusts
Precepts Trustee Ltd