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30 January 2012, Calvin Yeo
Why Set Up Trusts?
People set up trust for a variety of reasons. Here I would like to share with you why people set up trusts.
1. Keep it from creditors
Say there is a businessman and who have amass his fortune in the business he is in. He is married with 2 young children and he wants to secure his estate for the benefit of his wife and two young children.
The reason he wants to do so is because he is not sure if his business will continue to thrive and he does not want his business creditors to have a share of the inheritance should he dies. He wants it to be safe from creditors hands.
Therefore he sets up a trust for the benefit of his wife and two children. The specifics and mechanism of the trust depends on individuals as each individual circumstances is different and thus I will not dwell into it. But this is the idea behind this businessman.
2. Specific Gifts
Another reason when people set up trusts is to give gifts away. Gifts can be in the form of anything from movable assets to immovable assets. Movable assets means assets which can be taken to another country. Immovable assets means assets which cannot be taken away to another country, namely real estate and properties.
Specific gifts are especially popular because there may be a certain interest or hobby that the giver wants the beneficiary to benefit, for example, a father has a large coins collection and his son has also a genuine interest in the hobby. The father might want to gift this portion of the assets directly to the son but wants to set it up so that at the son's age 25, he will take control of the coins collection.
3. Providing for special child
I did help to set up one for one of my clients in the past and her child was autistic. She and her husband wanted to set up a trusts for her autistic child so that the other 3 siblings will not take advantage of this child in the event of their deaths.
The trusts is unique is such a way is because since the child is going to have his condition for the rest of his life, the trusts is set up with iron clad protection with 2 separate trustees, both of which are corporations rather than individuals.
Whenever funds are suppose to be taken from the trust account for the benefit of the child, both trustees must be witness and signatories of the trust accounts. Should one company goes bust, or whatever catastrophy a company has encountered, the remaining trustee must go in search of another trustee with the child's legal guardian.
These trusts are complicated and sometimes very costly because of its mechanism. But they are very good in protecting special children from having to suffer financially when their parents die.
4. Inheritance Thrift
Sometimes a trust is set up for children who are spendthrift and have no control over their finances. A parent may want to set this trusts up to control the spending habits of the child. For example, if a parent dies and have set aside say $1,000,000 for the child. If there is no specific trusts, the child may receive this big amount and spend it all very shortly as he has no habit of controlling his spending habits.
So if a parent set up a trust and place this $1,000,000 in the trust with the instruction that this trust fund would have a draw down effect of say $5,000 every month for the child, at least the child can have a reasonable income for the next 200 months or 16.6 years assuming it is a straight forward trust.
5. Not affected by divorces
Rich wives may want to take note. If you do not want to lose out in your inheritance after a divorce, you may want to consider asking your faithful husband now to set up a trusts for you and your children. Sounds scheming but it is true.
If you till the day happens when your ex-husband dies and you are divorce, you have your work cut out with the second wife. Both of you will be contesting the estate and there is no guarantee that you will win your case. What you should do is get your husband to set up trusts now for the benefit for you and your children and if your marriage is on the rocks and you are done loving one another in your later years, you are still guaranteed of something else. And don't forget, you can still contest whatever that is left after he dies.
6. Philanthrophic causes
Lastly, you may want to give part of what you have to a charity of your choice. I have an Aut who is single and wants to give her assets to her church. If you want to do that, it can always be done.
Remember a trusts is not only created for the purpose when a person dies. Trusts are living as well. It is useful while a person is living as well. Because once a trust is created, it is a gift and the person who gave away (if the rust is absolute and irrevocable) has no power to reclaim it back for himself.
Unlike a will which comes to life when a person dies, a trusts comes into effect even when a person is alive.
By, Calvin Yeo, CFP, Certified Financial Planner, Financial Adviser, Financial Trainer, Financial Coach and a Public Speaker, yeo.calvin@yahoo.com
Why Set Up Trusts?
People set up trust for a variety of reasons. Here I would like to share with you why people set up trusts.
1. Keep it from creditors
Say there is a businessman and who have amass his fortune in the business he is in. He is married with 2 young children and he wants to secure his estate for the benefit of his wife and two young children.
The reason he wants to do so is because he is not sure if his business will continue to thrive and he does not want his business creditors to have a share of the inheritance should he dies. He wants it to be safe from creditors hands.
Therefore he sets up a trust for the benefit of his wife and two children. The specifics and mechanism of the trust depends on individuals as each individual circumstances is different and thus I will not dwell into it. But this is the idea behind this businessman.
2. Specific Gifts
Another reason when people set up trusts is to give gifts away. Gifts can be in the form of anything from movable assets to immovable assets. Movable assets means assets which can be taken to another country. Immovable assets means assets which cannot be taken away to another country, namely real estate and properties.
Specific gifts are especially popular because there may be a certain interest or hobby that the giver wants the beneficiary to benefit, for example, a father has a large coins collection and his son has also a genuine interest in the hobby. The father might want to gift this portion of the assets directly to the son but wants to set it up so that at the son's age 25, he will take control of the coins collection.
3. Providing for special child
I did help to set up one for one of my clients in the past and her child was autistic. She and her husband wanted to set up a trusts for her autistic child so that the other 3 siblings will not take advantage of this child in the event of their deaths.
The trusts is unique is such a way is because since the child is going to have his condition for the rest of his life, the trusts is set up with iron clad protection with 2 separate trustees, both of which are corporations rather than individuals.
Whenever funds are suppose to be taken from the trust account for the benefit of the child, both trustees must be witness and signatories of the trust accounts. Should one company goes bust, or whatever catastrophy a company has encountered, the remaining trustee must go in search of another trustee with the child's legal guardian.
These trusts are complicated and sometimes very costly because of its mechanism. But they are very good in protecting special children from having to suffer financially when their parents die.
4. Inheritance Thrift
Sometimes a trust is set up for children who are spendthrift and have no control over their finances. A parent may want to set this trusts up to control the spending habits of the child. For example, if a parent dies and have set aside say $1,000,000 for the child. If there is no specific trusts, the child may receive this big amount and spend it all very shortly as he has no habit of controlling his spending habits.
So if a parent set up a trust and place this $1,000,000 in the trust with the instruction that this trust fund would have a draw down effect of say $5,000 every month for the child, at least the child can have a reasonable income for the next 200 months or 16.6 years assuming it is a straight forward trust.
5. Not affected by divorces
Rich wives may want to take note. If you do not want to lose out in your inheritance after a divorce, you may want to consider asking your faithful husband now to set up a trusts for you and your children. Sounds scheming but it is true.
If you till the day happens when your ex-husband dies and you are divorce, you have your work cut out with the second wife. Both of you will be contesting the estate and there is no guarantee that you will win your case. What you should do is get your husband to set up trusts now for the benefit for you and your children and if your marriage is on the rocks and you are done loving one another in your later years, you are still guaranteed of something else. And don't forget, you can still contest whatever that is left after he dies.
6. Philanthrophic causes
Lastly, you may want to give part of what you have to a charity of your choice. I have an Aut who is single and wants to give her assets to her church. If you want to do that, it can always be done.
Remember a trusts is not only created for the purpose when a person dies. Trusts are living as well. It is useful while a person is living as well. Because once a trust is created, it is a gift and the person who gave away (if the rust is absolute and irrevocable) has no power to reclaim it back for himself.
Unlike a will which comes to life when a person dies, a trusts comes into effect even when a person is alive.
By, Calvin Yeo, CFP, Certified Financial Planner, Financial Adviser, Financial Trainer, Financial Coach and a Public Speaker, yeo.calvin@yahoo.com