This is a bit morbid, but have you ever thought about where you want your money to go after your death? If you have children, you probably thought of them.
Now, consider this. Musician and multi-millionaire Sting adamantly professes that his children will barely inherit any of his fortune. A quotable quote: he doesn’t want to leave them ‘trust funds that are albatrosses around their necks’. Then there’s business magnate Warren Buffett, who is leaving the vast majority of his US$75 billion assets to charity – even if he has three children. Jackie Chan has been widely reported to decline to give to his only son and known is quoted as saying “If he (Jaycee) is capable, he can make his own money. If he is not, then he will just be wasting my money.” Closer to home, the late Khoo Teck Puat left much of his fortune to his eponymous foundation. While the rest of us might not have the same amount of spare change to throw around, there are still valuable lessons to be learnt from these examples.
Traditional estate planning is founded on the assumption that people want to leave most of their hard-earned assets to their children. However, mindsets have recently been shifting. Rather than giving their children free rein over their assets, more pragmatic people would like to impose conditions on how their money is used. Others don’t want children to be lulled into complacency. In Buffett’s words,
‘The perfect amount to leave to your kids is enough money so that they would feel they could do anything, but not so much that they could do nothing.’
Others still are passionate about certain causes, or need to make special provisions for disabled children. Here’s an introduction to such alternative approaches to estate planning.
Giving to Children Differently: Trusts
The main difference between simply leaving money, no strings attached, and leaving it to your children through a trust is that the latter affords more control over your affairs, even after your passing.
There are two kinds of trusts – living trusts, and testamentary trusts. We’ll focus on the latter, because those kick in after one’s passing. In layman’s terms, before you die, you, the settlor (also known as trustor, donor or testator), leave your assets in a testamentary trust, and appoint a trustee. After you die, the trustee is now in charge of managing that trust for the beneficiaries and according to conditions you specified, usually in your will.
Here are some examples of testamentary trusts also known as trust under a will:
- Instalment
An Instalment model can protect assets from being frittered away, or naively invested by financially inexperienced young adults. These trusts usually come in the form of settlors specifying amounts of money to be given to their children at specific times. For example, Jane could get $20,000 when she is 25, $200,000 when she is 30, $2,000,000 at 40, and the rest at 50 years old. While instalments seem to undermine one’s trust (no pun intended) in one’s children, the reality is that this system is a practical safeguard for large sums.
The late actor Paul Walker is rumoured to have left US$25 million to his daughter Meadow in such a trust. This was especially because she was only 15 at the time of his passing. Notably, she has since set up a foundation in his name. It funds marine biology research, among other causes.
- Incentive
An incentive model allow settlors to ‘rule from the grave’, in that they continue to govern how their assets are being allocated, and motivate their children to achieve imposed goals. These trusts only disburse money if conditions are met. E.g. ‘IF Jane gains admission into a local university, she gets $2,000 living allowance and a residential property’.
Our client, a grandfather, wanted to benefit his grandchildren with education and did not want to give them outright gifts or cash or property. He settled on an educational trust in his Will to help his grandchildren attain tertiary education, something he missed out on and valued.
Giving to Charities
Basically, you can make a fuss-free, one-time gift to a charity, or leave it money through slightly more complex means which I will list down below.
- Charitable bequests
This is the simplest option. You, the donor, simply include a statement in your will allocating assets to the organization. This can be a sum of money, a property, or the remainder of your estate after tax deductions and other expenses.
We have help many of our clients fulfil their wishes to give a percentage or a fixed sum to a charitable organisation. In addition, such bequests can be restricted towards specific programmes or causes managed by the organization. For example, a generous couple, the late Mr Gerry Essery and Mrs Jo Essery, has left behind a $6 million legacy that will be divided equally among the Assisi Hospice, National Kidney Foundation (NKF) and the Society for the Prevention of Cruelty to Animals (SPCA).
Other still are strong proponents of ‘giving while living’, in ways similar to charitable bequests. Chuck Feeney, cofounder of Duty Free Shoppers, has pledged US$177 million to universities to fight dementia. This is the largest grant ever made by The Atlantic Philanthropies, the foundation Feeney founded to ‘devote his wealth to the service of humanity’.
- Charitable remainder trusts
These operate like normal trusts, paying income to the donor’s heirs for life or a certain amount of years. This income can either be a fixed percentage of the trust value, or a fixed dollar amount from the trust. In other words, the percentage amount may fluctuate slightly, while the dollar amount won’t, at least in real terms. After these payments are fully disbursed, the remainder goes to the charity.
- Charitable lead trusts
The opposite of a charitable remainder trust, these trusts pay income to the charity, then give the remainder to the donor’s heirs. Lastly, do note that guidelines may differ for giving to organizations that are not registered as charities in Singapore.
Caring for Special Needs Children
In Singapore, The Special Needs Trust Company (SNTC) is a non-profit trust company supported by the Ministry of Social and Family Development. It is geared towards special-needs beneficiaries. An SNTC trust involves investments in low-risk products, yielding reliable returns. This ensures that even when you are no longer around, SNTC can ensure that your special-needs children remain financially secure.
Lastly, do remember that a trust requires a trustee to be appointed. Pick a friend or relative who can carry out the administrative duties and managerial decisions attached to this role. In the event that nobody in your personal circle is an appropriate candidate, you can look to many licensed professional trustees in Singapore.
Giving differently
Given the plethora of options these days, it’s worth considering a departure from traditional notions of estate planning when you plan yours.
For assistance regarding Wills matters, do contact us to make an appointment.
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