Beyond the trust deed – a team-based approach to legacy planning

OVER the past few years, we have seen an increasing number of requests to set up trusts for families as part of their legacy and estate plan. This is largely due to a greater awareness of asset-protection strategies, and the increasing wealth and complexity of family structures such as blended families, cross-border assets and vulnerable families.

Families also have a desire for more intentional legacy planning beyond just asset distribution. More clients now see trusts not merely as tools for the ultra-wealthy, but as vehicles of stewardship – a way to pass values alongside wealth. As a result, there has been a surge in the appointment of independent and bank-affiliated institutions as corporate trustees.

There are, of course, advantages to using trusts and corporate trustees. When one transfers their assets into a trust, they transfer the legal ownership of their assets to it.

Therefore, a trust creates a legal separation between the settlor (the person who sets up the trust) and the assets. If properly set up, it provides creditor protection, and long-term guidance on how assets should be managed and distributed, which mitigates family disputes.

As opposed to human trustees, corporate trustees ensure continuity far beyond the lifespan of individual trustees. Also, because corporate trustees are regulated entities, they offer stronger processes, audit trails and checks compared to the case of family members as trustees. Having corporate trustees also reduce the emotional burden on family members who may otherwise be placed in difficult roles.

Because of the longevity of corporate trustees, it helps to enforce conditions and instructions such as support for minors, special-needs dependents or phased-out distributions which may span decades.

Corporate trustees play a very specific role. Clients often mistakenly assume they can “do everything”. Based on our experience working with corporate trustees, be it independent or bank trustees, here are some critical considerations if you are considering setting up a legacy and estate plan.

1. Trustees are not investment professionals

Corporate trustees are not licensed and do not have the competence to provide investment management services. While you can set up your investment mandate for the trustees to ensure it is adhered to, you cannot expect them to execute it. They do not have the expertise to help you craft a detailed investment policy statement that is suitable.

Neither will they be able to help you estimate the returns you will need to achieve your trust objectives, determine the asset allocation, and pick suitable instruments to give the highest probability of success.

In our experience, even if they were to appoint investment managers, they may not be able to competently know whether the mandates are properly followed, and if expected and actual returns are reasonable.

2. Trustees are not wealth advisers

Trustees do not create financial plans, cashflow projections, or financial analyses that are tied to family goals. This role is often underestimated. As an example, settlors often want a phased distribution of their assets based on certain milestones of their beneficiaries.

It may be for tertiary education funding, business ventures, or payouts when a grandchild gets married, and these have to be coordinated with the investment and withdrawal plan. You cannot expect the corporate trustees to do this for you.

3. Trustees are not lawyers

Trustees do not advise on complex tax matters, cross-border structuring, family law implications or business succession issues. They administer according to the trust deed. In our experience, the trust deed sometimes gives them so much power that you as a settlor may not be comfortable with and may also not be in your favour.

A trust is only as good as the team that designs, executes and continuously reviews it. Legacy and estate planning has evolved from a “lawyer-only” or “trustee-only” model to a multidisciplinary, team-based approach.

So, who will be needed in a proper legacy and estate planning team?

• A trusted wealth adviser (the coordinator and steward). A trusted wealth adviser creates the overall wealth management plan that is aligned with your ikigai goals, values, family dynamics and ensures financial sustainability of the trust. He or she estimates the investment returns needed and subsequently decides the asset allocation of your investment portfolios. He monitors the performance of these portfolios and suggests changes to give the highest probability of success to meet the trust objectives. He may hold family meetings if needed, to communicate the intent of the settlor. He may also provide continual financial education to the next generation of beneficiaries. And because he is the only party with a 360-degree view, he coordinates communication across the rest of the team members, including a business exit specialist, investment manager, lawyer, trustee and other professionals to create the legacy and estate plan.
• Business exit specialist. Business owners have an additional asset that brings complexities to their legacy and estate plan – their shares in their business. This is where a business exit specialist comes in. Working hand in hand with the rest of the team, a well-considered business succession plan that is integrated with the legacy and estate plan will ensure that the family’s personal, wealth and business goals are met.
• Investment manager. His job is to manage the portfolios under trust in accordance to the investment policy statement created by the wealth adviser, after understanding the settlor’s intentions for his beneficiaries. He works with the trustees and wealth adviser to provide performance reports regularly and incorporates planned withdrawals in accordance to the phased payout plan under the trust. As an example, a payout that is needed in two years’ time may need an investment decision to be taken today depending on market conditions.
• Lawyer (estate, family or tax specialist). When we work with our lawyers, they draft documents such as wills, deed of gift, letter of wishes and trust deeds for our clients. Many times, they look at the standard trust deeds provided by the corporate trustees and amend them to meet the requirements of our clients. They also ensure that the trustees are not given more powers than they need. They may also review legal risks, cross-border implications and compliance and also advise on estate tax exposure, forced heirship, business-succession issues and more.
• Trustee. The trustee is the custodian and administrator of the trust. Working together with the rest of the team members, they owe a fiduciary of care to the beneficiaries to ensure that the settlor’s wishes are carried out faithfully. They also provide fiduciary oversight, governance, continuity and regulatory compliance.

In a dinner some months back, when I was answering some questions by a friend regarding his intention to write a will, a lawyer friend suddenly blurted out that financial advisers should stay away from giving advice on estate planning, implying that it is the lawyer’s job.

I disagree and I am sure many estate lawyers would too. Estate and legacy planning is not just a legal, trust-administration exercise and investment-management exercise alone. It is a coordinated, values-driven, multidisciplinary process.

The trusted wealth adviser is often the only professional who journeys with the family over decades, understands their values, guides their life decisions, and ensures the plan remains relevant. Their role is not to replace the lawyer or trustee, but to integrate and coordinate the entire legacy framework.

The writer is chief executive of Providend, South-east Asia’s first fee-only, comprehensive wealth advisory firm