Quora Answer: Can I Hide Assets in a Foreign Trust for the Benefit of My Children?

The following is my answer to a Quora question: “Can I hide my assets in a foreign trust for the benefit of my children?”

You could do that, and you will not be the first.  I have clients from neighbouring, developing countries, with convoluted and corrupt tax regimes, who choose to set up trusts in Singapore.  They do this to take advantage of our robust legal framework, our reputation for incorruptibility, and the lower tax regime.  Singapore does not have an estate tax, or a capital gains tax.

For example, Indonesia has a tax rate of around 30% across the board.  This makes it difficult for Indonesians working in Singapore, and have Permanent Residency, because that 30% includes CPF.  They are currently considering legislation to retroactively tax, which is impossible to enforce.  Tax is a political tool to inconvenience potential funders of rivals.  Indonesian Chinese are more likely to get taxed, even though other Indonesians may have more funds.

To get around this, wealthy Indonesians buy large insurance policies, assign these policies to an irrevocable trust, and run it through several layers of ownership.  It is perfectly legal.  It makes more sense to have companies and trusts in a major financial centre, because fund movements can be justified, and various methods can be used for tax avoidance.  In general, most wealthy people are willing to pay taxes when they can see their tax payments at work, benefiting the country, and them.  You do not see this in corrupt nations, where the money often disappears into somebody’s pocket.

In this sense, you are not exactly “hiding” your assets, so much as assigning them to a distinct legal entity for tax mitigation, and security.  This is especially necessary for wealthy people in volatile nations, where their wealth might be seized or lost, and they need to protect their legacy.