Estate planning and wealth transfer don't rank that highly in the minds of most people. May be because most of us would like to live forever or may be we are just too busy making ends meet that no matter how much wealth we have accumulated, it's never enough! Therefore, the notion of thinking so far into the future whether our loved ones will have enough to live on after we are gone, has never really deserved the kind of attention it should. But this is where it is worthwhile to pause and think about the way we invest in the first place. High investment returns, although important, but may not be the sole objective when investments can be affected by say, political instability, change of laws or even estate or family problems. In planning personal or family investments, it is very important to first decide on the appropriate ownership, structure or holding entity. This is especially true for “family owned” businesses or people that invest globally across many markets, currencies and different legal jurisdictions. A personal family trust can be one of the most suitable structures to hold global assets and investments.

Trusts

Families and their advisors have used trusts for succession and estate planning for many hundreds of years. Trusts can be traced back to the Middle Ages when the owner of assets, “the settlor”, first began transferring wealth to a trustee to hold and administer for his benefit, the benefit of his family and other chosen beneficiaries. Assets held in trust are legally owned by the trustee and the trust relationship is governed by a trust deed that binds the trustee and sets out the terms under which the trust assets will be held.

A trust allows you to transfer ownership of designated assets, properties and investments to a trustee for management in accordance to the terms that you set out in a written document. Trusts combine investment and potential tax saving opportunities with the ability to provide the well being of your loved ones, even after your death. There are two broad categories of trusts used most often in estate planning: inter vivos trusts and testamentary trusts:

•  Inter vivos or “living” trusts are established during your lifetime using a trust agreement and can become effective as soon as you establish and fund an account for the trust.

•  Testamentary trusts are established under your will and become effective only after your death.

Today, many trusts are discretionary in nature in order to achieve maximum planning benefits. This means that the trustee is empowered to exercise discretion over the amounts paid to the beneficiaries and the timing of such distributions. This discretion ensures that no individual beneficiary “owns” any of the trust assets until the trustee makes a distribution to them. Whilst the trustee has discretion over the distribution of trust assets, it will seek guidance from you in the form of a non-binding memorandum of wishes. In this memorandum you set out your wishes concerning distributions to be made to beneficiaries as well as other matters. You may amend the memorandum from time to time as your family or personal circumstances change. To provide further flexibility, it is possible to add or remove beneficiaries on either a temporary or permanent basis. Under the terms of the trust you may also have the option to revoke/terminate the trust. Such action will cause the trustee to return the trust assets held at the time of revocation. Alternatively, you may create an irrevocable trust. The choice of approach is often based on personal or tax planning considerations.

Reasons for establishing a trust:

There are several reasons for setting up a trust but listed below are some of the main ones:-

•  Estate and succession planning: A trust's primary purpose is to facilitate efficient estate planning. Unlike a person, the underlying personal holding company holding the trust assets does not die. This avoids estate taxes. Although, in Thailand this may not be a problem since inheritance taxes have not been introduced but for those that have investments offshore, then you are liable for estate taxes. In addition, the trust also allows the orderly and smooth distribution of your assets. It spells out who gets the trust assets, how much and when the trust assets are to be transferred upon death.

Assets held in a personal name are typically subject to probate (obtaining orders of court that appoint personal representatives over an estate or will). Probate is a public process and it is normally taken out in the various jurisdictions where the assets are. This may result in court fees, lawyers' fees, and of course, taxes to be paid. With a personal family trust a quick, orderly and private distribution of trust assets is made. This is normally done quietly following the instructions and directions in the trust deed. It is more of a personal succession plan without any lengthy delays which sometimes occur and, as such, open investment positions are not at risk.

•  Flexibility and control: The hardest part is setting up a trust is to overcome this fear of “handing” over your assets and investments into someone else's name. But the real beauty of the trust structure is that the assets may not be held in your name but you still have the control over how it is managed. Moreover, if you set up a revocable trust, you, as settlor , may terminate the trust arrangement at any time during your lifetime. You may also add or remove beneficiaries at your discretion, as well as change the percentage of assets that each beneficiary will ultimately receive. You may also appoint yourself or someone else as an Investment Advisor to direct investments in your trust.
A trust is flexible enough to hold all forms of cash, securities and other bankable assets. In some situations, certain trust structures may hold non-bankable assets such as real estate.

•  Protection of family assets : By leaving your assets and investments to your spouse or “partner” without the protection of a trust and your spouse remarries after your death. Your spouse's new husband or wife could eventually end up controlling the distribution of your assets. Moreover, in the event of disability or incapacity , a will has no effect until death but a personal trust usually provides for the ongoing management of your assets.

•  Tax minimization : Whether a trust is tax efficient may depend on, amongst other things, your domicile, the location of your assets, the tax domicile of your beneficiaries and the applicable tax laws. But, when properly structured with tax advisers, the trust may be an ideal vehicle for tax minimization. It may allow for wider options and opportunities for tax planning.

•  Central administration: Sound investment strategy begins with having all your offshore/international assets and holdings under the correct ownership structure and not many financial institutions are capable of providing centralized administration services with the consolidation of global assets. Therefore, when choosing a trust provider, it is better to go with big reputable and international financial comglomerates rather than a small law firm that may not outlast your lifetime.

  •  Confidentiality: Since your assets and investments are not held in your name but in a trust, no one will know who the real owner of the assets is. Moreover, the Cayman Islands are the preferred choice of most banks in setting up a trust because they have strict bank secrecy and confidentiality laws. Essentially, there are two layers of confidentiality. The first layer is your personal/family trust. You start with transferring your assets and investments to a Cayman trust company, or what is often called personal holding company (PHC). Then the second layer is the underlying trust PHC. It owns the trust assets.

In summary, a personal trust can help preserve your wealth during your lifetime and it can also facilitate the transfer of assets to your loved ones and can help protect your wealth for generations. Therefore, this is something that should not be overlooked and be an integral part of one's wealth management process.