Yeo Sze Hau, CFP®, Affiliate of STEP
Senior Financial Consultant
Yeo Shuhui, CFP®, Affiliate of STEP
Senior Financial Consultant
This article is contributed by SingCapital.
When it comes to setting up a Will and trust, the common assumption is that there are usually vulnerable loved ones involved which can include young children, special needs children, spouse, elderly parents, etc. At the same time, there is a segment of clients (who may not be married or have no vulnerable dependents) who met up with us to explore their estate planning needs and decided to put in place their Will, Trust and Lasting Power of Attorney. What reasons motivated these clients to begin their planning journey?
Some clients have witnessed first-hand circumstances where friends or extended family members were put in difficult situations, such as when a loved one falls into a state of mental incapacity (for example, coma). The challenges faced by these families include if keeping their loved one on life support is the right decision and the increasing long term medical costs that is accompanied with the prolongation of life. Being in a state of mental incapacity, family members need to make decisions on taking care of the loved one’s daily needs which includes where to stay, types of medical care, etc. Financial decisions include management of the existing property, invested assets, tax matters, etc. Long term care costs can be extremely high and is a strain to family members. Having witnessed events of death and disability, some clients have seen how families can be suddenly tossed into a state of confusion and thus the need to sort out their own affairs early. Other resulting concerns include issues such as can the clients’ money and assets be directed to take care of themselves and their family in the way they intended.
A standby trust (accompanied with a Will and Lasting Power of Attorney (LPA)) can be customised with instructions to address needs and objectives of individuals. A standby trust is basically a dormant trust where assets are only poured into the trust due to any of the triggered events (for example in event of death of settlor, which is the person who set up the trust). One of the main reasons for such a structure is gifting can be controlled. Instead of giving a lump sum, family members and loved ones can receive a consistent stream of allowance in the event of the settlor’s passing and be well taken care of and this serves as a form of asset protection for the beneficiaries. In event of mental incapacity (for example dementia), some individuals also have the preference of an independent and capable party appointed as their property and affairs donee to manage their financial affairs and thus appoint a trust company to manage this aspect of the LPA. With such a structure, these individuals can maintain control of their assets during their lifetime and pre-set instructions on how their assets are to be managed if they lose mental capacity.
Parents are primarily concern about the tender age or special needs of the children. For some couples, they worry that their children may not be matured enough to manage a sudden huge sum of money upon receiving their share of inheritance. Aside from addressing the children’s daily allowance and guardianship needs, it is their wish for the children to be ready and be financially prudent before they can eventually receive their inheritance. Thus, some clients have decided to set up their Will and standby trust to appoint who takes care of their children (in event of their passing) and how assets should be managed. Some couples have elected this structure so that their wishes can be updated periodically instead of having frequent Will rewrites.
We also assisted in an insurance audit to assess the gaps in their cover. This ensures there are adequate assets to pour into their trust in event of premature death to take care of their young children. In some ways, setting up a trust can be like buying insurance. Except that in such circumstances, instead of simply standing by money for the family in the event of one's passing, the settlor is standing by instructions on how one's assets (including cash) are managed and distributed for the benefit of their loved ones. Individuals are ensured that the wishes will be carried out and there is still an element of control upon one’s passing. At the end of the day, it is their way of continuing to show love for their loved ones.
Contact SingCapital to find out how you can take charge of your estate planning journey.