The trust structure is robust against creditor claims against the settlor of the trust. However, this will not apply where the trust is merely a device, facade or sham intended to give third parties or the court an appearance of creating legal rights and obligations between the parties that are different from the actual rights and obligations that the parties intended to create (see: for example, Gaye Williams Nee Marks v Cary Donald Williams [1993] SGHC 190).
“The case of Lau Sheng Jan Alistair v Lau Cheok Joo Richard [2023] SGHC 196 (“Alistair Lau”) specifically addressed the issue of sham trusts. In Alistair Lau, the son, who was the sole beneficiary of an irrevocable trust created by his parents over landed property, sought to terminate the trust and have the trust property transferred to him from his parents on the basis that he was an adult of full age, the sole beneficiary of the trust and did not suffer from any mental disability. The father alleged that the trust was a sham instrument used by the parents to avoid payment of Additional Buyers’ Stamp Duty. The High Court, in finding that the trust was not a sham trust, considered that the crux of the sham concept was a subjective “common intention to mislead” on the part of both the settlor and the trustee (at [25]).”
Singapore’s trust law also has firewall provisions in relation to trusts set up in Singapore. Section 90(2) of the Trustees Act 1967 provides that no rule relating to inheritance or succession affects the validity of a trust or the transfer of any property to be held in trust if the person creating the trust or transferring the property had the capacity to do so under the law applicable in Singapore, the law of his domicile or nationality, or the proper law of the transfer.
Further, there are provisions in the Insolvency, Restructuring and Dissolution Act 2018 dealing with the effect of bankruptcy or insolvency on antecedent transactions. These provisions allow the avoidance of antecedent transactions, including transactions at an undervalue and unfair preferences entered into by a bankrupt in the manner set out below:
1. Transactions at an Undervalue
a. If an arrangement amounts to a transaction at an undervalue and was entered into within three years before the making of the bankruptcy application on which the individual is adjudged bankrupt, the Court may, on an application by the Official Assignee, make such order as it thinks fit for restoring the position to what it would have been if that individual had not entered into that transaction. An individual enters into a transaction with a person at an undervalue if:
i. The individual makes a gift to that person or the individual otherwise enters into a transaction with that person on terms that provide for the individual to receive no consideration;
ii. the individual enters into a transaction with that person in consideration of marriage; or
iii. the individual enters into a transaction with that person for a consideration the value of which, in money or money’s worth, is significantly less than the value, in money or money’s worth, of the consideration provided by the individual.
2. Unfair Preferences
a. An unfair preference given within the relevant time period may, on the application of the official assignee, be restored to the position to what it would have been if that individual had not given that unfair preference.
i. An individual gives an unfair preference to a person if:
1. that person is one of the individual’s creditors or a surety or guarantor for any of the individual’s debts or other liabilities; and;
2. the individual does anything or suffers anything to be done which (in either case) has the effect of putting that person into a position which, in the event of the individual’s bankruptcy, will be better than the position that person would have been in if that thing had not been done.
ii. The relevant time period with respect to unfair preferences which are impeachable is a maximum period of two years prior to the making of the bankruptcy application on which the individual is adjudged bankrupt.