You are holding assets in trust for someone else informally
This is not uncommon in Singapore, and this part of the world. You may be asked to hold asset in trust informally for someone else, or you may want someone else to hold assets in trust for you or your beneficiary. For example:
- An elderly mother wants to name her son as the joint owner of her savings account.
- Your spouse is about to venture into a risky business, and thus transfers his/her core assets under your name.
- You are living in a country with political turbulence. You park your core assets in Singapore in your trusted family member or friend’s name.
- You are a guardian of your brother’s children. Your brother has passed away recently, and you are holding assets in trust for the benefit of his three children for the next 15 years.
- A religious organisation places the building fund in the name of an elder into a fixed deposit with a bank to enjoy better interest rate as a senior citizen.
- An elderly father gives money to his daughter to manage a share portfolio for him.
There are many other instances of holding assets in trust for someone else informally. There is nothing wrong about this so long as all stakeholders are aware of the matter, and the act is not done out of a less than honourable intention. However, the issue can become sticky if one party passes away.
Estate Planning Implications & Problems
- Lack of communication. In the example of the elderly father entrusting his money to his daughter to manage his share portfolio, there is no documentation written. When the daughter subsequently dies in an accident, her estate including the share portfolio in her name, was divided between her husband and her children. The elderly father thus will have a hard time convincing his son-in-law that part of the share portfolio in the daughter’s estate rightfully belongs to him.
- Illogical but lawful flow of estate to the wrong party. In the guardian-related example, the guardian simply places the money meant for his late brother’s children, in a fixed deposit in his own name. This guardian does not communicate this information properly to his spouse and does not make provisions for his brother’s children in his estate plan. His estate plan only makes provisions for his spouse and his own children. He dies two years later. When the spouse clears his estate, she “lawfully” keeps the money that was supposed to be meant for her husband’s nieces/nephews.
- Dilution of assets held in trust by the holder’s estate liabilities. In the example regarding the religious organisation mentioned above, the elder passed away with substantial estate liabilities (resulting from mortgages). The mortgagee bank “net-offs” the fixed deposit from his estate liabilities. The situation becomes so bad that the organisation has to sue the estate of the elder to recover the “building fund”.
Estate Planning Solutions
- Communication. It is good practice to have proper documentation, even if it is as simple as a hand-written note, to communicate the rightful intention of the assets and stakeholders. Otherwise, the surviving holder of the assets can easily say that the assets are meant to be a gift and keep them for his own benefit.
- Set up a formal trust to hold the assets. If the assets are significant, consider setting up a proper asset protection trust to hold these assets formally.
- Update your will. Update your will to indicate the rightful beneficiary of the trust assets.
- Update your life insurance nomination. If the assets are placed in an insurance policy, use the S49M revocable nomination to ensure the assets go back to the rightful owner.
- Segregate and ring-fence the trust assets. Segregate the trust assets from your personal assets to prevent dilution from your estate liabilities. Ring-fence these assets if possible.