HIGH-PROFILE COMPANY directors, millionaire business executives and film stars are not the only ones who can benefit from setting up a trust to mitigate tax exposure and ensure assets are properly managed for their beneficiaries.
Not everyone needs a trust, but more people should consider setting one up, according to Royal Skandia regional director (Far East) Francine Kwong.
She said trusts were not just for the affluent. Setting up a simple trust was one way to control what happened to an estate, regardless of its size, reduce estate taxes and protect against the expense and aggravation of probate.
She said a trust was more flexible than a will and could be more appropriate depending on the circumstances.
'A will is a set of instructions regarding the disposition of property, which takes effect at death. A trust is a set of instructions that can apply during life and/or death and does not pass through probate.'
Financial planners often recommend a trust in addition to a will. Both can be used to provide for the disposition of assets and have the advantage of avoiding probate. But trusts are confidential, unlike a will, which becomes public on death. This may not be desirable in complex family situations or where confidentiality is required.
The cost of probate when a wealthy individual dies can be high and even force the unwanted sale of assets. By establishing a trust, settlors (the people who set up the trust) may minimise the disruptive effects of their own death on the family estate. Settlors can rest assured their family will be looked after in the same way after their death as before in accordance with the terms of a trust established during their lifetime, and the wishes expressed to their trustees.
Ms Kwong said those who did not consider themselves wealthy but had young children and wanted to assure a good education for them, and would have enough assets to do so after death (including life insurance proceeds), should consider setting up a trust.
Royal Skandia provides a trust service that ensures the benefits of a life assurance policy pass to another. This can be useful when young children stand to benefit.
Employing professional trustees also provides settlors with the peace of mind to know that assets settled in trusts will be administered competently and professionally in accordance with their long-term wishes, and always in the best interests of the beneficiaries.
Ms Kwong said choosing a trustee should be done with the same care as selecting someone to look after children.
Depending on the complexity and location of assets and the work involved, a trust can be set up in days. When stocks and investment tools held in different jurisdictions are involved, or company ownership, the process may take up to a month. All types of asset, from personal properties such as the family home to more complicated investments, may be included in a trust structure.
When relocating, individuals may settle assets into a trust based in a low tax jurisdiction before taking up residence in a higher tax location. Ms Kwong said a simple trust could be set up for just a few thousand dollars. Having a straightforward will drafted could cost about the same
Ms Kwong said the main feature of a trust was that although legal title was passed to the trustee by the settlor, the trustee was obliged to look after the property transferred for the enjoyment and benefit of the beneficiaries. 'The trustee is a custodian who, other than charging a reasonable fee, cannot benefit personally from trust assets.'
worth every penny
Trusts are not exclusively for the affluent.
Trusts are confidential, unlike a will, which becomes public on death.
A trust can be set up for a few thousand dollars.
By establishing a trust, settlors can minimise the disruptive effects of their death on the family estate.
A trust may also be an effective tax-planning tool for estate or inheritance taxes on assets outside the country of the settlor's nationality.
Depending on the complexity, location of assets and the amount of work involved, a trust can be set up in matter of days.