Thursday, July 9, 2009
FAQ - Trust
Q1. What is a Trust?
A Trust is an instrument where the creator of the Trust called the "Settlor" entrusts and transfers the ownership of his/her assets to another person called the "Trustee" under a Trust Deed. The Trustee then acts for the benefit of the named beneficiaries in the Trust deed for a specific period of time.
Q2. Who is a Settlor?
Person who creates a Trust - Living Trust.
Q3. In what form can a Trust exist?
It can exists in three forms :-
1) Trust Deed (Inter vivos Trust or commonly known as Living Trust)
2) Testamentary Trust
3) Statutory Trust
Q4. What are the differences between a Trust Deed, a Testamentary Trust and a Statutory Trust?
1. Trust Deed
The trust exists during the lifetime of the Settlor (maker of the living trust) and takes effect immediately when the Trust Deed is signed by the Settlor and the property transferred/conveyed to the Trustees.
2. Testamentary Trust
The trust exists in the Will and take effect on the death of the testator.
3. Statutory Trust
Here the trust is created by operation of the law automatically. e.g. Section 166 Insurance Act 1966 etc.
Q5. Can you let me know which type of Trust is revocable and which is irrevocable?
A Testamentary Trust is always revocable before death as it is in a Will. Trust Deed can be revocable or irrevocable. It can be revocable at anytime during the lifetime of the Settlor by executing a deed of revocation. A Trust Deed can be made irrevocable when it is set up and this is generally creditor-proof.
Q6. What are the purposes of establishing a Living Trust?
1) Distributing wealth to avoid the application of Grant of Probate
2) Protecting wealth against wasteful beneficiaries and against creditors.
3) Preserving assets for our great grandchildren
4) To cater for various family situations, e.g. Education & special maintenance expenses.
Q7. How does a Living Trust work?
The Trustee receives the assets from the Settlor and is legally obligated to hold the assets for the enjoyment of the beneficiaries during the trust period set by the Settlor according to the Trust Deed signed between the Settlor and the Trustee.
Q8. What are the job scope of a Protector in a Living Trust?
1) As a watchdog
2) Advise on needs of beneficiaries
3) Recommend payment to beneficiaries using Letter of Wishes
4) Has the power to remove and replace Trustee
Q9. What are the benefits of a Living Trust?
1) Distribute the way you want it to - e.g. you set a goal to be achieve
2) You decide who is to receive it - Just like Will, it's your choice
3) No fuss and instantly available - No lengthy procedure to adhere to, Fund readily available for beneficiaries because it is in the Trustee's name
4) Have the peace of mind - Once trust created and Protector appointed
5) Get assets protected from creditors - After 5 years
6) Not easily contested - Assets are no longer under your name
Q10. What is an Insurance Trust?
An Insurance Trust is a trust funded by insurance policy. It is created through signing of a trust deed by the client (policyholder) and a trust Corporation (the trustee). Then the client will absolutely assign the policy to the trustee. The trust deed contains instructions to the trustee on the manner of management and distribution of the insurance proceeds upon the client's death or disability.
Q11. What is the purpose of setting up an Insurance Trust?
This is to ensure that the insurance proceeds are used to:
1) Ensure immediate available usage of funds for your beneficiaries
2) Finance education, living and medical expenses of your loved ones
3) Pay to your beneficiaries in accordance to your wishes
4) Ensure the insurance proceeds are not subjected to claims by creditors and other claimants
Q12. What are the objectives of setting up an Insurance Trust?
1) To ensure beneficiaries' do not squander their inheritance--providing staggered distribution during trust period
2) Providing for the 2nd family confidentially
3) Providing for certain family members secretly
4) Ensuring children with special needs are provided for
5) Avoid assets being claimed by spouse whom you want to avoid giving and wasteful or non-filial children
6) Protecting assets from being claimed by your ex-wife before any divorce proceedings starts
Q13. What are the implications of Tax in a Trust?
All trust income may be taxable, regardless of who the Trustee is, whether it is an individual or Trust Corporation. However, certain income do not attract tax due to withholding tax (e.g. fixed deposits) and rebate can be claimed, such as Unit Trust and share dividends.