Setting up a Trust? Who need it?

A Trust is an estate planning tool used to preserve your wealth for a more specific intention while supporting your family members financially in a longer time frame.

Wealth is what you gain throughout your lifetime with blood and sweat and don’t you think it is great if this wealth can last longer to support your family members in the event of unexpected demise?

But not everyone needs to create Trust. I’ve listed down 9 condition that needs a Trust.

1) Prolong the financial support to your family member

A Trust can help to financially support your spouse throughout their lifetime, protect the fund for child education and most importantly creates a stream of income for family living expenses.

2) Have minor children

A child below the age of 18 cannot own assets under their name. It means whatever assets you are giving to them will be parked under the care of surviving spouse or legal guardian (if there’s no surviving spouse).

What are the risk: hard to ensure the wealth is solely utilized for the benefit of your beneficiary or if the spouse/legal guardian passed on, your child’s inheritance will fall into their estate.

3) Special child

The special child needs special attention financially and physically. Parents are fully devoted to caring for their child but this may not be the case for siblings/relatives. Siblings have their own families to take care of in the future and the special child may be left unattended.

With a Trust, you can assign specific assets such as a house or reserve enough cash just for the benefit of this special child. For other children who can take care of their own, you may want to arrange other assets for them.

“Treat your child fairly doesn’t means treat them equally!“

4) Have 2nd marriage

Sometimes you may want to leave your inheritance to your child but not to your stepchildren. I can write it inside my Will but the problem is it may create a dispute if the distribution is far more beneficial to certain beneficiaries.

Do you know one of the Trust features is ‘Private & Confidential? It means only your beneficiary knows their entitlement. You do not need to exposure this wishes to other irrelevant parties.

5) Creditor protection

If your profession has a higher risk of being fall into a lawsuit or you need to carry huge liability, you may want to create an irrevocable trust to protect your own personal wealth for the benefit of your spouse and children.

6) Providing for grandchildren

If your intention is to prolong your wealth distribution through few generations, setting up a Trust is what you need. Besides, appoint a professional trustee company and being able to outlive different generations is the key.

7) Protect against fraud or scam

Almost every day we read news related to scam and the strategy they use to lure victims are getting more innovative. Their target market is mostly the elderly or those who have lesser financial literacy. To protect the wealth left behind is best not to give it all outright.

A continuous stream of income is what they need rather than a fortune which fall from the sky.

8) Sole breadwinner

Your family cannot live without your income. The fact is that when a person dies, all the assets are frozen but not living expenses. Rental, mortgages, education fees, basic living necessities expenses continue to charge every month. Will distribution takes 1-2 years depending on the complexity of the estate while Trust takes around 1 month to distribute.

9) Concern of TPD/Coma/MIA

Mr. Wealthy falls into TPD and he has insurance of RM1,000,000 payout into his personal bank account. Next question, who is going to withdraw the money if no one knows his username & password? Second, can you assure this fund will channel correctly?

Still, remember the tragedy of MH370? The whole plane went missing and there’s no declaration of death on the passenger. If there’s only a Will, beneficiaries are unable to get the inheritance because Will only opens when the testator dies. But a Trust can take effect during the lifetime or in the event of missing in action or coma.

I hope by now you have a clear picture on Trust set up. Trust is not meant only for the rich. It is an estate planning tools used by the rich to preserve their wealth in early days but in actual fact it is meant to serve more specific purpose and those who meet the above condition should plan to set up a Trust.