The Singapore Law Gazette

The Will to Live On: Testamentary Trusts

This article is a collaboration between the Tax and Trust Committee and Probate Practice Committee, in an effort to provide greater clarity and insight into testamentary trusts. In this article, we introduce the basics of a testamentary trust (also known as a “will trust”), including how such a trust can be treated, the reasons one might consider creating such a trust, and potential pitfalls.

What is a Testamentary Trust?

A testamentary trust, also known as a “will trust”, is a type of express trust that is created by a will and only comes into existence after the testator (i.e., settlor) has passed on and the will is admitted to probate. The express terms of said trust are set out in the will; this could be simple or comprehensive depending on the testator’s circumstances and requirements. The trust becomes irrevocable upon the testator’s passing.

A testamentary trust is to be differentiated from a standby trust, which, while similar, has clear differences. The key characteristics of these types of trusts can be summarised as follows:

	Testamentary Trust	Standby Trust
Type of Trust	Express Trust Can be fixed or discretionary
Revocability	Revocable during the testator’s lifetime, but irrevocable once the testator passes away	Can be revocable or irrevocable
Creation of Trust	By way of a will	By way of a trust deed
Start of Trust Period	Trust only comes into existence after the testator passes away	Trust is set up during the testator’s lifetime
Settlement of Assets into Trust	The will shall state the terms on which the executor-trustee shall hold the assets on trust	Trustee receives assets as a beneficiary of the testator’s will, to hold on trust upon the testator’s passing

Both types of trusts appear to achieve a similar effect but are conceptually distinct and may be utilised for different succession and tax planning considerations.

As a testamentary trust is created by a will, it must comply with the Wills Act 1838, which requires that the will be in writing and signed by the testator in the presence of two witnesses.¹Section 6 of the Wills Act 1838. These witnesses should be above the age of 21. Ideally, these 2 witnesses should not be beneficiaries of the will, or spouses of beneficiaries of the will – while they would still be considered valid witnesses, any beneficial entitlement would be voided by operation of Section 10 of the Wills Act. Testamentary trusts are also governed by the Trustees Act 1967, which provides a broad framework for the trustees’ roles and responsibilities.

Why Testamentary Trusts?

Testamentary trusts can be useful for estate planning, particularly to protect minor or vulnerable beneficiaries, while still allowing the testator to retain full ownership and control over one’s assets during their lifetime. Distributions by trustees can potentially be staged by age or milestones, or determined on a need-basis, depending on the express terms set out in the will.²Potentially, a discretionary testamentary trust could also be accompanied a letter of wishes, although as per usual trust principles, a letter of wishes is generally considered non-binding under Singapore law and understood to offer guidance to the trustee(s) on the settlor’s wishes as to how their discretion should be exercised. The will can also be simply drafted or it could also be rather comprehensive, resembling that of an express trust deed, depending on the needs and wants of the testator. Testators concerned about leaving their assets to spendthrift or high-risk beneficiaries can grant their chosen trustee(s) the discretion whether or when to distribute trust assets within a stipulated trust period, and can prescribe the circumstances upon which, or for what purposes, the trustee(s) may make such distributions.

It is possible for testamentary trusts to be fixed or discretionary in nature – this depends entirely on the testator’s intentions and succession plans. If discretionary in nature, testamentary trusts could be particularly useful for insulating trust assets from a beneficiary’s creditors or ex-spouse.

Testators are also often guided by tax considerations. Persons holding Singapore real estate and other assets which would normally be subject to stamp duty upon conveyance may be interested in making bequests or setting up a trust by way of their will to ensure their assets are distributed per their wishes in a tax efficient manner.

Powers and Responsibilities of a Trustee

Testamentary trusts are governed not just by the specific terms set out in the will but also by the provisions of the Trustees Act 1967,³The powers conferred by the Trustees Act 1967 are subject to the express terms of the trust instrument: Trustees Act 1967 section 2(2). which governs the powers, duties, appointment and responsibilities of trustees for all types of trusts in Singapore, including testamentary trusts. The Act sets out a comprehensive statutory framework for the administration of trusts, empowering trustees and setting guidelines for them to manage trusts responsibly, while ensuring that beneficiaries can seek redress for breaches of duty. It allows the Court to intervene in cases of mismanagement, and mandates transparency and the keeping of accounts.

The Trustees Act confers broad powers on trustees to manage, invest and distribute trust assets according to the terms of the trust,⁴See for instance Parts 2 and 3 of the Trustees Act 1967 (“Investments” and “General Powers of Trustees and Personal Representatives”). and are in addition to that conferred by the trust instrument unless otherwise expressly stated in the trust instrument (section 2) Generally, the application of the Trustees Act is subject to the express wordings of the trust instrument – the trust instrument (in this case, the will) may stipulate how the trustee is supposed to exercise its powers, and can potentially stipulate how much freedom (or restriction) the trustee has in, for instance, making distributions, paying expenses, and managing investments, amongst other things.

Trustees may wish to take note of the following provisions, which shall apply by default unless expressly dealt with in a customised trust instrument:⁵This is not a comprehensive list of relevant provisions and merely sets out a few provisions as an example of provisions which would apply by default. Trustees are encouraged to review the Trustees Act fully and seek appropriate professional advice when taking up trusteeship responsibilities.

1. Section 3A of the Trustees Act imposes a statutory duty of care on the trustee when exercising such powers set out in the First Schedule. A trustee “must exercise such care and skill as is reasonable in the circumstances, having regard in particular- (a) to any special knowledge or experience the trustee has or holds himself or herself out as having; and (b) if the trustee acts as trustee in the course of a business or profession, to any special knowledge or experience that may reasonably be expected of a person acting in the course of that kind of business or profession”.
2. Section 5(3) of the Trustees Act imposes a “standard investment criteria” for trustees exercising a power of investment. Trustees must consider the suitability of the investment and the need for diversification, and must also obtain and consider proper advice unless it is unreasonable or unnecessary to do so.
3. Trustees may delegate functions to agents, nominees or custodians, but must continue to review and monitor delegated functions (section 41M) and will remain liable if they fail to exercise the statutory duty of care (section 41N).

Trustees owe both a duty of care as well as fiduciary duties to the beneficiaries of the trust. Such duties and responsibilities are equally applicable to trustees of a testamentary trust as they are to other trustees of trusts set up inter vivos.

Potential Pitfalls

Given the extended timeframe for administering a testamentary trust, setting up such a trust necessitates foresight and careful planning. While there are several benefits to setting up a testamentary trust, there are often complexities and practical considerations which need to be assessed before one makes such a decision.

Where a professional trustee is involved, set-up fees and ongoing administration could become costly, with expenses ranging from legal fees to trustee, accounting, and investment-related fees, depending on the complexity and duration of the trust. Where a lay trustee is involved, one must ensure that the lay trustee is aware of their duties and obligations and is able to administer the trust.

Unlike those of inter vivos trusts, trustees of testamentary trusts must also take charge of taking out a court application for a grant of probate and calling in the relevant assets to be held on trust, causing some delay in having the trust properly administered. The transition to a trust structure is thus not entirely seamless, although with proper planning, administrative complications can be minimised. Going through probate proceedings also means that trust terms inevitably become part of the court’s records and may be subject to public searches.⁶One may submit a request to the Singapore Courts to inspect court records. The Courts would review the request and reasons submitted and exercise their discretion to allow or reject a request.

As is the nature of will trusts, the testator (settlor) would not be around to explain his intentions once the trust is set up. Such intentions would have to be gleaned from the will. If the trust terms are not clearly expressed, disputes could potentially arise over, amongst other things, the interpretation of the trust terms and extent of trustee duties. The trust becomes irrevocable upon the testator’s passing, and the terms as expressed by the testator would normally have to be complied with, notwithstanding unforeseen circumstances which might render administration difficult.

Even the best-drafted testamentary trust would be of little use if an unreliable or incapable trustee is appointed. Trustees can potentially be individuals or licensed trust companies. Especially when selecting individuals as trustees, care should be taken to select a competent and committed trustee.

Lessons from Case Law

A look at local case law provides insight into the Court’s approach when construing the terms of a testamentary trust and highlights potential issues which might arise – often after the testator has already passed away.

Construing an Inherently Ambiguous Will

The Court of Appeal case of Low Ah Cheow and Others v Ng Hock Guan [2009] 3 SLR(R) 1079 (Low Ah Cheow) involved a will which purported to establish a testamentary trust; however, the will as drafted gave rise to a number of legal difficulties and was inherently ambiguous.

The Court highlighted several aspects of the will which in its view made no sense or contradicted the testator’s alleged intention. In light of patent ambiguity as to what the testator’s expressed intention was, due to what the Court described as “peculiar drafting” on the part of the solicitor who drew up the will, the Court held that it would be appropriate for it to have regard to the appropriate rules of construction and relevant admissible extrinsic evidence in ascertaining the Testator’s expressed intention.⁷Low Ah Cheow and Others v Ng Hock Guan (2009) 3 SLR(R) 1079 (Low Ah Cheow) at (32). The intention to be given effect to had to be the intention declared and apparent in the will; the Court could not give effect to any intention which was not expressed or employed in the will. ⁸Low Ah Cheow at (19)-(20), citing Williams on Wills at vol 1, paras 49.1-49.2.

Interestingly, while the Court of Appeal did find the existence of a testamentary trust, it was unable to establish from the will or extrinsic evidence the testator’s intention as to the exact manner of distribution of the estate. The Court ultimately declared that on a “reasonable construction” of the Will after taking into account the relevant admissible extrinsic evidence and the presumption that “a testator does not intend to effect a capricious result by his will”, the testator intended to leave his estate to the trustee on trust for those of his family members who were entitled to a share of his estate pursuant to the Intestate Succession Act.⁹Low Ah Cheow at (69).

Low Ah Cheow’s case demonstrates the difficulties in construing a will with clear ambiguities and how extrinsic evidence will have to be considered by the Court if the testator’s intent expressed in the will is unclear.

The case also serves as a reminder to solicitors that care should be taken to take proper instructions and communicate the same to the solicitor(s) drafting the will, as well as to draft the will in a manner that clearly accords with the testator’s intention.

Intention to Set Up Inter Vivos Trust or Testamentary Disposition

In Sheares Betty Hang Kiu v Chow Kwok Chi and others [2006] 2 SLR(R) 285 (Sheares Betty), ¹⁰Sheares Betty Hang Kiu v Chow Kwok Chi and others (2006) 2 SLR(R) 285 (Sheares Betty). the deceased had executed a will, deed of family arrangement, deed of agreement, and deed of trust (Trust Deed). The High Court had to determine if the deceased settlor’s Trust Deed had created an inter vivos trust with immediate effect, or if the deceased settlor had intended to create a testamentary trust coming into effect only upon her passing. The action was commenced by one of the deceased’s children against the deceased’s three other children to provide “proper particulars” and an account of the assets contemplated in the Trust Deed, as trustees. The defendants on the other hand denied that a proper trust had been constituted, and that the Trust Deed, even if effective, was a “mere testamentary disposition” which had been superseded by the settlor’s last will signed subsequent to the Trust Deed.

The Court found no ambiguity in the Trust Deed and held that it had expressly declared “with the utmost clarity and precision” that the Trust “shall come into force on the day” of its execution. Therefore, the Court held the trust had been completely constituted during the deceased’s lifetime. Once the trust was declared, “the Settlor retained only the legal interest or the bare equitable title mutatis mutandis and the beneficial interest in the Assets was conveyed to the Beneficiaries,” and “like a gift, a completely constituted trust is immediately binding upon the Settlor and his personal representatives unless a power of revocation has been expressly reserved”.¹¹Sheares Betty at (24).

The acid test as to whether an instrument possesses a testamentary character is whether the instrument is revocable.¹²Sheares Betty at (28). Here, the Court found that the arrangement brought before it failed the test. The Settlor for all intents and purposes created a valid trust, and that she “wholeheartedly and expressly intended that the Trust should come into force immediately upon its execution and it should be irrevocable”.¹³Sheares Betty at (39).

Accordingly, since the trust was an inter vivos trust with immediate effect, the Court allowed the application and ordered the defendants qua trustees to account to the plaintiff for the administration of the settlor’s estate.

Sheares Betty’s case reinforces the position that testamentary trusts are essentially testamentary dispositions which only take effect upon the passing of the testator and are revocable any time during the testator’s lifetime. Further, requirements under the Wills Act have to be complied with to create a valid testamentary disposition.

Strict Compliance with Explicit Terms of the Will

The case of Tan Boon Teck Donald v Lum Shih Kai [2024] 4 SLR 351 involved an estate which main asset was a condominium burdened with an outstanding mortgage debt as well as unpaid management fees. The will empowered the executor to sell the property but explicitly prohibited any sale within three years of the testatrix’s death. The estate had insufficient cash to service the mortgage and management fees. The executor applied to the Court to sanction the sale of the property, on grounds, inter alia, that there were insufficient funds to pay for the housing loan and management fees.

Despite this, the application was dismissed. The Court found that the three-year moratorium was unequivocal and the testatrix’s explicit wishes had to be respected. The Court held that its inherent powers to vary the terms of a trust should be invoked only in exceptional circumstances and not be exercised simply because the act or transaction concerned would be beneficial to the trust. Moreover, the Court’s inherent power could not be exercised to disregard or rewrite the trust instrument’s clauses.¹⁴Tan Boon Teck Donald v Lum Shih Kai (2024) 4 SLR 351 (Tan Boon Teck) at (23). The Court also declined to apply section 56(1) of the Trustees Act to supplement the trustee’s powers, as the provision was not intended to authorize actions expressly forbidden by the trust instrument.¹⁵Tan Boon Teck at (28)-(29).

This case underscores the importance of careful planning when drawing up a testamentary trust and preempting any potential financial or administrative difficulties that the trustee might face when administering the trust.

Selection of Competent and Reliable Trustee

Devin Jethanand Bhojwani and others v Jethanand Harkinshindas Bhojwani [2024] SGHC 310 (Devin Jethanand) involved a suit commenced by beneficiary sons against their trustee father for breach of a testamentary trust set up by the plaintiffs’ late grandfather, on grounds that the defendant had failed to segregate trust assets from his personal assets, mismanaged the trust, did not maintain proper accounts, and concealed the trust’s existence from the beneficiaries for nearly a decade. The trust was discretionary in nature per clause 5.2 of the will.¹⁶Devin Jethanand Bhojwani and others v Jethanand Harkinshindas Bhojwani (2024) SGHC 310 (Devin Jethanand) at (5).

The High Court found that notwithstanding that “absolute discretion” was granted to the trustee, the defendant had breached his duty as trustee, and that he lacked the proper capacity and fidelity to act as trustee. The Court ordered that the defendant be removed as trustee and replaced by a professional trustee. Although the trust instrument granted the defendant absolute discretion, this did not exempt a trustee from fulfilling its core duties or from liability for breaches of trust.¹⁷Devin Jethanand at (62)-(63). Even a lay trustee would still be expected to maintain and provide accounts of trust assets.¹⁸Devin Jethanand at (96)-(97), citing the Honourable Steven Chong JCA in Baker, Michael A (executor of the estate of Chantal Burnison, deceased) v BCS Business Consulting Services Pte Ltd and others (2023) 1 SLR 35.

Devin Jethanand’s case provides testators and beneficiaries with the assurance that notwithstanding that wide powers might be granted to a trustee under a will, the trustees are not exempt from certain core duties. Even lay trustees are expected to maintain proper and complete accounts and documentation, and cannot hide behind the excuse that they are non-professionals.

Key Takeaways

The above cases demonstrate difficulties which may arise in the creation and administration of testamentary trusts. We highlight our key takeaways as follows:

1. The will must be drafted carefully and precisely to capture the testator’s intentions. An inherently ambiguous will may make it difficult for the appointed trustee to carry out its duties and may require court intervention which can be costly and uncertain.
2. The will should clearly state the intention of the testator. It should make clear whether the testator intends to set up a testamentary trust (existing only from the date of death) or otherwise.
3. The testator should carefully consider what powers the trustee should or should not possess so that the trustee can practically carry out his wishes. While the provisions of the Trustees Act apply by default, a testator can customise his/her will to suit his/her circumstances.
4. The testator should choose wisely when appointing a suitable executor-trustee. A trustee candidate should similarly be aware of the duties and obligations which it shall owe, should it decide to take up executorship/trusteeship, to avoid any inadvertent breach of its duties.

Ultimately, trustees and beneficiaries can seek guidance from the Singapore Courts where there are difficulties in administering a trust. While careful planning and clear drafting can alleviate issues, reducing the need to seek the Court’s assistance, it is nonetheless reassuring that trust parties do have recourse to the courts (for example, if beneficiaries have concerns relating to a trustee’s exercise of powers).¹⁹See for example the High Court case of British and Malayan Trustees Ltd v Ameen Ali Salim Talib (2024) SGHC 203 wherein the trustees of an inter vivos trust sought the court’s guidance on the construction of trust terms.

Conclusion

Testamentary trusts can be a sophisticated estate planning tool, offering control and protection beyond a simple will. However, careful planning, drafting, and trustee selection are important, given the complexities of administration. When assisting clients in drafting testamentary trusts, legal professionals should explore various scenarios and contingencies with clients so that they can tailor their inheritance plans to suit their unique family circumstances.

Testators and beneficiaries alike can rest assured that the Singapore Courts hold trustees to high standards of honesty, transparency, and accountability, whether they are professional or lay trustees, and trustees acting outside their powers or in breach of duties may be removed. In the first place, however, testators need to ensure that their intention to set up a trust and the terms of said trust are clearly and accurately captured in their will, for their trustees of choice to be able to carry out their assigned duties.

The authors wish to express their gratitude to Mr Edmund Leow S.C. for his insight on the article. All errors remain the authors’ own.