Decide whether a trust would help your family.
Write down the name of each person in your will. Beside each name, write one sentence on what would go wrong if that person received their share outright. For most people on your list you'll probably write nothing. A trust is useful for particular problems, and for families without those problems it mostly adds cost.
This is education only. Setting up a trust is work for a lawyer or a licensed trust company. What you can do yourself is work out whether you have a problem worth taking to one.
Jasmine (an invented example, like everyone in her family below) went to an estate planning seminar where the speaker said everyone with assets should have a trust. The slide showed a family tree, a castle-shaped diagram and the words "control from beyond the grave". She left with a brochure, feeling she was doing something wrong by not having a trust, but she wasn't. The speaker's claim is wrong, and not everyone with assets needs a trust.
A trust has three roles. The settlor creates the trust and sets its rules. The trustee holds and manages the assets. The beneficiaries get the benefit. The trustee legally owns the assets but may use them only as the trust's rules allow, so the rules matter as much as the person you choose.
A testamentary trust is written into your will. It only comes into existence at your death, when your executor hands assets to the trustee. A living trust is set up while you are alive and can hold assets straight away. Both kinds need a trustee you trust, and rules clear enough to guide that trustee through situations you did not foresee.
You may already have a trust without thinking of it that way. Lesson 7.3, "Nominations and joint holdings pass outside the will", covered trust nominations on insurance policies. A trust nomination creates a statutory trust over the payout for your spouse and children.
The general rule is that a trust earns its cost when handing someone a lump sum outright would go badly. That usually comes up in one of four situations.
A young beneficiary. Children cannot manage an inheritance, and money left to a minor has to be held for them anyway. A trust lets you choose who manages the money, what it can be used for (school fees or living costs, for example) and the age at which the child gets the rest, which can be later than 21. A vulnerable beneficiary, such as someone with an intellectual disability, a serious mental illness, or a gambling or addiction problem. A lump sum may harm them or be lost to others. A trust can pay for their needs over time without giving them control of the capital. Money meant to last, such as a monthly sum for life instead of everything at once. The trust holds the capital and pays out the income. A complicated family. In a second marriage or blended family, a trust can provide for a surviving partner during their life and then pass what is left to children from an earlier marriage.
The Special Needs Trust Company is a non-profit trust company set up for families of people with special needs. It runs trusts at lower cost than a private trust company, and its website explains how families use it. Insurance Decoded, lesson 3.5, "When permanent cover is the point", works through how much a family might need to leave for a dependent who will need support for life.
Legal fees to draft the rules come first. Running costs follow. A professional trustee charges fees, and even a family trustee has accounts to keep, decisions to make and sometimes tax returns to file. Over twenty years these costs add up.
There are softer costs as well. An adult child who expected an inheritance outright may feel the trust signals distrust. A badly written trust, with rules that no longer fit a changed world, can tie a family up for years.
So use a trust only when it solves a problem you can name in one sentence. If you cannot name the problem, a straightforward will and up-to-date nominations probably do the job. Any trust you do decide on should be set up by a lawyer or a licensed trust company.
Jasmine took her beneficiaries one at a time and asked the same question about each.
Megan is 29 and careful with money. Giving Megan her share outright would cause no problem, so Jasmine decided no trust was needed.
Ryan is 25 and less careful with money. Jasmine considered a trust that would pay him in stages and decided against it. He is an adult, his share would be large but not life-changing, and she feared a trust would feel like a judgment on him. She chose to talk to him instead.
Her mother is 82 and relies on a S$400 monthly allowance from Jasmine. If Jasmine dies first, the allowance stops, because nothing would keep it going. A lump sum would sit awkwardly with her mother's care needs, and it would pass under her mother's own estate. Jasmine could state the problem in one sentence: "keep my mother's allowance going if I die first." That is the kind of problem a trust is built for, so she asked her lawyer about a simple trust in her will.
The trust would hold a set sum, S$60,000 in this example, to pay the allowance for life, with whatever is left going to Megan and Ryan. The allowance comes to S$4,800 a year (S$400 x 12). S$60,000 / S$4,800 a year is about twelve and a half years, before any interest. That takes her mother from 82 to about age 94.
Before the activity, go through each person in your will and ask whether giving them their share outright would cause a problem, and if so, what problem exactly.
Write down whether any of your beneficiaries would need a trust, and what problem it would solve for them.
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