Categories
Trust

ABSD (Trust) won’t impact those who have Standby Trusts with pour-over

The Ministry of Finance on 8 May 2022 announced that an Additional Buyer’s Stamp Duty (ABSD) of 35% will be imposed for the transfer of residential property into a living trust. Essentially, the Ministry said that the ABSD (Trust) of 35% is being imposed to close a gap where residential property is being transferred to a living trust without an identifiable individual beneficiary.

The move came as a surprise, especially to clients of estate planners who have set up Standby Trusts — a type of living trust — with pour-over Wills. In particular, the clients were concerned about whether the pour-over from their Will to the Standby Trust upon their passing will be subject to the 35% ABSD (Trust).

The situation was clarified by Mr. Liu Hern Kuan, Director of ZICO Insights Law LLC – Head of Tax, at a recent webinar. He noted that ABSD (Trust) applies to “conveyance, or transfer”, while a property passing under a Will is a “transmission”. There is therefore no ABSD (Trust) for such a transmission of property from the estate of a deceased person via his or her Will to the trust.

Mr. Liu’s view is consistent with the general understanding about applying stamp duty in relation to the transfer of property assets via a Will. The Inland Revenue Authority of Singapore (IRAS) says on its website that documents relating to the “transfer of property by way of assent to the beneficiaries in accordance to the Will, Intestate Succession Act or Muslim Law of Inheritance” is no longer liable to fixed or nominal duties.

In other words, the new ABSD (Trust) regime will not affect clients who have set up Standby Trusts with pour-over Wills that will transfer their residential properties into their Standby Trusts upon their passing.

Property investors’ behavior may be affected

The ABSD (Trust) regime is expected to change the behaviour of property investors who wish to purchase a property through a trust. Since the 35% ABSD (Trust) must be paid upfront and any remissions would apply subsequently, this would mean that investors/ settlors will need to ensure they first have sufficient liquidity to pay the ABSD (Trust). The trust will also need to fulfill the requirement of having an identifiable individual beneficiary, or else the investor/ settlor will not be able to get a refund on the ABSD paid.

It may also be worthwhile for estate planners to rethink provisions in Wills. To futureproof Wills against any sudden and drastic changes in laws and taxes, executors/ trustees should be given additional powers to sell an asset or property, and need not be limited to transferring the asset or property in specie to a beneficiary.

This latest move by the Ministry of Finance underscores the need for estate planning practices to be reviewed and updated periodically and systematically, to keep up with changes in laws and/or taxes to ensure that estate plans are not only cost effective, but also remain aligned to the needs and desires of clients.

Leong Mun Kid

AEPP®
Head of Department, Trusts
Precepts Trustee Ltd

Categories
Trust

Wealth planning for high net worth individuals

In the first part of this two-part article, Kimmis Pun of Shenning Investments examines the use of Family Trusts to manage the wealth of High Net Worth individuals (HNWIs) and families

HNWI Family Dynamics

HNW families accumulate sizable family assets through years of efforts to expand their businesses and invest their wealth. No families would dispute the universal objective of allowing the next generations or other loved ones to enjoy and benefit from the global assets which might include operating
businesses, investible assets, real estate, insurance products, intellectual property and collectibles.

The diversified life experiences of HNWIs entail well-structured wealth and succession plans. In some cases, the convoluted fabric of the family branches might make the plans more complex and even subject to legal challenges.

Family disharmony is not uncommon especially when the inter-generational transfer of wealth faces complications. The prevailing commonality in cohesive families is the way to solve complex issues through continuous conversations among their members. Some outcomes are encouraging while others might be futile. Nonetheless, relational problems should be solved with relational solutions, while structural problems are solved with structural solutions.

HNWI Family Inheritance

The implementation of inter-generational and cross-border family wealth inheritance is based on 3Es – Etiquette (rules and guidelines), Execution (professional teams) and Exhibit (wealth planning tools).

Etiquette

  • Family Constitution – core value & governance
  • Individual Wills – bequeath and terms

Execution

  • Family Office
  • Executors or Administrators
  • Professional Wealth Planner or Financial Advisers

Exhibit

  • Family Trust
  • Family Fund
  • Family Insurance

A family constitution or charter is the fundamental law that governs the family and process of inheriting the family business. It serves as a mechanism to prevent and solve intra-family disputes. To formulate a family constitution, the family dynamic, vision, mission, core values, behavioural norms, inheritance goals and development strategies should be considered. It also defines the relationship between family and business, the system of equity transfer, the distribution and formation of operating power, the ethical norms of existing and future leaders.

A family office is the highest execution team responsible for implementing family affairs. It can be seen as the administrative management team for the family business. It manages the family assets, aligns various interests of family
members, handles non-financial issues such as legacy planning, archive keeping, lifestyle management, selection and grooming of successors.

Wealth and legacy planning tools help HNWIs manage global investments and the inter-generational transfer of assets in a professional and smooth fashion. Besides the management and administration of the family assets, the ownership of these assets is of paramount importance. At present, the common holding structures are the Family Holding Company, Family Trust, Family Fund and Family Insurance. We will focus on the latter three holding structures in this and the next iteration of The Custodian.

Family Trust

We will highlight the most common structure, the Family Trust, in the first part of this article. A Family Trust is an expressed private legal arrangement allowing the settlor to transfer or give away his assets (tangible and intangible) to the trustee for the benefit of the named beneficiaries, over a specified period, or upon the occurrence of a stipulated incident such as death of the settlor.

To make a Family Trust effective and valid under the law, and besides the settlor having the legal capacity to create the trust, there are three certainties that have to be present simultaneously: 

  • Intention of the settlor – the real desire to create a trust
  • Subject matter – the assets to be entrusted to the trustee, or
    Trust assets
  • Object – the named beneficiaries

How is a Family Trust used?

There are many uses of Family Trusts that allow HNWIs to plan for their families, assets and businesses. These include:

  • Provide for family members in case of unforeseen circumstances
  • Look after incapacitated/ vulnerable family members or minors
  • Control the devolution of assets in countries with forced heirship rules
  • Shield family assets and businesses against wasteful descendants, ugly divorces, creditors, scams or unprecedented risks
  • Hold significant listed company shares or certain important/ memorial assets intact within the control of the family
  • Hold life assurance policies and receive pay-outs from the policies upon the demise of the life insured
  • Manage and invest the family assets and funds through professionals, maximising potential growth and income Carry out tax and estate duty planning for family assets and businesses
  • Avoid a cumbersome probate process in certain countries upon the death of the settlor
  • Ensure an orderly distribution of family assets to family members (beneficiaries) at a specified time or over a period designed by the settlor
  • Avoid family squabbles or conflicts in case of unequal or perceived unfair transfer of family assets to certain family members
  • Set aside funds for education or business ventures for next generations
  • Set up family charities to serve the under-privileged
  • Keep family history and archives intact
  • Keep family information and issues away from public eyes

What are the types of Family Trusts?

In general, we can differentiate the nature of a Family Trust
from three perspectives:

  1.  Time of creation
    1. Living (Inter-vivos) – set up during the lifetime of the settlor
    2. Testamentary Trust – set up via a Will written by the settlor and becomes effective upon the settlor’s death
  2. Power of revocation
    1. Revocable – the settlor can revoke the Family Trust anytime during his or her lifetime
    2. Irrevocable Trust – the settlor has no power to revoke the Family Trust
  3. Power of management
    1. Non-discretionary (fixed) – the trustee has no discretion but to follow the terms of the trust deed
    2. Discretionary trust – the trustee has wide power to make distributions to the beneficiaries, manage the trust assets and adhere to the legislative fiduciary duties

How many stakeholders in a Family Trust?

In general circumstances, there are three stakeholders in a Family Trust:

  1. Settlor
    1. The person setting up a Family Trust and transferring his or her assets to the trustee
    2. Must be careful when reserving powers as too much powers reserved might lead to a “sham” in the eyes of the law
  2. Trustee
    1. A legal entity undertakes the trusteeship under the trust deed and receives the legal title to the trust assets transferred to it by the settlor
    2. Assumes the fiduciary duties owed to the beneficiaries, failing which, could be sued for breach of trust
  3. Beneficiaries
    1. The persons for whose benefit the Family Trust is created
    2. Have personal rights to enforce the terms of the Family Trust and ensure the trustee carries out its provisions and duties
    3. Have equitable (beneficial) interests in the trust assets allowing them to enjoy the trust assets in accordance to the terms of the Family Trust
    4. Have no authority to influence how the Family Trust is administered by the trustee unless they are given specific provisions in the trust deed

      Meanwhile, to place a mechanism to protect the trust assets
      and the beneficiaries, the settlor can appoint a fourth party
      into a Family Trust:
  4. Protector
    1. Is not a party to the trust deed and has no legal title vested in his or her name
    2. Cannot be a named beneficiary in the Family Trust
    3. Has reactive powers against the actions of the trustee
    4. Has proactive powers and can initiate an action such as payment to beneficiaries, remove/ appoint beneficiaries, remove the trustee and appoint another appropriate trustee

What are the duties of the trustee?

The duties imposed on the trustee arise by virtue of the general obligation as a fiduciary. The trustee:

  • Should not normally delegate its trust functions except its administrative ones and certain asset management functions
  • Should exercise a duty of care when dealing with a Family Trust
  • Must act in good faith and make the interests of beneficiaries of paramount concern
  • Should not normally purchase the trust assets (the rule against self-dealing)
  • Should not benefit or keep profits from the Family Trust
  • Cannot charge for its services unless properly authorised or has the statutory authority (a professional trustee).
  • Must comply with the terms of the trust deed
  • Should take control of the trust assets, preserve the value of the capital and invest assets prudently under the advice of professionals to provide income for the beneficiaries
  • Should act impartially among all the beneficiaries and provide timely information when required by the beneficiaries
  • Must provide for the education, maintenance or benefit of a minor beneficiary, and pay capital sums of the advancement or benefit to a beneficiary
  • Should keep accurate accounts of trust assets

How to terminate a Family Trust?

A Family Trust can be terminated under these circumstances:

  • Full distribution of all the capital and income to the named beneficiaries by the trustee according to the terms in the trust deed
  • The court decides in its circumstantial merits and orders the trust assets be divided for the beneficiaries
  • The court intervenes to set aside a Family Trust when it was set up to avoid creditors or it was a sham

The second part of this article will be presented in next issue of The Custodian.

Kimmis Pun

Managing Director, Family Office Shenning Investments Pte Ltd

Categories
Trust Estate Planning Wills

Foreign Grantor Trust for Non-US Tax Residents

Foreign Grantor Trusts (FGTs) are one of the most popular and advantageous vehicles for foreign parents to plan for their U.S. resident children. An FGT allows the foreign grantor to move assets out of their name and into a trust for the benefit of U.S. beneficiaries, and at the same time, avoid paying any taxes on the non-U.S. trust assets held in the FGT.

However, since FGTs present so many benefits, the Internal Revenue Service will also be aware that there can be abuse. The U.S. government wrote the Internal Revenue Code sections 671-678 to properly characterise certain trusts as grantor trusts by making sure certain criteria are met. Basically, if the grantor of the trust holds certain interests or power, they are considered the owner of the trust assets, even though the assets are in the trust’s name and possession. This rule helps avoid the abuse of FGTs to avoid U.S. tax.

Even with these restrictions, FGTs are beneficial when the grantor is not a U.S. person, and they are deemed as the owner of the trust assets. Under U.S. taxation rules, income from trust assets is taxed as if owned by the non-resident alien grantor — thus, unless the income is sourced from the U.S., it is not taxable in the U.S. Furthermore, any distribution to U.S. beneficiaries will not be taxed as income. However, the U.S. beneficiaries are obligated to report the distribution as foreign gifts received. Foreign gifts of non-U.S. assets received by U.S. beneficiaries are reportable transactions, but not taxed.

Care needed with distributions

It should be noted though that distributions from the trust could create other income and reporting for the beneficiaries by piercing the structure of the FGT. In general, distributions to beneficiaries or interactions/ control between beneficiaries and trust assets need to be handled very carefully. If beneficiaries have certain powers or control of the trust, this may trigger rules that deem the beneficiaries as owners of trust assets.

When this happens, the beneficiaries’ deemed shares of the trust assets or income will be subject to U.S. taxation. In addition, the trust must also provide enough powers to the foreign grantor to satisfy the grantor trust rules. If the powers are not enough to satisfy the grantor trust rules, the trust could be considered a foreign non-grantor trust, which carries a substantially different tax outcome. In most circumstances, a foreign non-grantor trust with a U.S. beneficiary is not beneficial in U.S. taxation.

Although the FGT is a very advantageous tool, one must also make sure the terms of the trust do not create other issues. For example, it is important to make sure the foreign grantor of the trust will stay foreign. If the foreign grantor plans to immigrate to the U.S. in the future, an FGT may not be a good idea. All the trust assets and income will be taxable to the U.S. when the grantor becomes a U.S. resident.

The FGT generally only lasts for the lifetime of the grantor. When the grantor passes away, the FGT becomes a foreign non-grantor trust. The U.S. beneficiaries will be deemed as the owners of the trust assets for foreign financial reporting purposes, which completely changes everything. In sum, FGTs can be an excellent planning tool, but they must be used for the right reasons and with proper planning.

We are a leading provider of trust services as well as will writing services in Singapore.

The above article first appeared on EPPL’s The Custodian, Issue 21.

#Wills #Trust #Estate Planning

Josh Maxwell | Precepts Group

Josh Maxwell, CPA, JD, LLM

Tax Attorney

Hone Maxwell LLP

Aaron Li | Precepts Group

Aaron Li, JD, LLM

Tax Attorney

Hone Maxwell LLP

Categories
Trust CPF Nomination

Digital Trust option for Malaysians with CPF savings in Singapore

Malaysians who leave Singapore for good but choose to keep their CPF savings in the city-state can look beyond CPF nominations to distribute their savings after they are gone, says EPPL’s Ooi Sen Tee.

Despite continuing pandemic-induced travel restrictions, Malaysians can now set up a Trust in Singapore without going through the hassle of cross-border travel. EPPL Digital has enabled the advent of digital Trusts for Malaysians. Those who maintain a CPF account in Singapore can consider setting up a digital Trust for their CPF savings.

Many Malaysians and Singapore permanent residents have built their careers in Singapore over many years. Many have contributed to their CPF accounts for a long time and grown a valuable Singapore dollar-denominated nest egg. When they decide to return to Malaysia for good, they will typically have to make a decision about what to do with their CPF savings.

According to CPF Board rules, when people renounce citizenship or permanent residency in Singapore, they are entitled to withdraw all the money in their CPF accounts. However, the CPF Board implements specific conditions on CPF savings withdrawal for Malaysians leaving Singapore to reside in West Malaysia, East Malaysia, and other countries. (See CPFB | Account closure by Malaysians in West Malaysia for detailed information.)

Keeping CPF funds in Singapore

Now, there are those who may wish to maintain their CPF savings as status quo and may not opt to withdraw their CPF savings after renouncing their citizenship or permanent residence status. This makes financial sense, especially amid the current global economic uncertainties, persistently low-interest rates, and volatility in foreign exchange markets.

The Monetary Authority of Singapore, however, is committed to keeping the Singapore dollar stable, which helps to make CPF savings a safe-haven asset. Another plus for CPF savings is that they can earn account holders higher interest than they would receive from bank deposits, while returns are relatively risk-free. Hence, CPF savings can be considered a growing portfolio with compounding effects, and without taking unnecessary risks.

Rationale for establishing a Trust for CPF savings

When a person is leaving Singapore for good, it is important to plan for eventualities. Part of the person’s estate, namely his CPF savings, will now be in a foreign country. If the person has drawn up a Will, it cannot cover CPF savings as CPF nominations are the only way to ensure that CPF savings are distributed efficiently to intended beneficiaries.

With a Trust, the distribution options are expanded. CPF account holders can put in instructions via a Trust to pay out their CPF savings over a period of time, at a frequency that suits the beneficiaries’ circumstances, or at a later vesting age. This can largely address concerns that arise from potential squandering, poor money management, and other inheritance pitfalls. The trustee, whoever is appointed, can hold the CPF savings in trust or as a means of asset diversification. At any time, the money could be transferred from Singapore to a Malaysian account.

These are some of the benefits of a digital Trust that a Malaysian can set up in Singapore remotely. The two-year pandemic has accelerated many digital initiatives across industries, and digital Trust is just one of these initiatives. With ProviTrust and online nominations, Malaysians who wish to maintain their CPF accounts in Singapore can now better plan the distribution of their CPF savings to their loved ones.

Find out more about digital Trusts at digital@epplasia.com or contact us at info@epplasia.com

EPPL Digital, Authorised Trust in Singapore | Precepts Group

 

 

 

 

 

 

 

The above article first appeared on EPPL’s The Custodian, Issue 21.

#Trust #CPF Nomination

Ooi Sen Tee | Precepts Group

Ooi Sen Tee

AEPP®

Relationship Manager

Precepts Trustee Ltd (PTL)/ Estate Planning Practitioners Limited (EPPL)

Categories
Trust

My Legacy Is In The Name Of My Trust

How do I choose a name for my Trust? Should it carry my name? Should it follow my child’s name? Or should I name it to a unique memory or places my family had been to?

When you establish a Trust, you are required to provide a formal name to identify the Trust to its trustees, the beneficiaries and the relevant legal authorities. Besides appearing on all Trust documents, the selected Trust name will also appear on bank accounts which hold your Trust assets, the CPF and insurance nomination forms which you nominate your Trust as the beneficiary. Very often, the names of the Settlors are most commonly used to name the Trusts.

If a Trust name is too long, for example ‘The Robert V. and Patricia S. Hernandez Family Trust’, it is not possible to fit into the limited space for the bank account name to hold the Trust assets or name of the CPF/ insurance nominee when filling in the nomination forms.

On the other hand, if it is too short, where the Settlor’s surname is commonly used, for example ‘Tan Family Trust’, it might be too common and does not differentiate from other similar trust name like ‘Tan Sui Family Trust’, that may create confusion in sorting out legal documents. Although using the Settlor’s surname carries the Settlor’s family identity, it may give rise to concern over privacy issues.

Things to keep in mind when naming a Trust:

1. Consider the Settlors and Beneficiaries

The most obvious choice is to create the Trust in the name of the Settlor, the person setting up the Trust. For example, if Jenny Chang is the Settlor, the Trust can be named ‘Jenny Chang Family Trust’. Otherwise, consider the beneficiaries who will benefit from the Trust, such as the minor children. For example, ‘Joseph and Mona  Chang Trust’. If the beneficiary is an organization or a charity, the trust name which can facilitate the ease for registration with The Commissioner of Charities should be considered.

2. Keep the Name Short

Before you finalize on a Trust name, consider the practical aspects of your choice. Because it is necessary to re-title any property in the name of the Trust, choose a Trust name that can conveniently appear on checks, titled deeds and bank accounts. For example, “Hernandez Trust” is less cumbersome than “The Robert V. and Patricia S. Hernandez Living Trust Fund.”

In Precepts, the rule of thumb in choosing a Trust name is

(i) The name of the Trust should not be too abbreviated.

(ii) To keep the Trust name within total characters not exceeding 30 spaces for the ease of opening and operating bank accounts and CPF/ Insurance nomination.

(iii) The name of the Trust should not carry an apostrophe [‘s] or any special symbol [+, -, @, #, $,*, %, !] to avoid any ambiguity and potential typographical errors. The symbol [&] which denotes ‘and’ is acceptable though not encouraged.

If the Settlor would like to keep his/ her Trust confidential, the name of the Trust can be any name not related to his/ her actual name subject to the above rules when choosing a Trust name.

Jenny Tan

AEPP®

Trust Manager Precepts Trustee Ltd

Categories
Trust

The 6 Great Misconceptions of Trust

When the word “trust” is mentioned, it is likely that this term will go over the heads of majority of Singaporeans. That’s because of the common perception that it is a subject reserved for discussion among only the ultra-high net worth community. In this piece, we will attempt to provide a clearer understanding of what a trust is, and debunk the misconceptions that are stopping individuals from taking full advantage of its benefits as an estate planning instrument. Depending on the objectives of an individual, some trusts have a more complex structure, but the bulk of most are used in very direct and practical ways.

WHAT IS A TRUST?

Imagine you’re holding on to a bowl of candy. Before leaving the house for a weeklong work trip, you hand this bowl over to your spouse together with a set of instructions on how you want your candy to be distributed to your children. If you are concerned that your children aren’t disciplined enough to ration the candy on their own (and worry they may gobble up everything at once), your instructions to your spouse could include giving them one candy each after mealtime for the entire week.

Similarly, the archetypal trust is a legal arrangement by which you, the owner (“settlor”) of the assets, create the trust and appoint another party whom you trust (“trustee”) to manage your assets according to your instructions (“trust deed”) for the benefit of the loved ones (“beneficiaries”) you have listed down in the trust deed.

So figuratively, the bowl of candy is like a trust.

How to set up a trust in Singapore | PreceptsGroup

THE 6 MISCONCEPTIONS

Before you decide to bury the idea of trusts as a potential solution for your estate planning, here is a list of common misconceptions that many people have about trusts which may encourage you to reconsider setting one up for yourself. You’re not alone if you find yourself falling into one or more of these categories.

Misconception #1: Trusts are Only for the Wealthy

This is perhaps the most common assumption about trusts. While it is true that many wealthy people set up trusts, many in the middle-income group make full use of the benefits of a trust for a variety of purposes in their estate planning. In general, a trust is set up to ensure the estate does not become misappropriated.

Misconception #2: A Trust is Expensive

While there are set-up fees payable, a trust need not be actively administered or managed by the trustee. For example, with a standby trust, one only needs to pay a one-time set-up fee upon creation. Thereafter, there are no on-going trust administration fees until the standby trust is activated, usually upon the occurrence of a triggering event, e.g. death or mental incapacity of the settlor, when assets are transferred into the trust.

Misconception #3: Trusts are Complicated

Usually, setting up a trust is not as confusing as it seems. Depending on your estate planning goals, you can set up a trust that is as simple or as complicated as you want it to be. All you need is to list down your objectives – whether it is for protection of assets, provision of funds or anything else – and exactly how you would want the trust to work for you.

Have a chat with your estate planner so that he/she may take you through the process for easier understanding. The last thing you would want to have is a trust that doesn’t serve its purpose.

Misconception #4: A Trust “Locks Up” Your Assets

Again, it depends on what your requirements are for setting up a trust. As stated above, with a standby trust, you need not settle any assets into the trust until a triggering event (such as death) has occurred. Meaning during your lifetime, you retain control over your assets.

If you wish to set up a trust and immediately settle assets into the trust, you may retain the power to revoke the trust (revocable trust) which allows you to withdraw your assets if you change your mind.

Misconception #5: A Will is Enough. There’s No Need for a Trust.

A will is required to undergo the process of probate, which grants the executor authority to deal with the deceased’s estate. Without the probate, the executor cannot execute what is written in the will. Also, wills can be challenged and may cause unnecessary delays in the execution of your wishes. In addition, your will will become a public document once it has gone through the probate process.

A living trust does not need to go through the process of probate, so the release of the trust assets to the beneficiaries will be made within a shorter period, in exactly the way you want it to. arguments over assets can be avoided as well because whatever has been instructed by the settlor will be done. Furthermore, should one set up a trust, there is strict confidentiality among the beneficiaries.

Misconception #6: Family or Friend Makes for a Better Trustee

Understandably, people would choose to appoint a close family member or friend as their trustee. After all, who else would make a better choice, right? Unfortunately, many fail to understand the huge amount of work and responsibility they will take on should they agree to act as a trustee. In addition to creating potential tensions within the family, there are also legal implications if the trustee’s role is not fulfilled properly.

A suitable alternative would be to appoint a trust company. This solution shifts the workload entirely to a neutral party who has the expertise and capability to manage the settlor’s estate. Any disagreements regarding the distribution of assets will then be significantly reduced.

WHAT WE SAY

It is important to evaluate your list of assets, decide what your goals are and how you want them to be managed after passing on. After which, a chat with an estate planner would be in order, to help you understand the processes and provide you with the right support before setting up a trust for yourself.

Disclaimer: Any information in this feature is intended to provide only a general understanding of trusts. It should not be misconstrued as material to be used for advice of any kind especially with regards to financial, legal, or tax-related practices. Should you need further advice relating to your estate planning, do approach our consultants to discuss how to structure your trusts according to your requirements.
 
This article is first published on our newsletter, The Custodian Issue 12 on September, 2019. Click here to subscribe to our latest newsletter.

Categories
Trust

PRIVATE TRUST COMPANY (PTC)

The use of trust for legacy and succession planning has its significant merits but there are some limitations. The use of trusts for legacy and succession planning has significant merits but there are some limitations where it concerns the person of the trustees. This is where we introduce the concept of a PTC (private trust company). It is suitable for families with substantial family business assets and other family properties. These families face unique challenges as their family generations expand over time.

In the typical TV dramas and many real-life cases, such family businesses lose their direction and control over time and the family and the assets inevitably split up. The development of an estate plan and use of a succession tool like PTC can overcome such challenges. Such a structure has been utilized across modern jurisdictions with much success to help preserve the family wealth.

PTCs are established with the sole purpose of acting as a corporate trustee to a family trust or a number of family trusts, where the settlor and beneficiaries are connected persons.

PTCs are commonly used by high net worth (HNW) families in their wealth structuring. When it comes to family companies, the PTC offers aspects that may be absent in the traditional trust. Whereas the traditional trust structure requires the settlor to give up ownership over certain assets to someone else, in the PTC, the settlor will be more comfortable shifting his assets into a special purpose vehicle which provides for his family members.

The PTC offers a structure where the founder could make the transfer and consolidate the ownership of his diversified family businesses, investments and real estate into one vehicle which also is the trustee. The assets as a result do not get diluted by family growth or marital complications. The structure reduces the chance that these assets become a source of envy, greed and infighting.

With proper structuring, the PTC can be a suitable trustee for a family trust to address concerns such as:

  • Succession of wealth for the family
  • Asset protection and avoiding adverse claims e.g. business creditors, divorce and family feuds.
  • Wealth preservation and investment

FEATURES OF A PRIVATE TRUST COMPANY STRUCTURE:

Other than the family trust instrument, there is usually a family constitution. The family constitution provides

  • the governance framework,
  • the rules governing the relationships and roles of the family members in the family council,
  • the appointment of various committees to carry out certain roles,
  • the policies for distribution of the family wealth through the family trusts,
  • the human resource policies and compensation of family members employed by the family companies etc.

The family constitution typically stipulates the establishment of a family council and its functions as the supervisory body of the board of directors of the PTC. The family council also provides the communication channel and forum for all the family members to participate in the affairs of the family.

As significant wealth continues to grow in the family, the family PTC could also in time eventually be structured as part of a family office.

Notably, under the Trust Companies (Exemptions) Regulations 2005, the PTC is specifically defined and mentioned as an exempt entity; i.e. it is not required to seek a Trust Business License under the Licensing regime for Trust Companies. At Precepts Trustee Ltd, we assist families to set up their PTCs, and subsequently provide the support to maintain the PTC to comply with regulatory obligations and requirements as well as to provide advice for legacy planning.

Make an appointment with us to explore how the PTC structure can enable you to achieve your legacy plans.

 

Categories
Trust

Guardianships are they really worth it?

Most of us have probably come across the term “Guardian” or “Guardianship”, but have you ever stopped to think about whether this is something you need to put in place?

What is the Role of a Guardian?

A Guardian will effectively have overall responsibility for  the child including:-

As a parent, it may be something you think you may never have to consider but the safest option is to make provisions for your children now so you know when you are no longer in this life, they will still be loved and well cared for by someone you trust.

A guardian is someone who has the legal authority to take care of a child (21 years old for Singapore) in the event of the death of both their parents or carer.

We understand that determining who will be the guardian of your children is one of the most important decisions as a parent that you will have to make and can be quite an overwhelming task so we have put together some guidance for you below when determining who your guardian(s) should be.

Things to Consider when Appointing a Guardian

Choosing a guardian can be, in some cases, a fairly difficult decision to make. Here are some factors for you to consider ensuring you make the best choice:-

Can I appoint more than one guardian?

Yes, you can appoint more than one guardian but make sure the people you choose will be able to agree on what is best for your children.

If you decide you want the guardians to act jointly (instead of jointly and severally), this effectively means all guardians would be required to agree on every single point relating to the children’s upbringing, which school they go to etc. This is likely to cause issues and potential conflict between the guardians.

In some cases, where only one guardian has been appointed, it would be advisable to appoint an alternative guardian in the event the appointed guardian(s) are unable to fulfil their role for any reason.

Guardians Appointed in Different Countries

We have recently seen a high number of queries relating to appointing guardians in different countries to each other and that of the children. Looking at this objectively, realistically this is likely to cause a lot of unrest for the children. Where would the children be expected to reside? Will an agreement even be reached as to who the children will stay with?

Aside from the above, there could also be difficulties faced (along with the associated expense) of obtaining visas for the children and removing them from the UK to live abroad. Will this even be permitted and what if the visas are refused?

Can I Leave Money for my Appointed Guardian(s) in my Will?

The simple answer is yes.

One option is to include this as a money gift in the will which will enable you to specify that the gift is conditional on them acting as a guardian. However, there is no guarantee that the guardians will use it towards the children’s maintenance.

The other alternative is that if assets are being left to the children, the trustees can use the trust income and capital towards the children’s maintenance and benefit. The trustees could do this either by using trust assets directly for the children’s benefit, by transferring income or capital to the child’s parent or guardian whilst they are a minor or to the child directly once they are no longer a minor.

Consequences of not Appointing a Guardian

So what will happen to your children if you don’t appoint a guardian in your will?

Quite simply, the Courts may appoint a guardian for your children. There may well be a feud between the family as to who looks after your children or worse still, your children may be placed into foster care.

I’m sure many people will agree that their children are their most treasured possession. Losing parents can be extremely distressing for children so make provisions in your will now which will make the transition less painful for your children later in life but equally give you the assurance that your children will be well looked after and loved by someone you trust after should anything happen in the future.