A Standby Trust is a passive Trust that is on standby/ in dormant mode, only activated when trigger events (mental incapacity or death) occur. Here’s a case of a client who used a Standby Trust to provide continuing provisions for his family members in the event of his demise.
Client Background
Mr James, aged 60, recently remarried and has two daughters from his previous marriage and one grandson. He has assets in his bank account and CPF balances, some investments and Life Insurance policy. He also has a private property held under his sole name and a business.
A Standby Trust was created to regularly benefit his wife, daughters, and grandson through periodic payouts. As his daughter is not financially savvy, he appointed Precepts Trustee to help him manage his assets and make important financial decisions. His objectives are to:
- Invest most of the money to provide a long-term sustainable income, along with some capital appreciation to ‘inflation-proof’ the funds.
- Pay out dividends from his business to his wife (on condition that wife does not remarry), daughters and grandson for maintenance and other emergency needs like hospitalisation and medical expenses.
- Make provisions for his grandson’s education and to give him an ‘ang bao’ when he is married.
- Maintain his residential property for his two daughters and grandson to live in the future.
Trust as a Solution
The creation of the Trust will ring fence his assets from any creditors of his daughters or his future sons-in-law. He felt it important to protect his funds and property should there be any breakdown of his daughter’s marital relationships.
Proceeds from Mr James’ CPF account and Life Insurance policy claims will be poured into his Trust upon activation. As this has been planned for, his CPF and insurance policy proceeds will not have to go through the probate process, like the rest of his estate and hence pay-out for his Trust beneficiaries will be faster.
At the same time, Mr James appointed his brother to act as watchdog over the Trust. His brother will be managing the daily operations of Mr James business when he passes on as Precepts is not involved in the daily operations of the company. In this case, the Protector also acts as a main point of contact between the Trust beneficiaries and the Trustee.
Trustee’s Handling of Matters
As a Trustee, we will work with the investment adviser appointed by Mr James to review his investment portfolios on a yearly basis. The dividends received from his investments, business profits and rental income (if any) will be pooled together and paid out to his beneficiaries for monthly upkeep and maintenance.
We also work together with property professionals to rent out his residential property if it is not occupied by his beneficiaries. The rental income generated will form part of his Trust Fund.
Through the Trust, Mr James can continue providing for his family. Precepts undertook all the works in relation to the setting up of the Trust, the drafting of the Will and the setting up of the Lasting Power of Attorney. Working closely with the Estate and Succession Practitioner (ESP) and Mr James, we addressed all his needs and ensured that his intentions will be carried out accordingly after the triggering life event.
This article was first published in our newsletter, The Custodian Issue 15 on Sep, 2020. Click here to access our latest newsletter.
