7 Ideas that Breathe Life into Your Family Trust
Do you know that setting up family trust funds are no longer reserved for the super-rich? In recent years, more licensed trust companies are setting up shop in Singapore, targeting families with as low as $3M in household wealth.
With Singapore becoming an “old money” economy, there’s a growing number of younger millionaires who acquired their wealth through inheritances. Personally, I find most estate plans in Singapore obsessed with only passing down valuables and assets but not values. An inheritance is meaningless without values.
To prevent that, consider these 7 ideas while creating your family trust.
“Think Lasting Legacy, Think Multi-Generation Family Trust”
If you believe a trust is an estate planning tool meant only for the super-rich, think again. A multi-generational family trust is not exclusive to the ultra-rich, famous dignitaries or business tycoons. In fact, the next multi-generation trust may just have been set up in your neighbourhood yesterday!
Try the following exercise if you are married with two children or more.
- Work out the combined estate of your spouse and yourself (assets + total insurance pay-out)
- Multiply this by (75 or average of both your ages)
- Divide that by 9
If that works out to about SGD5 million, you have a good chance to qualify setting up a multi-generation family trust.
#1: Adopt a stewardship Mindset
Having a sense of ownership motivates a successful person to pass down their wealth in a responsible way. However, having a stewardship mindset will drives the individual to think in multi-generational terms. A luxury watch advertisement says it all, “You never actually own a Patek Philippe. You merely look after it for the next generation.”
Unlike our Western counterparts, Asians are less willing to put assets under trusteeship because of the perceived loss of control. A third-generation family member in Singapore recalled what her mother told her when she had just graduated 30 years ago, “I will not receive a single cent from the family trust unless I learn how to manage it”.
#2: Stay true to first-generation values
Will you have an answer ready if I asked you to share 3 values that are most important to your family?
When Singapore first gained independence, it lacked natural resources and its population was culturally and religiously diverse. Therefore, unity, resourcefulness, hard work and meritocracy were key values our forefathers identified as essential for every successive generation of Singaporeans to uphold. These ‘first generation’ values are enshrined in the ruling People Action’s Party Manifesto so that every generation after can emulates the first.
Similarly, in your own family, identify and pass down these family values to your children. One way to do so is to intentionally include clauses in your family trust to encourage the practice of such values. Try watching the 2006 American movie, “The Ultimate Gift”, for an idea how this could work.
#3: Consume the fruits but grow the tree
Two brothers may fight over who gets the best fruit tree from their dying father but they will argue less over the fruits. Over time, they would also learn the meaning of harmony, as enshrined in the Chinese proverb ‘harmony grows wealth’.
When quality family assets are not split up but consolidated in a trust, they represent a tremendous opportunity for long-term capital growth. Sound financial management of this capital can also yield a good income for the family.
A diversified investment portfolio of $100K growing at 4% p.a. will grow to $400K when one retires. However, if allowed to grow over 100 years of a trust tenure, it will grow to a whopping $6.4M. One of the oldest trusts in Singapore is the Sallim Talib’s Family Settlement set-up. It is estimated that the Arab merchant’s prime land property portfolio set up in 1937 is worth more than $1B at current valuation.
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#4: Create shared experiences and decisions
A family does not have shared experiences only when it is united; it becomes more united with more positive shared experiences. Family trusts were never intended to bind the hearts of begrudging members through assets. Yet, no family stays together by default. Intentional effort is required to maintain and build relationships.
I’ve seen trust documents set aside communal funds for family bonding activities, like annual family trips and reunion dinners. Several clients have also added conditions for their children — such as having an ‘X’ number of family gatherings — before they could receive their entitlement of business dividends. Of course, there are provisions for distant communication or grace absences for family members. After all, the idea is to motivate, not penalise.
There was a creative couple who set up rules for their children to co-manage a small 20% ‘charity pot’ from which they were to research together which charities to support using their family trust.
#5: Strengthen marriages in the family
Do you know that 1 in 3 marriages are at risk of divorce in Singapore? 88% of millennial couples cite finances as a top reason for divorce. In properly constructed family trusts, where inheritances are consolidated (but separately run from individual household finances) and income is only used as a lifeline and not as a free handout, to enrich and not to provide, then a family trust fund offers some sort of a psychological safety net for every household under its covering.
Should a divorce happen, family trusts can also ring-fence familial assets against matrimonial division or family lawsuits. Obviously, a strong marriage depends on many factors, but having good family trusts sure wouldn’t hurt.
#6: Greater posterity
How often have you heard young couples say it’s expensive to raise children in Singapore? Its no wonder because it may cost anywhere near $250K to raise a child up till university!
Can family trust funds ease the financial burden of a young household for, say, the first seven years a child is born, so that one parent can enjoy the option of being a stay-home mum/dad? Wouldn’t it be good if one heir who loves to have more children can receive more from the ‘Posterity’ pot?
Several of my medium net-worth clients came up with a ‘family bursary’ to provide economic assistance to more disadvantaged members or couples with more children. The same psychological safety net provides stronger motivation for a procreation culture in the family. There is also a better chance of raising future stewards from a bigger family.
#7: Focus on generational surplus, sustainable growth, and communal blessings
Visualize family trusts as lifeboats carrying cargo that are both your values and valuables down the generational stream. You provide the first cargo on the boat to be allocated among your children and grandchildren. When it goes down to their children’s generation, the cargo continues to provide and nourish them; at the same time, it is also being “re-stocked” with new values and valuables created in your children’s generation. As the boat moves down from one generation to another, it provides and nourishes the next and is replenished by the previous.
The financial rule here is clear: every generation always puts back into the boat more than what it takes out of it, i.e. surplus. Put financial stewardship, compounding capital growth and meaningful life insurance cover on every member, then add strong marriages and procreation motivation, and your family may just grow into a tribe or a clan, bigger and wealthier. With the right values and characters, it can multiply into a fleet of boats blessing the communities around them.
You can also empower these lessons in your family through the heritance app! Available on the Play Store and App Store now.
This is my vision – for more of such families to be established. I am always excited when I hear friends being blessed with a new child and are committed to building strong family relationships and values. In many ways, they have a better chance of leaving behind a legacy, not because of their wealth but because of their descendants. After all, success is measured by the valuables we accumulate in our lifetime while significance is measured by the values we pass down to the generations.
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You may also be interested in:
- Boon, R. (2016, October 14). Republic’s standing attracts old money, says report. Retrieved from The Straits Times: https://www.straitstimes.com/business/economy/republics-standing-attracts-old-money-says-report
- Shared values are adopted. (2014). Retrieved from HistorySG: https://eresources.nlb.gov.sg/history/events/62f98f76-d54d-415d-93a1-4561c776ab97#:~:text=The%20five%20Shared%20Values%20that,5)%20Racial%20and%20religious%20harmony.&text=1.
- The Subordinate Court . (2003, September). Divorcing Couples: A profile analysis. Retrieved from The Subordinate Court Research Bulletin: https://www.statecourts.gov.sg/cws/TBD/Documents/issue31.pdf
- Yan, J. (2019, September 21). How Much Does It REALLY Cost To Raise A Child In Singapore? Realistically… Retrieved from Seedly: https://blog.seedly.sg/cost-raise-child-singapore/