6 reasons to consider trust funds for your family

6 reasons to consider trust funds for your family

Have you ever thought about a trust or that you could be the beneficiary of one? Most of us wouldn't even give it a second thought. The majority of us in Singapore think that trusts, and trust funds, are for the wealthy, or super-wealthy.

But it isn't. Simply put, it is a financial arrangement between three parties, where the first party (the settlor) gives the 2nd party (the trustee) the right to hold the assets for a third party (the beneficiary)...and it is a legacy instrument that we should all be considering.

Yes, you read that right. You don't need to be Bill Gates or Jack Ma in order to set up a trust. So, what exactly is a trust and how can you go about setting it up? Here are 6 things you need to know.

#1 There are different types of trusts for different families

As mentioned, it basically is one party giving another party control of his/her assets on behalf of a third party. The third party is can be a family member or a school or a favorite charity.

A trust enables you to control how your money or assets will be used after you have passed away or when you decide to independently relinquish control of your assets.

You may also have heard that your Will is the same thing as a Trust, but they are different legacy instruments. A trust usually comes immediately into force once it is signed whereas a Will is executed upon death of the person. The fees may also differ, as are the costs to execute, depending on how complex the structure is.

Here are some examples of trusts:

Type of Trusts What it is
Living Irrevocable Trust Fund This trust disburses funds when certain conditions are met even if the settlor is still alive. It is an irrevocable trust, meaning that you will not have the option of dissolving it once it is in place.
Living, or Intervivos, Trust This trust allows the settlor to use his/her assets while alive, but then is passed on to a beneficiary via a trustee once the settlor has passed away.
Testamentary, or Will, Trust A testamentary trust is executed once the settlor has died and outlines how he/she wants to disburse the assets he/she once owned. This trust is typically irrevocable.
Revocable Trust Unlike the other trusts mentioned above, the settlor has the option to amend or alter his/her beneficiaries or how the funds are to be distributed. The settlor also has the option to add or remove people or assets during this time.
Blind Trust This is a trust that gives complete power of attorney to the trustee, and the trustee decides how the assets are to be disbursed.
Charitable Trust This type of trust is designed to distribute funds or assets to the charity or non-profit of the settlor's choice either in a lump sum or in stages. It could also be bequeathed to a school or alumni association, as is quite common in Singapore.
Qualified Terminable Interest Property Trust This is a type of trust that allocates assets at different stages to different beneficiaries. For example, upon death of a settlor, a property is passed to the spouse and upon the spouse's death, the trust may ask for it to be distributed among the children upon sale.

#2 Absolute control over ‘who’, ‘how’, and ‘when’ your assets are distributed and used

Firstly, it is one that we should all consider because we can. It isn't a financial planning tool that is in the hands of the elite or wealthy only.

A major reason to give it some thought is because it gives you absolute control over who, how and when your funds and assets will be disbursed and utilised. You might also want to see your hard-earned money passed down for generations, and a trust empowers you to do that.

Some of us may also have vulnerable or special needs family members who require that extra bit of help in the years to come. A trust also gives you the assurance that vulnerable dependents will continue receiving specific care and amounts once you have passed away (more on this later). A trust is one way to ensure they will be looked after for many years to come.

A trust can be as specific as you want it to be. For example, disbursing funds only when the child has reached university level or that it be distributed by semesters.

#3 You do not have to be rich

As long as you want to have absolute discretion over how your hard-earned wealth or savings will eventually be spent or distributed, then a trust is one to look at seriously.

For some of us who have been thinking about a "last will and testament", a trust is another way to avoid expensive probate fees involving a will. Still, depending on where you live, you may be subject to property or inheritance tax on the assets you choose to include in the trust itself.

#4 Leave a legacy for your children – and avoid squabbles

In the movies, most trust funds involve mega-rich kids that need to fulfill certain requirements before they receive their portion. This unfortunately, has found a place in our thinking about what a trust is used for.

The essence of creating a trust for your children is peace of mind. That your wishes and your children's hopes and dreams may be financially fulfilled even after you're gone. A trustee will ensure that your children will receive their share as allocated by the trustor.

#5 Set-up can be customised to your wishes and circumstances

There are several considerations and ways to do this. Some may just opt for the Trust writing service, but then leave the estate administration out of the equation. For a comprehensive and end-to-end execution, one option to consider is an independent trust company like the PreceptsGroup International, which provides both will and trustee services.

#6 Looking after loved ones who cannot look after themselves

A trust is one way to care for loved ones who cannot look after themselves. Those with mental or physical disabilities, long-term illnesses or with rare conditions, can definitely benefit from a trust.

The non-profit Special Needs Trust Company, or SNTC, may be one to consider. Its fees are heavily subsidized by the Singapore government (between 90%-100%) and SNTC case officers are trained social workers. Their main goal: to help the beneficiary with either a mental or physical special need.

A trust drawn up by the SNTC is managed by the Public Trustee's Office and the Singapore government guarantees the principal sum.

This article is Part 2 of 3 in a series about Estate Planning. For more in this series:
Part 1: How to prepare your family for the what-ifs in life

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