DESPITE the scrapping of estate duty in February, trusts - once a financial tool used by families to minimise death duties on the estates of family members who had died - have not lost their shine.
In fact, they are still the chosen instrument for those with certain purposes to fulfil, such as succession planning or wealth protection.
Trusts are legal arrangements that allow you to give away your assets, such as shares or property, to named beneficiaries. A trustee, typically an institution, will administer these assets.
Before its abolition, estate duty was imposed on the estate of a person who had died if his assets exceeded certain limits - more than $9 million for residential properties and more than $600,000 for movable assets.
Why people set up trusts
Guarding against spendthrift heirs
Trusts are still the best way to guard against the dissipation of a family fortune by spendthrift or quarrelling heirs.
Rather than making outright bequests, you can use a trust to provide your heirs with a regular income while preserving the capital for future generations, said Ms Claire Tham, a partner at Hin Tat Augustine & Partners.
After all, studies have generally shown that the old saying about family wealth disappearing in three generations is true.
Fending off unfavourable divorce settlements
Closely linked to the issue discussed above is the distrust some might feel towards a son-in-law or daughter-in-law.
The desire not to have this 'interloper' make off with the family's riches is strong motivation for many entrepreneurs to structure their wealth in such a way that divorce settlements do not result in a transfer of wealth to the interloper, added Ms Tham.
Warding off creditors
Individuals who are in business might want to ring-fence the assets they have set aside for loved ones so potential creditors cannot touch these assets.
However, an individual who transfers his assets less than five years before he becomes bankrupt could find that they are not actually protected from creditors, said law firm Characterist LLC.
Some might want to ensure that certain persons do not benefit from their estates, for instance, the black sheep who might blow away the family fortune, said OCBC Trustee director Raymond Chee.
Philanthropy
Instead of making a one-time gift to a charity, you can use a trust as a platform for sustainable philanthropic activities.
In most cases, the underlying assets are invested to generate a regular stream of income that is then used to fund charitable purposes. This creates a legacy that will survive long after the individual dies, said Mr Chee.
Maintaining confidentiality
Publicity-averse individuals might find it comforting that their trustees are obliged under Singapore law to keep their affairs secret, highlighted Ms Tham.
This gives trusts an added advantage over wills. One of the drawbacks of a will is that the executors have to obtain probate, which means that the contents of the will enter the public domain. Trusts, in contrast, can be kept confidential.
In Singapore, the trustee has a duty to keep confidential the details of the trust. This duty arises both under common law and under the Trust Companies Act.
How much trusts cost
Fees are charged on a case-by-case basis, with the two main components being the set-up fee and the annual fee.
According to Mr Luke Peng, the chief executive of SG Trust (Asia), fees vary depending on the complexity of the trust structure, the volume of activity carried out and the size of the assets held.
For instance, for a simple trust that holds US$5 million (S$6.9 million) in assets with minimal transactions, SG Trust's set-up fee starts at US$5,000. The annual fee is based on 0.2 per cent of the assets held, with the minimum fee being US$5,000 to US$7,500.
British and Malayan Trustees (BMT) recently launched a trust aimed at the mass affluent market. This can be started with as little as $50,000 for a set-up fee of $3,000 to $5,000 and an annual fee that might be as low as $1,000.
According to its brochure, the BMT Provident Trust caters to individuals who might decide to transfer some of their assets into a trust at a later date.
This is because the time might not be right yet for them to make key decisions about the disposal of their assets.
For trusts with lower initial amounts, the investments will usually be conservative in nature, and could include fixed-term deposits, money market instruments, capital-protected funds and unit trusts.
