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Assuring Your Safeguarded Future

by Andrew Wood Over the past nine weeks we have been discussing nancial life plans and the major aspects which are likely to aect you no matter your age or the stage you are currently at in life. There has been considerable feedback with the single most popular theme being that of trusts. This matter was last raised in Net Worth on 11 March 2012 Journeying Through Your Financial Life Plan. The section on succession planning in that article dealt with some of the ways in which trusts may be eective for many expats and particularly in their succession planning eorts. The main interests lie in how trusts add security and value to their settlor and bene ciaries and of their practical use in everyday life. Trusts are not just a way of completing an eective succession plan. Yes, they do have that use when you pass away, leaving assets to be dealt with for known and unknown bene ciaries, such as unborn grandchildren but there is more to a trust that that. So, what is a trust? It is an agreement between the Settlor, who will be yourself passing assets into the trust, and the trustees, whom you have chosen to care for your assets. The trustees accept the assets and actually legally own them. They agree to care for them acting in such a way as to hold them for the bene t of the bene ciaries you name in the trust agreement. As part of the process you issue a letter to the trustees outlining your intended wishes in the event of certain circumstances occurring. These are commonly your death but may also be other events you name such as divorce, contracting serious life changing diseases, such as Alzheimers, bene ciaries reaching speci c ages, or even passing away themselves. Then there may be the addition of children as bene ciaries in future generations. Trustees will need to be very reliable from your perspective. These days you may appoint professional trustees to act in these positions and, in doing so, you would be given the comfort that your assets would not be mismanaged, lost or squandered. Professional organisations exist which specialise in such matters. Your assets are held in separate accounts or investment vehicles so that if the trustees were to experience nancial disasters themselves the segregated trust assets would be protected from such events. In addition you may appoint a protector who would oversee the management of the trust and ensure that fair play was always maintained. This could be a person of your choosing which would ensure that you would have an in uential eect on actions taken by the trustees. A protector has the right to veto any action taken by the trustees. Much of the recent feedback was directed at trust operations and focused on potential Settlors feeling uncomfortable about giving their assets away. Other questions centred around the reasons for the establishment a trust. Your express wishes are one of the key reasons for a trust to exist. In a will you may generally only state that assets should pass to named bene ciaries as they exist at the time of your death. Very little scope exists for specifying other factors you may wish to take into account at the time or after your death within the con nes of a will. Lets look at some real examples of potential circumstances. Say you have children and wish for provision to be made for them as well as your spouse. You may specify in your letter of wishes that when you die your spouse would receive an income to maintain a good standard of living when living future life. Let us assume that this is your Asian wife who has an extended family of siblings and parents. If you simply left all your assets to her in a will she may suer from hostile approaches by these family members asking for gifts and investments into start-up businesses from her inheritance. These could be so substantial that the inheritance quickly evaporates, leaving

nothing for your wife and children in the future. In this example the trust protects your widow from unwanted predators who she nds dicult to refuse. Assets settled into a trust are subject to a letter of wishes from you to the trustees stating that upon your death your wife would not receive any capital sums. However, she may receive an income sucient to provide living expenses for her remaining life. You may also wish to add a rider that such income would cease in the event she remarried. After that perhaps your children would inherit the residue assets from the trust. Or you may extend the income facility for the children also. This would protect both your wife and your children from potential attacks on the assets by the extended family. We can extend this further by thinking of other circumstances. Lets say that your daughter is coerced into a marriage with someone you disapprove of. If you left assets to her in your will they would become hers in her own right after your death. Your undesirable son-in-law could then stage-manage a divorce where he would claim half these inherited assets for himself. However, if you again speci ed that your daughter receive an income rather than the actual assets the son-in law would have no access to these assets as they would be owned by the trustees. We could extend this even further and assume that you also have a second daughter who is disabled and requires constant medical attention. With assets in trust you could specify in your letter of wishes that the disabled daughter be aorded priority in caring and medical expenses before the other daughter receives any income or asset distribution. In considering carefully the potential circumstances which could occur in the future you are able to cover each event and even make provisions for circumstances which may occur but have not as yet. Some of the queries which have been sent also ask about the use of the assets for you as the Settlor during your own lifetime. For example, after you retire how would you draw an income from assets you have accumulated and settled into the trust? You may name yourself as a bene ciary and then you will be allowed to draw income and capital amounts in order to sustain your ongoing living expenses. Yes the assets are not owned by you. Yes you would need to request such withdrawals from the trustees. Today these matters are common situations which have been envisaged and would thus be perfectly feasible. Once you die the letter of wishes would be used to ascertain what action should be taken next. The next stage of your succession plan would come into force. Bear in mind that trustees usually have discretion to take action on matters which would genuinely vary from the original plan. For example you have speci ed that your wife be given an income but she requires some expensive medical treatment to save her life, the trustees would have the discretion to allow such expenses to be paid from the trust assets. Trusts can be very useful options to satisfy a number of dierent requirements for your lifetime and during the years following your death. However, they are also subject to speci c rules and laws aecting use of the assets depending on your nationality; place of residence; domicile; current tax status and sometimes other factors. It is therefore essential you carefully consider any kind of trust planning with a professional adviser so that you do not trip over some of the pitfalls which exist.

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Questions to the author can be directed to PFS International on 02 653 1971 or emailed to enquiriesthailand@fsplatinum.com