Benefits of a Private Trust

In our previous issue, we talked about the importance of having a holistic financial plan, which covers first your wealth accumulation (investment), then your protection needs (insurance) and finally, to address your wealth distribution (estate planning).

Readers would have also learnt the key advantages of a Private Trust compared to a Will. Now, let’s pick up from where we left off. We dive straight into the two main subjects:

Assets that can be injected into the Private Trust

When setting up a Private Trust, the Trust itself can be used to hold various assets, such as bank deposits, Unit Trust investments, listed or private company shares. Assets like properties and land can be included if the Settlor wishes to do so – although these will likely incur other transfer and stamp duty costs. It is important to note that the assets to be placed in the Trust has to be unencumbered. Talk to your financial planner for more information.

Furthermore, the Settlor can nominate the Trust to be the beneficiary owner of his/ her insurance policies or EPF savings. This ensures that if a trigger event happens (eg: upon death or mental incapacitation), the assets will be transferred to the Trust to be held and managed according to the Settlor’s wishes – without being frozen and with minimal delay.

Who do we think can benefit from setting up a Private Trust

1) Singles, widower or couples with children already settled overseas.

A Trust can be structured so that professional institutions like Fund Management companies and Trust companies can manage their investments, pay their bills or medical expenses, as and when they are required.

For example, the Settlor may request that upon a certain age, the Trust can help to send him to a retirement home and take care of his medical expenses while still generating reasonable returns from his investments. Only until after he passes away, will the estate be distributed to his intended beneficiaries. This gives the Settlor the confidence to know that he can support himself, off his own wealth and without having to depend on any individual.

2) Those with spouses or family members who are not so financially astute

In some cases, the husband may be the sole decision maker in the family. In his absence, the spouse or family members could be at a lost. If they are not financially literate, the inability to manage the finances could potentially mean they can fall victim to numerous scams which are ever so prevalent. Or worse, if beneficiaries are spendthrift, the wastage of wealth could go unchecked.

For a Trust, proper due diligence must be carried out, for example investments can only be made with suitably licensed and regulated institutions like banks or fund management companies. With regards to withdrawals, the Settlor can set specific conditions on which withdrawal or timing of payment to be made. For instance, conditions can be set that the Trust helps to pay for his children’s new car; once every 5 years and as long as it does not exceed the average price of a C segment car (equivalent to a Honda Civic).

3) Professionals like doctors, architects, lawyers and so on

A Trust can help to protect the personal assets of doctors, architects or other professionals who are at risk of being sued. The Settlor can transfer his assets to the Trust to protect from bankruptcy or creditor claims, however a few conditions must first be met. The said Trust must first be made in an Irrevocable structure and only after 5 years can it be creditor-proof.

4) Business owners or families with expansive wealth

For the reasons of succession planning or wealth preservation, a Trust can help to retain control and power within the family.

There are business owners who have spent a life time building up their company from scratch. In some cases, they may have been running the company for generations; since their grandfathers’ time. But what happens if the younger generation has no interest in taking over the family business.

Well, the business owner can dictate that when he finally decides to take a step back and retire, or when he is no longer around, the Trust can find and appoint suitably qualified professional managers to run the company. This ensures his or the family’s legacy continue to live on while still retaining control of the company.

5) Residents of countries with inheritance tax or its equivalent

For residents from countries with inheritance tax or estate tax, a Private Trust is an invaluable tool. Malaysia had abolished the inheritance tax in 1991. Some of the countries that has inheritance tax include UK, US, Japan and etc.

If a Malaysian has children l iving in countries with inheritance tax, upon his/her demise, the children may be subject to the tax. However, if a Trust was created and tailored accordingly, it may minimise the amount taxed.

Conclusion

A Private Trust allows the consolidation and planned distribution of assets under a legal structure and from there, the Settlor can continue to retain investment powers and manage the Trust assets. Again, we would like to reiterate that it is important to consult a financial adviser or investment professional like Areca Capital in order to specifically tailor the Trust to the Settlor’s needs.

In short, it is a good estate planning tool which can be made to cater accordingly to the Settlor’s distribution needs. He or she can choose to appoint in complete confidentiality, their intended beneficiaries, and the timing and condition of such distributions. And it is no longer just the super- rich that can afford it.

Areca Capital is a niche Malaysian fund management company. We are a firm believer in the advisory-based approach towards investing. For any enquiries, you may contact us at 03-79563111 or by email at invest@ arecacapital.com.