Drafting of Trust Deed (FGT)

Drafting of Trust Deed (FGT) | Bestar

Drafting a Family Grantor Trust

Drafting of Trust Deed (FGT)

A Family Grantor Trust (FGT) is a sophisticated estate planning tool.

Drafting a Family Grantor Trust (FGT): A Comprehensive Guide

A Family Grantor Trust (FGT) is more than just a legal document; it is a cornerstone of strategic wealth preservation. When properly drafted, an FGT allows the grantor to retain certain powers over the trust for tax purposes while effectively removing assets from their taxable estate.

However, the effectiveness of an FGT depends entirely on the precision of the Trust Deed. A single oversight in the drafting stage can lead to unintended tax consequences or probate disputes.

What is a Family Grantor Trust?

A Family Grantor Trust is a fiduciary arrangement where the individual who creates the trust (the Grantor) is considered the owner of the trust assets for income tax purposes, but the assets are typically excluded from their estate for estate tax purposes.

Key Benefits of a Well-Drafted FGT:

• Tax Efficiency: The Grantor pays the income tax on trust earnings, allowing the trust principal to grow "tax-free" for beneficiaries.

  
  

• Asset Protection: Safeguards family wealth from creditors and legal claims.

  
  

• Probate Avoidance: Ensures a seamless transition of assets to the next generation without court interference.

Essential Elements of an FGT Trust Deed

To ensure the deed is legally robust and achieves your financial goals, the following components must be meticulously drafted:

1. Identification of Parties

Clearly define the Grantor, the Trustee (the manager), and the Beneficiaries (the recipients). Specify "Successor Trustees" to ensure continuity if the primary trustee is unable to serve.

2. The Grantor Intent & Purpose

The deed should explicitly state the purpose of the trust (e.g., educational support, maintenance of lifestyle, or charitable giving). This provides "guiding stars" for trustees when making discretionary distributions.

3. Powers of the Trustee

A "boilerplate" power clause is rarely sufficient. Consider including:

• Investment Discretion: The power to invest in diverse asset classes (real estate, private equity, etc.).

  
  

• Power to Borrow: Allowing the trust to leverage assets for growth.

  
  

• Decanting Powers: The ability to move assets to a new trust if laws or family circumstances change.

4. Intentional Grantor Trust Provisions

To maintain "Grantor" status for tax purposes (under IRC sections 671-679), the deed must include specific "defects" or powers, such as the power to substitute trust assets with assets of equivalent value.

Common Pitfalls in Trust Drafting

Pitfall	Consequence
Vague Beneficiary Classes	Can lead to legal challenges from "unintended" heirs.
Lack of Spendthrift Clauses	Leaves trust assets vulnerable to beneficiaries' creditors.
Inflexible Distribution Rules	Prevents the trustee from reacting to a beneficiary's substance abuse or divorce.

Why Professional Drafting is Non-Negotiable

While "DIY" legal templates exist, an FGT involves complex intersections of state law and federal tax codes. A bespoke Trust Deed ensures that the language is tailored to your specific family dynamics and jurisdictional requirements.

The CRO Perspective: Protect Your Legacy Today

Estate laws are subject to change. Delaying the drafting of your Trust Deed could expose your family to unnecessary tax burdens or the complexities of probate.

Expert Tip: Review your Trust Deed every 3–5 years or after major life events (marriage, birth, or sale of a business) to ensure it remains aligned with current regulations.

Ready to Secure Your Family’s Future?

Drafting an FGT requires a blend of legal expertise and financial foresight. Don't leave your legacy to chance.

Checklist of specific documents you'll need to gather before meeting with Bestar

To ensure your meeting with a trust attorney is productive and cost-effective, arriving organized is essential. Gathering these documents beforehand allows Bestar to focus on strategy rather than data collection.

The Pre-Trust Meeting Checklist

1. Personal & Family Information

These documents help the attorney understand the "who" of your estate plan and identify potential tax or legal hurdles.

• [ ] Legal Identification: Valid passports or driver’s licenses for all grantors.

• [ ] Family Tree Details: Full legal names, birth dates, and SSNs for your spouse, children, and any other intended beneficiaries.

• [ ] Contact Information: Current addresses for anyone you intend to name as a Trustee or Guardian.

• [ ] Existing Legal Documents: Copies of current Wills, Power of Attorneys, or existing Trust agreements.

• [ ] Premarital Agreements: If applicable, as these significantly impact asset distribution.

2. Financial & Asset Documentation

The attorney needs a clear "snapshot" of your net worth to determine if you are subject to federal or state estate taxes.

• [ ] Bank Statements: Recent statements for all checking, savings, and CD accounts.

• [ ] Investment Portfolio: Statements for brokerage accounts, stocks, bonds, and mutual funds.

• [ ] Retirement Accounts: Details on 401(k)s, IRAs, and Roth IRAs (including current beneficiary designations).

• [ ] Real Estate Deeds: Copies of deeds for your primary residence, vacation homes, and investment properties.

• [ ] Life Insurance Policies: Policy details, including face value, cash value, and named beneficiaries.

3. Business & Liability Information

If you own a business or have significant debt, these documents are vital for asset protection planning.

• [ ] Business Interest Documents: Operating Agreements, LLC articles, or Partnership Agreements.

• [ ] Recent Tax Returns: Usually the last two years of federal and state filings.

• [ ] Debt Statements: Information on mortgages, lines of credit, or significant personal loans.

Organizing Your Legacy

Pro-Tip: The "Letter of Intent"

While not a formal document, jotting down your primary goals (e.g., "I want to ensure my children only receive funds after finishing university" or "I want to protect my assets from potential lawsuits") helps your attorney choose the right trust structure, such as an FGT or an ILIT.

Fee for Drafting the Primary Family Trust Deed for the PTC to Manage

When using a Private Trust Company (PTC) to manage family assets, the drafting of the Primary Family Trust Deed is a critical task. The PTC acts as the corporate trustee, but the Trust Deed defines the rules, powers, and distribution logic that the PTC must follow.

Below is an overview of the fees and technical considerations for drafting this specific legal instrument.

Fee Structure for Trust Deed Drafting

Drafting a trust deed for a PTC structure is more complex than a standard "off-the-shelf" trust because it must integrate seamlessly with the PTC’s constitution and the family’s governance goals.

Service Component	Estimated Fee Range (USD/SGD)	Description
Initial Consultation	$300 – $800	Strategic planning to determine trust "defects" (for tax) and beneficiary classes.
Trust Deed Drafting	$5,000 – $15,000+	Bespoke drafting of the primary deed, including PTC-specific clauses.
PTC Integration	$2,000 – $5,000	Aligning the trust deed with the PTC’s Constitution (Articles of Association).
Disbursements	$200 – $1,000	Notary fees, stamp duties, and administrative filings.

Note: Ultra-high-net-worth (UHNW) structures involving multiple jurisdictions or complex business assets can see legal fees exceeding $25,000.

The PTC-Trust Architecture

In this setup, the Trust Deed is the "Rulebook," and the PTC is the "Manager." For the structure to be effective, the deed must address the specific relationship between the two.

Key Clauses to Include in the PTC Trust Deed:

• The "Appointor" or "Protector" Power: Since the PTC is often controlled by the family, the deed should define who has the power to remove the PTC as trustee or veto certain investment decisions.

• Reserved Powers: Explicitly stating which powers (e.g., investment direction) the Settlor retains vs. what the PTC handles.

• Succession of Control: Defining how the board of directors of the PTC changes over generations to ensure the trust remains "managed" according to the original intent.

• Indemnity Clauses: Protecting the directors of the PTC from personal liability, provided they act in good faith.

Why the "Fee" Varies: Complexity Drivers

1. Jurisdiction: Drafting for a Singapore PTC vs. a Cayman or BVI VISTA trust involves different regulatory requirements and tax treaties.

2. Asset Class: Trusts holding "active" assets (like a family business) require more robust "Reserved Power" clauses than trusts holding only "passive" assets (cash/listed stocks).

3. Anti-Abscission Provisions: If the trust is meant to last for centuries (Dynasty Trust), the language must be flexible enough to survive changes in global tax law.

Next Step

The Trust Deed and the PTC's Constitution must "speak" to each other to avoid legal deadlock.

"Reserved Powers" Kept by a Settlor when using a PTC

In a Private Trust Company (PTC) structure, "Reserved Powers" are specific rights kept by the Settlor (the person creating the trust) that would otherwise belong to the Trustee.

By reserving these powers in the Trust Deed, you maintain a level of control over the family wealth without being the legal owner, which is essential for ensuring the PTC manages assets according to your vision.

Common Reserved Powers in a PTC Structure

When drafting your Family Trust Deed, you can choose to reserve the following powers for yourself or a designated "Protector."

1. Investment Direction

This is the most common reserved power. It allows the Settlor to:

• Direct the PTC on which assets to buy, sell, or hold.

• Appoint specific investment managers or advisors.

• Why? It ensures that the family business or high-risk investments are managed by someone with intimate knowledge of the assets, rather than a cautious corporate board.

2. Power of Appointment & Removal

This acts as the "ultimate veto." The Settlor reserves the right to:

• Remove the PTC as the trustee and appoint a successor.

• Add or remove Beneficiaries (within certain legal limits).

• Add or remove members of the Protector Committee.

3. Consent Over Distributions

While the PTC technically manages the funds, the Settlor can reserve the power to:

• Veto any proposed distributions to beneficiaries.

• Approve the timing and amount of capital payments.

• Why? To prevent "spendthrift" behavior or to ensure funds are only released when a beneficiary meets specific milestones (e.g., graduation).

4. Power to Amend the Trust Deed

The Settlor may reserve the power to vary the terms of the trust.

• Note: This power must be drafted carefully. If it is too broad, it may trigger adverse tax consequences (causing the trust to be seen as a "sham" or your personal "alter ego").

5. Power to Change the "Proper Law"

The ability to move the trust’s jurisdiction (e.g., moving the trust from the BVI to Singapore) if the legal or political climate changes.

The Balancing Act: Tax vs. Control

While reserving powers is beneficial for family governance, it carries risks:

• Estate Tax Risk: If you reserve too much control (specifically over distributions or the power to revoke the trust), tax authorities may argue the assets never actually left your estate.

• The "Sham" Argument: If the PTC simply acts as a "rubber stamp" for the Settlor without exercising independent fiduciary duty, the trust could be declared invalid in court.

Legal Tip: For a PTC, it is often better to reserve powers through a Protector or an Investment Committee rather than holding them all personally as the Settlor.

How can Bestar Asia help?

Drafting of Trust Deed (FGT)

When setting up a high-stakes structure like a Family Grantor Trust (FGT) managed by a Private Trust Company (PTC), you need more than just a template; you need a partner that understands the intersection of corporate law, tax optimization, and family governance.

Bestar Asia specializes in providing the exact technical and administrative support required to bring these complex structures to life in Singapore and beyond.

How Bestar Asia Facilitates Your FGT & PTC Setup

1. Bespoke Trust Deed Drafting

Bestar’s legal and advisory team ensures your Family Trust Deed is not only compliant with the Trust Companies Act but is also optimized for your specific goals.

• Reserved Power Clauses: Expertly drafting the specific powers you wish to retain (Investment, Appointment, or Veto).

• Tax Optimization: Ensuring the deed contains the necessary "Grantor" provisions to align with your international tax planning.

2. PTC Incorporation & Administration

A PTC is a private company, and Bestar acts as your Corporate Secretarial and Compliance partner.

• Company Formation: Managing the incorporation of the PTC SPV (Special Purpose Vehicle) in Singapore.

  
  

• Registered Filing Agent: Serving as the mandatory ACRA filing agent and ensuring the PTC meets all statutory requirements.

  
  

• Governance Framework: Drafting the PTC’s Constitution (Articles of Association) to ensure it works in harmony with the Trust Deed.

3. Regulatory Compliance & AML

In Singapore, PTCs are exempt from trust licensing but must appoint a licensed service provider to conduct mandatory Due Diligence.

• AML/CFT Screening: Bestar performs the required Anti-Money Laundering and Counter-Financing of Terrorism checks.

  
  

• Ongoing Compliance: Keeping your structure "audit-ready" and compliant with the Monetary Authority of Singapore (MAS) regulations.

4. Holistic Tax & Accounting Services

Because an FGT is often "tax-transparent" for the Grantor, the accounting must be flawless to avoid double taxation.

• Trust Accounting: Maintaining accurate ledgers for trust assets, income, and distributions.

  
  

• Tax Advisory: Advising on Section 13N or 13O tax exemptions in Singapore that can significantly benefit family offices and trusts.

Why Choose Bestar Asia?

Feature	The Bestar Difference
Speed to Setup	Rapid incorporation and deed drafting through a streamlined "Boutique" approach.
Integrated Logic	Your tax, legal, and secretarial needs are handled under one roof, preventing "document drift."
Cost Efficiency	Competitive fee structures compared to large international law firms or global trust companies.
Local Expertise	Deep knowledge of the Singapore regulatory landscape (ACRA, IRAS, and MAS).

Secure Your Legacy with Bestar

The transition from "personal wealth" to a "managed family legacy" starts with the right foundation. Bestar Asia provides the technical bridge between your vision and a legally robust reality.

Would you like to inquire Bestar Asia to request a formal quote for these services?