You will be able to decide whether a trust would help your family.
At a seminar on estate planning, Jasmine heard a speaker say that "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 and the feeling that she was doing something wrong by not having one.
She wasn't. Trusts are a useful tool for particular problems, and for families without those problems they mostly add cost. This lesson shows how a trust works, the situations where it helps, and how to tell whether you have one. It is education, and setting up a trust is work for a lawyer or a licensed trust company.
A trust is an arrangement in which one person, the trustee, holds and manages assets for the benefit of others, the beneficiaries, under rules set by the person who created it, called the settlor. The trustee owns the assets in law but must use them only as the trust's rules say.
There are two common ways to set one up. A trust in your will, often called a testamentary trust, only comes into being when you die and your executor hands assets to the trustee. A living trust is set up while you are alive and can hold assets straight away. Both need a trustee you trust, and rules written clearly enough that the trustee knows what to do in situations you didn't foresee.
You may already have one without thinking of it that way. A trust nomination on an insurance policy, which lesson 7.3, Nominations and joint holdings pass outside the will, covered, creates a statutory trust over the payout for your spouse and children.
Trusts earn their cost when handing someone a lump sum outright would go badly.
The beneficiary is young. Children can't manage an inheritance, and money left to a minor has to be held for them anyway. A trust lets you choose who manages it, how it can be used, for school fees or living costs for example, and the age at which the child receives the rest, which may be later than 21 if you prefer.
The beneficiary is vulnerable. A person with an intellectual disability, a serious mental illness or a gambling or addiction problem may be harmed by a lump sum, or may lose it to others. A trust can pay for their needs over time, without them controlling the capital.
The money is meant to last. If you want someone to receive a monthly sum for life, rather than everything at once, a trust can hold the capital and pay the income.
Your family is complicated. 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 your children from an earlier marriage.
For a child with special needs, the Special Needs Trust Company, a non-profit trust company set up for families of people with special needs, runs trusts at lower cost than a private trust company. Its website explains how families use it, and 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.
Trusts cost money to set up and run. Legal fees to draft the rules come first. Then there are ongoing costs: 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 those costs add up.
There are softer costs too. A trust can feel like distrust to the adult child who expected an inheritance outright. And 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 can't name the problem, a straightforward will and up-to-date nominations probably do the job.
Jasmine went through each beneficiary.
Megan, 29, is careful with money and needs no trust.
Ryan, 25, is less careful. Jasmine thought about a trust that would pay him in stages. In the end she decided against it: he is an adult, his share would be large but not life-changing, and she feared that a trust would feel like a judgment on him. She chose to talk to him about it instead.
Her mother was the one case with a real problem. If Jasmine dies first, the S$400 monthly allowance that her mother depends on would stop, because nothing would continue it. A lump sum to an 82-year-old would sit awkwardly with her care needs and would pass under her mother's own estate. So Jasmine asked her lawyer about a simple trust in her will, holding a set sum, S$60,000 in this example, to pay her mother's allowance for life, with whatever is left going to Megan and Ryan. At S$4,800 a year, that sum alone would cover about twelve and a half years before any interest, taking her mother to about 94.
That one sentence, "keep my mother's allowance going if I die first", is the kind of problem a trust is built for.
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 whether any of your beneficiaries would need a trust and the problem it would solve.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).