What is Discretionary Trust? A Guide for Singapore Residents

A discretionary trust is a trust where the trustee has the discretion to decide how, when, and in what amounts to distribute assets to the beneficiaries. Unlike a fixed trust, where each beneficiary’s share is predetermined, a discretionary trust gives the trustee flexibility to respond to changing circumstances.

In Singapore

Discretionary trusts in Singapore are governed by the Trustees Act and common law trust principles. They are used both in living trusts (set up during the settlor’s lifetime) and as part of testamentary arrangements (through the will).

The key parties:

• Settlor: The person who creates the trust and transfers assets into it
• Trustee: The person or company who manages the trust and exercises discretion over distributions
• Beneficiaries: The class of people who may receive distributions — defined in the trust document
• Protector (optional): A person appointed to oversee the trustee and provide direction on major decisions

When Discretionary Trusts Are Used

A discretionary trust is particularly appropriate when:

• Beneficiaries have varying needs over time — for example, children whose education, career, and healthcare costs will differ
• A beneficiary has a disability — where distributions need to be calibrated around government benefits, care costs, and the beneficiary’s capacity
• Family circumstances are uncertain — blended families, future additions, or relationships that may change
• Asset protection is a consideration — because discretionary trust beneficiaries have no fixed entitlement, the assets are harder for creditors or divorcing spouses to reach

How Trustee Discretion Works

The trustee can make distributions to any beneficiary within the class, in any amount, at any time — but must exercise this discretion in good faith, consider all beneficiaries, and act in accordance with the trust document’s purpose and any letter of wishes left by the settlor.

A letter of wishes is a non-binding document the settlor writes to guide the trustee on their intentions. It is not legally enforceable but gives the trustee important context about how the discretion should be exercised.

Advisor Perspective

Discretionary trusts come up most often when parents have young children with significantly different needs, or when there is a beneficiary who cannot manage money independently. The practical advantage is that the trustee can adapt as circumstances change — rather than being locked into distributions set by a will written 20 years earlier. The trade-off is cost: corporate trustees are almost always needed for a discretionary trust to work well, and their fees need to be factored into the planning decision.

Common Mistakes

Using an individual trustee for a long-running discretionary trust. Individual trustees die, move away, or have conflicts of interest. A corporate trustee or a properly structured succession plan for the trustee role is essential.

Not writing a letter of wishes. The trustee cannot read minds. A letter of wishes gives them the guidance they need to exercise discretion in line with the settlor’s intentions.

Choosing between a fixed and discretionary trust based on tax. Singapore has no estate duty and no trust income is taxed at the trust level in most cases. The choice should be made on control and flexibility grounds, not tax grounds.