Our children will inherit more wealth than in all of history. Many of them could become instant millionaires after we are gone. With a Will that makes only immediate distributions to Beneficiaries, many families could be headed for a wealth transfer time bomb.
If you already have a Will, now let’s think about whether you also need a Trust. Use the exercise below to find out whether a Trust makes sense for you. Do leave your technical queries aside for now.
Let’s Get Started
Divide a blank piece of A4-sized paper into 4 Quadrants as shown in the Figure. It’s already filled in with an example of Adam and his family.
Quadrant A – Specify your main beneficiaries
Here are the people Adam (aged 45) wishes to benefit – Betty his wife (40), their two children (10 and 12), and his parents.
Quadrant B – List down your assets
Your assets can be divided into (a) immovables that “do not move” such as land and condos, and (b) movables that can move such as bank accounts and insurance policies.
Most of what Adam owns is situated in Singapore although he has a UK bank account and apartment.
Adam estimates his net worth at death (NWAD) is $3.2 million which is quite substantial when compared with the $100,000 in liquid assets he has in the bank.
Quadrant C – Specify immediate gifts
Adam plans to give $200,000 to his parents and the remainder to be shared equally by his wife and children. Should his children receive their gifts immediately upon his passing? That could be a bad idea. His children would become millionaires at a very young age and could lose the desire to study and work thereafter.
Quadrant D – Specify delayed gifts
After learning briefly about how Trusts work, Adam decides to delay the gifts to his children by entrusting $2 million to a trustee (a licensed trust company). The trustee would hold the money for his children for over a period of time.
Adam instructs the trustee release money to his children only for maintenance, education and medical expenses up to say $10,000 a month for both children. Then when his children each reach 35, the remaining money can be given to them.
He believes in home ownership. Rather than pay fully for his children’s home, he pays for a down
payment only. If his children is experiencing any sort of adverse events like a divorce, the amount should be withheld until the event has passed.
The example of Adam shows you the importance of considering both immediate and delayed gifts in
your estate plan. If your NWAD is a $1M or more, you need to consider a Trust especially when you have
young or vulnerable beneficiaries.
Written by: Keon Chee
Source: Adapted from “Don’t leave Them Too Much, Too Quickly”, an article which appeared in LiveWell Magazine Nov-Dec 2014 issue