Growth of wealth in Asia spurs vehicles

PUBLISHED : Tuesday, 23 October, 2007, 12:00am
UPDATED : Tuesday, 23 October, 2007, 12:00am

More funds are being set up to ensure financial and property assets are passed on to the next generation.

Private trusts have existed for hundreds of years and were traditionally used by the wealthy as a way of protecting shares, money, managed funds or property. But private trusts are no longer solely for the extremely wealthy.

The surge in property prices in recent years has seen many people accumulate assets valued at more than US$1 million, the magic number considered by many financial experts as the threshold where individuals can benefit by establishing a trust.

While there are many varieties of trust, they all share the same ultimate aim, to ensure that assets such as land, money, shares and even antiques (collectively known as the 'trust property') are passed on to the 'beneficiaries' in a way that the 'settler' would want.

There are four key elements to a trust, the person who sets it up and puts his or her money or assets into it, known as the settler; those who hold it (trustees); the beneficiaries; and the trust itself.

Luke Peng, chief executive of SG Trust (Asia), said the growth of wealth in Asia and the globalisation of perspectives had led to more individuals setting up trusts.

'We see owners of listed companies parking their shares in trust funds and getting those shares professionally managed. As they become better or more broadly educated, there is also a gradual change in the mindsets of families with a tendency to put succession plans in place at an earlier stage,' Mr Peng said.

This is being driven by the places individuals work or study at and the lifestyle changes this brings.

Mr Peng said SG had developed a 'FIT' approach to help clients set up an appropriate trust structure. The FIT concept focuses on client's objectives, circumstances and requirements; and 'integrates' the products and services of the SG Group (including external professional advisers) to achieve a 'total' solution for the client.

Mr Peng said in the unfortunate situation an individual was no longer able to handle his or her own affairs, a trust could ensure that there would be someone who was experienced and objective to 'mind the store'.

'If there is a serious illness or disability, a trust ensures that a plan is in place to take care of your needs and those of your loved ones.'

SG has 10 trust specialists based in Singapore covering the Asia-Pacific region. In addition, the firm has a network of trust companies based in London, the Bahamas, Jersey, Guernsey and Gibraltar, providing a range of services, including trust and financial engineering, company formation and administration, custodian and escrow, and wills and estate management.

Kevin Coppard, general manager of The Fry Group Hong Kong office, said when creating a trust, people had to be clear in their minds under what circumstances and for what duration a trust would need to function.

Mr Coppard said there were two problems with a trust extending through a number of generations.

Many jurisdictions have rules limiting the lifetime of a trust other than a trust for charity. Depending on the jurisdiction the maximum length may be the lifetime of beneficiaries of the trust or 80 years.

'More to the point however, is that the wider your family tree grows as your descendants add to the family, the harder it will be to match the interests of the various beneficiaries. For instance, somebody wishing to preserve a family home might well feel that his two children could get along well and share its use appropriately.

'However, if both they and their children each produce two offspring, you then have eight beneficiaries to contend with. If some of those choose not to have children they can see a good deal of the inheritance passing outside of their control for the benefit of the children of individuals they may not even know that well. The scope for ill feeling is obvious,' he said.

He said great care must be taken regarding the structure of a trust. A transfer of a property to a British trust company structure was now likely to lead to a stamp duty land tax charge and, if the individual was living in the property and became a British resident, also an income tax charge as if the property was being supplied by an employer.

'Properties owned by companies in Spain are subject to different tax rates compared with properties owned by individuals and you would need to be certain that the local law would not take into account the existence of such a structure and expect the rest of the estate to be adjusted to meet the traditional overall requirements, as can be the case in France,' Mr Coppard said.




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