Introduction

Estate planning can be a complex and daunting task for many individuals, but it is a necessary step to ensure that your assets are distributed according to your wishes after your demise.  Wills and trusts are two of the most common estate planning tools that individuals in Singapore use to achieve this goal. However, whilst both are useful estate planning tools, they nevertheless operate in different ways which have significant implications on one’s estate. In this month’s FLP Newsletter, we shall be taking a closer look as to what constitutes a will and a trust, the difference between the two (in particular, comparing a will with a living trust (hereinafter known as a “Trust”) and the factors that one should consider in deciding if a will and/or Trust is more suited for his/her needs.

What is a Will?

A will is a legal document that outlines how a person’s assets and property will be distributed upon his/her demise. It is a crucial estate planning tool that allows an individual to have control over how their estate is managed and distributed (especially in countries that practice testamentary freedom such as Singapore).

The person creating the will (also known as the testator) has the ability to name, among others, an executor who shall be responsible for the carrying out of the instructions of the will and overseeing the obtaining of the Grant of Probate, a trustee who shall hold the assets on behalf of the beneficiary (if required), a guardian to care for the testator’s child (if the child is still a minor), and of course, the beneficiaries.

Where the manner in which a testator wishes to distribute his/her assets is straight forward and simple, then a Will could be an affordable way to effect this. Wills are also revocable which means that a testator could amend or revoke them at any time as long as the individual has such mental capacity to do so.

However, for the assets to be distributed in accordance to the Will, a Grant of Probate has to be obtained from the Court. This Grant of Probate is a validation of the Will by the Court to allow for the administering of the estate. This process may take a few months and potentially, in some cases, may take even longer when the distribution of the assets is challenged for whatever reason.

What is a trust?

A trust is a legal arrangement where a party known as the grantor or settlor, transfers assets or property to another party, known as the trustee, to manage and distribute on behalf of the beneficiaries. In such trust arrangements, the trustee is responsible for administering the trust according to the instructions set out in the trust document, which can include how assets are managed, invested, and distributed. The grantor can also specify conditions or restrictions on how the assets can be used, such as directing that funds only be used for certain purposes or that beneficiaries only receive funds when they reach a certain age or achieve a specific milestone.

There are several different types of trusts that can be used for various purposes. As we mentioned in the first paragraph, a Trust (the living trust) can be created during the grantor’s lifetime and used to manage assets while they are still alive, as well as provide for the distribution of assets after their death. A testamentary trust is created as part of a will and only takes effect after the testator’s death.

Trusts can be used for a variety of purposes, including estate planning, asset protection, charitable giving, and managing assets for minor children or beneficiaries with special needs. However, establishing and managing a Trust can be more complex and costly than creating a Will, and it requires careful consideration of the Grantor’s goals and objectives.

In deciding whether to use a Will or a Trust, what factors should one consider?

(As a manner of illustration, we shall be comparing the drafting of a will with the setting up of a living trust (“Trust”).)

Complexity of the estate: Where a large and complex estate is involved, it seems that individuals usually opt for a Trust as it offers flexibility and control over how their assets are distributed and managed. That said, a well-drafted Will can nevertheless, provide for specific instructions towards the distribution and management of the estate as well where for any reason, the individual does not wish to use a Trust.

Professional Trustee vs Lay Trustee: While professional trustees indeed do possess the level of expertise and impartiality which would certainly be helpful in the management of large and complex estates, their fees could be rather substantial. Using a Will, on the other hand, gives the testator the option to decide whether to appoint a professional trustee or a lay trustee, where the latter manages the estate on a voluntary basis or at for an amount that would have been set out in the Will by the testator.

Costs: Indeed, where the distribution and managing of the estate is comparatively simpler and more straight forward, the more popular option would be using a Will for estate planning.   The costs of setting up and maintaining a Trust can also be significant, so it is important to consider the costs associated with both options.

Probate: As mentioned earlier in this newsletter, an application of a Grant of Probate is required in order to manage the estate where a Will is involved. This application process could be time-consuming and may cause some delays before the estate can eventually be managed accordingly. Individuals who wish to avoid such delays as a result of the probate process, usually would have their assets transferred to the Trust while they are still alive. This, however, also would mean that such individuals could potentially lose control over the assets as such assets belong to the trust and are not theirs anymore.

Tax Implications: In many jurisdictions around the world, estate duties and inheritance tax could apply to the estate. Such estate duties are typically assessed by the government based upon the value of the assets included in the estate and the estate has to pay such taxes before the remaining assets can be distributed to the beneficiaries. Indeed, for jurisdiction where such estate duties apply, setting up a Trust structure to manage the assets would be particular helpful at tax planning for the individuals.  It should be noted however, that currently, Singapore DOES NOT have any estate duties.

Privacy: Once the Grant of Probate has been granted by the courts in view of an existing will, such a will then becomes a public document, which means that the estate and its distribution will become a matter of public record. For individuals that value privacy and want to keep your estate plan confidential, a Trust may be a suitable option as it can help to avoid the probate process and keep one’s plan not only out of the public eye, but also from different beneficiaries within the trust (if the grantor should so intend).

Concluding Thoughts

In conclusion, it seems that both Wills and Trusts can be effective estate planning tools, but their unique characteristics will result in varying implications on one’s estate. Suffice to say, everyone should have a Will to deal with the distribution of their assets upon their demise. In some circumstances, one may need both a Will and a Trust. This would largely depend on the individual’s specific circumstances, concerns and objectives.

 How can SMTP Help you

Having an experienced hand guiding you through the intricacies of the law is always helpful regarding matters of legacy planning. At SMTP, we provide a suite of bespoke services, which includes Immigration, Family Office, advising and assisting on real estate and Family Legacy Planning matters. Tapping on our wealth of experience and our very own Wealth Legacy Screening process, our lawyers will be able to assist you in a very systematic and detailed manner on your Family Legacy Planning journey and will be able to recommend legacy structures that would best meet your specific needs.

We also believe in close engagement with our clients, paying close attention to their individual facts and circumstances, and tailoring our advice and courses of action to cater to their specific needs and requirements. SMTP’s core philosophy is to provide bespoke legal advice based on our private clients’ specific needs and requirements, as cases always differ on their fine details. Our team of dedicated staff are ever eager and prepared to assist interested parties. Should you or your clients require any assistance in trust or real estate matters, please feel free to contact our Business Development Team to schedule a consultation.