Have you ever come across the words standby Trusts? If you have read or researched about estate planning, you have probably come across Standby Trust. A bigger part of the populace view trusts, whether standby or testamentary, or revocable or irrevocable, as something suited only for the rich. And, until towards the end of the last decade, Trust companies have targeted just high net worth clients.

Nowadays, even middle-class families come to trust firms looking for affordable yet flexible trust structures for their families. The solution to this demand is the Standby trust. As you go through the four-point below, you will discover what standby trust is, what are the benefits of using a standby trust, and how you can set up one yourself with a local Trust Company.

Defining Standby Trust

Before we dive into what a standby trust is, it is important to define first the following terms:

  • Settlor – a settlor, is the person who created the trust, in other parts of the globe a settlor is also called the donor.
  • Trust – is a legal agreement where the settlor gives to a trust company the legal rights of his or her assets. The company will then manage these assets for the benefit of the settlor’s spouse and heirs. Any monetary or beneficial proceeds from the assets belong to the settlor’s heirs, not the trust company.
  • Trustee – the word used to refer to the trust company holding the trust.
  • Beneficiary – the word used to call the settlor’s heirs.
  • Living trust – is a type of trust where the trustees are directly or actively involved in managing the assets or the properties under the trust. For example, collecting rent from the apartment complex owned by the trust, or distributing the income of the assets to the beneficiaries.

Standby trusts are a type of living trusts and can either be revocable or irrevocable. But, the activation of the trust’s administration is controlled by the settlor while he is still alive or when a severe accident or illness occurs, that renders the settlor unable to make logical decisions.

Trust practitioners in the US, www.uslegal.com defines a standby trust as such:

“They are revocable trusts created to manage a person’s assets while he or she is out of the country or experience disability. It is a standby and will only be operational when specified.”

Uk firms, on the other hand, define standby trusts as “a set up during the lifetime of an individual in order to receive funds  or property upon their death from either a legacy in the Will, a pension fund, a life insurance payout or a benefit in death-in-service.”

What are the benefits of setting up a standby Trust?

1. It protects You from being taken Advantage of.

Yang Yin and Madam Chung

In the year 2008, A Chinese national by the name of Yang Yin met the widow Madam Chung while acting as her tour guide in Beijing. Two years after that, the old widow made a will leaving all her assets an estimated 40 million dollars to Yang Yin. And another two years after that he was appointed her legal guardian giving him total control of her assets via a Lasting Power of Attorney (LPA). Madam Chung had no children, and she had dementia.

Her niece Hedy Mok sued Yang for manipulating her aunt and for stealing 1.1 million from the widow. Yang has been sentenced to 11 years in jail after the High Court found him guilty.

The situation above could have been avoided had Madam Chung set up a standby trust. This is because a standby trust is a set-up to protect the settlor from being taken advantage of if ever he or she becomes mentally incapacitated. The appointed legal trustee will immediately take over the settlor’s assets should he or she develop an illness like dementia or go into a coma. This way, the assets will not fall into the hands of people around the settlor who have mal-intentions. This method also ensures that any properties within the trust will go to the beneficiaries named by the settlor.

According to the Survey of Consumer Finances, only 1.3% of people who inherited money inherited it from a trust fund. Think of the numerous loopholes that might have occurred with these inheritances. The total monies that should have gone to a person’s beneficiaries might have gone into the pockets of manipulative people like Yang Yin above. Prevent such scenarios from happening to your family by making a trust fund.

2. It provides for Your family after your death

A standby trust will be automatically activated when the settlor dies. The appointed trustee then takes the responsibility of collecting any payments, CPF collectibles and other insurances that is placed under the trust. Assets left by the settlor after death can take a while to be released to family members especially if not all property has been placed inside the trust. The standby trust will provide the emergency fund for the settlor’s beneficiaries as well as distribute any claimable monies. The trustee would also manage the assets left behind in the trust to make sure that the beneficiaries are provided for with a monthly allowance.

Take a look at the example. ‘Mr. Wong, aged 34, dies in a car accident leaving behind his wife and a five-year-old daughter. Mr Wong’s wife is unemployed and depends solely on him; thankfully he had set up a standby trust before he died. His appointed trust firm processed all the papers for his claimable such as the CPF monies and insurance, all of which were placed in the trust. The probate process for Mr. Wong’s estate was long but because he had a standby trust his family was well provided for even though he died an untimely death.”

In a research conducted by AARP, a nonprofit and non-partisan organisation, they found that 78% of people ages 18 to 36 and 64% of people ages 37 to 52 have never considered making a will. All the more, they have not considered doing estate planning. Should they die an untimely death, their beneficiaries could be left dealing with lengthy probate court proceedings and even be subject to unfair creditors.

A standby trust goes way beyond just mere asset management but also protection against any creditors trying to lay claim to what the settlor as left behind. You don’t want your hard earned cash to go to any possible creditors? Start a trust fund.

How to Set up a Trust Fund?

You can set up a trust fund in four simple steps:

  • Contact a licensed and reliable trust company of your choice – hire the services of a trust company and declare your intentions to set up a standby trust. A company like Rockwills can run you through the whole process without much hassle.
  • Nominally fund your standby trust –  Any substantial assets you own can be transferred to the standby trust later. Your CPF funds and any insurance policies can be assigned to your trustees to ensure a smooth and well-planned inheritance for your beneficiaries.
  • Make a will – if you chose Rockwills as your trustees then having someone draw up a Will for you is easy. It is important to create your trust fund first before you transfer any assets to it via your will. Your estate and other substantial assets can be transferred to your fund using a Will.
  • Have a Lasting Power of Attorney created – This will give your trustees the authority to handle your assets should you die or encounter an incapacitating accident.

Conclusion

A standby trust can give you the asset protection you need at an affordable price. It can give you the security while you are still living and prevent instances of you being the victim of others through its unique set-up. And in the long run, you no longer have to worry about your family’s welfare if something were to happen to you because your trust has got you covered. Don’t wait for disaster to strike before you decide to protect your assets, act now! Because waiting for later is like burning a candle, the longer you wait, the more you lose.

Keep this adage in mind. “Failing to plan is planning to fail.”