Long Term Family Financial Resilience with a Trust Structure By Tan Hwee Heng, CFPÂŽ
This Covid crisis has demonstrated the importance of having reserves as our government called upon our reserves to support the economy. The packages provided funding across the board with salary subsidies to preserve jobs in the whole economy and various tax incentives and rebates. Despite so, we have also seen numerous businesses struggle and household brands like Teo Heng Karaoke shut down branches to hopefully preserve their remaining capital to wait for the storm to be over. At individual levels, many individuals have adapted to ensure they and their family continue to have some form of income. Through this period, we came to understand that in the classifications of reserves, there are 2 types of reserves, namely immediate reserves and inter-generational reserves. The assets that our government taped upon are reserves that have accumulated through the first pioneer generation. They are now called upon to help the current generation to get through the crisis. Inter-generational reserves are powerful. Families frequently encountered more crisis, in many different forms, than such mega crisis that affects everyone. Some common crisis can be caused by a wayward child, unsuccessful expansion of businesses, or a damaging marriage. For families, such crisis may leads to a rapid decline in family fortunes, loss of reputation, loss of educational and business opportunities for future generation. In some cases, families have to downgrade their lifestyle, move out of family homes and faces hardship. Family wealth may flow out of the family, seized by opportunistic outsiders or due to bad marriages. Blame, anguish, hurt will dominate conversations within the family for long periods of time. Is there a structure that can help manage this accumulated reserve so that the succeeding generations can have resources to call upon in all sorts of crisis? The good news is there is a structure called Trust, that is encoded in our law as well as in the Common Law that our legal system sets its foundation.
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For many, there is a myth that Trust structures are meant for the rich. The reality is Trust structures are meant for most Singaporean families who care for their future descendants. It is easy to create and can be relatively affordable to everyone. A Trust can be simply be created via a Will with a few paragraphs or pages of intentions, which is inexpensive. Such a Trust is called a Testamentary Trust. In the same breath, it is a commonly held misconception that the cost of setting up a Living Trust will be a prohibitive sum that runs into tens or even hundreds of thousands of dollars. Today, even a Living Trust can be set up with a few thousand dollars. These trusts are different in the Trust is set up while the person (Settlor) is alive. There are various types of Living Trusts available for different purposes.
Types of Trust that can be used as a Family Reserves Holding Structure Trust Testamentary Standby Trust
Property Trust
Investment Trust
Typically, young parents have been using their Will to create a testamentary trust to provide for their minor children over the years since minors cannot handle the estate monies till they reach 21. However, any one can even take a step further to use the same features to set up a testamentary trust to create a Family Reserve fund. Here are some steps and considerations on how create a Family Reserves Fund using a Trust Structure. • Develop an Estate Plan with the help of an Estate Planner o Consider whether a Living Trust or a Testamentary Trust or even both that fits your requirement
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Living Insurance Trust
Private Trust Company
Charity Trust
