We’ve discussed plenty about the fundamentals of estate planning. What many people don’t know is that a trust can be a flexible and powerful estate planning tool; if executed with good understanding. It is especially useful for those with a sizable estate, or if you have unique needs and situations to address.
Essentially, a trust is a legal arrangement where an individual transfers assets to a third party, known as a trustee. The trustee is bound by a deed to hold and manage the assets for the beneficiaries. The individual who transfers the assets into a trust is known as the settlor. The trustee takes legal ownership of the assets entrusted to him by the settlor; but the beneficial interests still lie with the beneficiaries.
Creating your customised estate plan? Here are four key reasons to use trust as an instrument:
#1: IT IS A NON-PROBATE AND PRIVATE INSTRUMENT
The probate during estate settlement can take a long time. During this process, the assets of the deceased will be frozen and that could affect your family members’ financial well-being. As trust assets are not considered as part of your estate, they do not need to go through the probate process when you pass on. The trustee can provide the needed liquidity for the family immediately.
Another advantage of a trust is its confidentiality. A trust is a private arrangement, unlike a will which is filed as a public document. The privacy of a trust is an important feature when you do not wish to reveal the exact details.
#2: PROTECT YOUR ASSETS FROM CREDITORS
This is another key reason why assets are placed into trust. Creditors’ risk can come in many forms: Failing to honour a personal guarantor over a corporate loan; losing a law suit of negligence; experiencing business failure; or simply being unable to repay a debt.
The benefits of asset protection in an irrevocable trust are undisputed, but the take-up rate is low due to a lack of awareness. It would be beneficial to be prudently ring-fence some of your assets into an irrevocable trust, just in case. Especially for business owners with high-risk profiles, the protection of personal assets is vital.
#3: DISTRIBUTE ASSETS TO BENEFICIARY PERIODICALLY
You may hope that your beneficiaries have the good financial sense to make the most of what you intend to leave them. In reality, it might not be so. Your intended beneficiary may have weak financial discipline; or for those with special needs, lack the mental capacity to handle money.
Under such circumstances, you need to consider whether you wish to transfer your estate to your beneficiary in one lump sum or periodically. A trust can be structured to hold and preserve your estate, and distribute a meaningful amount to your beneficiary periodically.
#4: ENSURE THE RIGHT PERSON BENEFITS FROM YOUR ASSETS
Sometimes, you might not want to make known in your will that you have the intention of providing for certain people in your life. For example, if your elderly parents and your spouse are not on the best terms, you can stipulate in the trust to look after your parents’ interests without compromising your spouse’s financial position when you pass on.
Another situation that could pose complications is if you have two sets of children; for example, one from your previous marriage and one from your current relationship. By structuring a trust, you can provide for the children of your previous marriage without causing a misunderstanding with your current family.
At Summit Planners, we believe everyone is unique and so are your Life Planning needs. Allow us to tailor your Estate Plan with our 3Cs [Consult-Customise-Create] approach!
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