Q. I am a keen investor who has been living in Vietnam for around six years. I have a few property investments abroad, and I own a small stock portfolio. I have a son who is 6 years old and is about to start his first year of school, and would like to set aside the majority of my investments to finance his university education when he comes of age.
I am worried that if I happen to pass away while living in Vietnam that my estate, as stipulated in my will, may fall victim to disputes among my family members after I am gone and that my son might run the risk of not receiving what he is due. Also, I would not want the funds intended to finance his education to be exposed to excessive taxation upon my death. I’ve been told that setting up a trust might solve my problem. Could you explain how a trust works in a bit more detail?
Sven Roering, Managing Partner at Tenzing Pacific Investment Management, advises:
A: As the famous adage goes, there two guarantees in life:
- You will pay taxes
- You will die
Coupled with the fact that you have a dependant (and want the best for him), it’s understandable that you’re a little anxious about the future of your personal estate, and a trust could be a good investment option for you.
Trusts used to be reserved for the aristocracy as a mechanism to transfer wealth across generations. Large corporations (the likes of Standard Oil and JP Morgan) were even referred to as ‘trusts’ in the early 20th century. Nowadays, a trust is available to anybody. The trick is to find a suitable person to act as trustee.
What is a trust?
- In layman’s terms, a trust allows you to hand over your assets to a professional who holds them for the benefit of a third party
- The person (or company) to whom you would hand your assets over is known as the ‘trustee’
- As the primary contributor of the assets, you would be known as the ‘settlor’
- In this case, the third party would be your son, who is known as a ‘beneficiary’ under the agreement
The above structure is akin to having the portion of your assets run as a separate company. You may think that handing over your assets to a third party is a not a good idea, especially if you are considering appointing your estranged, bipolar brother-in-law as the trustee.
The good news -there are many companies who specialize as trustees. A recommended example is Sovereign Trust in Hong Kong, who can set you up via your independent financial advisor in Vietnam.
The bad news – if you would like a company to act as your trustee, the value of your assets would have to be extremely high.
What are the main benefits of a trust?
The main benefit of investing in a trust that you will be assured that the assets held within the trust will be distributed to your intended beneficiary upon your death – without the hassle, delays and legal proceedings of having your estate split up via your will.
The legal agreement is also robust. For example, if you were to pass away when your son was 16 and he were to receive his inheritance straight away, it’s possible that he could run away from home and spend all the money, as many teenagers would. With the investment in a trust, however, you could stipulate that he would only be able to receive a portion of the funds when he reaches a certain age.
The second benefit is to your inheritance tax, as trusts can heavily mitigate inheritance taxes. However, certain jurisdictions, such as the US and UK, are constantly looking to change laws to allow trusts to be taxed more heavily. Therefore, jurisdictions like the Isle of Man, Guernsey and Jersey would be most efficient – dependent on other technical factors, of course.
For a trust to be most effective you would have to have no beneficial interest in the assets held within the trust. In this way, your death will ironically benefit many because you managed to protect your assets from your squabbling relatives through your shrewd judgement of setting up the trust, your son will be provided for and you will have avoided heavy inheritance tax implications.
For independent financial advice on setting up a trust, don’t hesitate to get in touch with TPIM for private wealth management across Southeast Asia and beyond: http://tpim.co/contact-us/.