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Set up a trust to protect your assets

Having a will is essential in making sure that your assets are distributed the way you want after you are gone. Apart from this, more people are also setting up trusts even if they are not wealthy, both to protect their assets now and control how their money is distributed later.

Having a will is essential in making sure that your assets are distributed the way you want after you are gone. Apart from this, more people are also setting up trusts even if they are not wealthy, both to protect their assets now and control how their money is distributed later.

Very simply, a trust is a legal structure that holds and manages your assets. You can put your cash, shares, art, property and even your company into a trust.

A trust allows you to decide how your assets will be managed and distributed. The trust can distribute funds to you right away, for instance, or you can specify later distributions such as how old your children must be before they receive any money.

Assets in a trust generally have protection from claims against you even if you go bankrupt or face lawsuits. Putting shares of a family business in a trust can, for instance, ensure its continuity despite disputes or bankruptcies among family members.

It might seem that only really wealthy people such as Far East Organization moguls Robert and Philip Ng might need trusts. Given the changes in social patterns and the strong benefits of trusts, however, more people here with modest assets are setting up trusts, too.

PLANNING FOR YOUR CHILDREN

The most common reasons for setting up a trust relates to ensuring that your assets are distributed the way you want.

If your children are young, for instance, you can have a trustee manage money when you are gone to make sure they live comfortably, receive a good education and use the funds for specific purposes.

Families also use trusts to ensure a smooth transfer of wealth from one generation to the next. A trust can establish rules about how family money should be used and distributed, which helps to ensure that wealth is preserved and that your legacy can last for generations.

Trusts also come in useful when you want to protect what you own, for example, when family disputes arise.

With family relations growing increasingly complex and disagreements or divorces becoming more common, putting assets in a trust can protect them from difficult situations.

Parents can buy a home for a child, for example, and protect against the risk of family feuds or divorce by keeping the property outside of the child’s assets. It is often more difficult for people to challenge a trust than to challenge the validity of a will.

ASSETS AT RISK

Professionals or business owners can use trusts as well to protect their company or personal assets from being taken away.

If a business owner pledges her property for a loan and the company faces difficulties, or if professionals such as doctors and lawyers are sued for negligence, their assets may be at risk. Since trusts are immune to claims against an individual, transferring assets to a trust can preserve your home and other assets.

Not everything about a trust is positive, of course.

The biggest concern for many people is that putting your assets into a trust means that you give up legal ownership of them and that they will be managed by a trustee.

You will also spend time and money setting up the trust and meeting the trust’s administrative requirements.

If you do decide to set up a trust, you will need to work with a lawyer and, perhaps, a financial advisor to set up the right legal structure.

You can transfer as much or as little of your assets as you want into the trust, which takes legal ownership of them. You may also be able to specify how you would like your assets to be invested, such as in low-risk shares and bonds.

VARIOUS TYPES OF TRUST

The structure of the trust can vary depending on your goals.

A discretionary trust gives the trustee the power to exercise discretion in managing the assets and making distributions.

In a fixed trust, on the other hand, you would pre-arrange how distributions are handled.

One variation is a life insurance trust, which holds your life insurance policies and manages funds only when you are gone. People who are cash-poor and insurance-asset-rich can hold their policies in a standby trust and have it pay out money over the course of many years, which helps to avoid a young person receiving a huge amount too early.

Insurance firm Aviva estimates the cost of setting up a trust is typically around S$1,000 to S$4,500. Annual maintenance fees vary depending on the structure of the trust and the amount of assets it holds.

The trustee that you appoint then manages the assets for the beneficiaries, such as your children.

The trustee should be someone you can rely upon to make the right decisions and follow the requirements of the trust. A company or financial professional may also act as trustee.

While you may have thought that trusts are only for the very wealthy, they are easier to establish than you might think, and can help with managing or protecting your assets in a wide variety of situations.

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