Estate planning is defined as the process of anticipating and arranging for the disposal of an estate. It involves people who could be your family, other individuals or charitable organisations of your choice. It also involves your assets in whatever kind or form. It may also address your future needs in case you ever become unable to care for yourself.
In fact, no matter how big or small your estate is, you may need to designate someone to manage your assets and possibly make health care and personal care decisions for you, should you ever become unable to do it for yourself.
Effective estate planning supports your financial and retirement planning. It gives you peace of mind because the manner in which you wish to dispose of your property is recorded. It can help you preserve and build your estate during your life and pass it on as you desire when you die.
Through estate planning, you can determine how and by whom your assets will be managed for your benefit and for the benefit of others; when and under what circumstances it makes sense to distribute your assets during your lifetime; how and to whom your assets will be distributed after your death and how and by whom your personal care will be managed and how health care decisions will be made during your lifetime if you become unable to care for yourself.
Many people mistakenly think that estate planning only involves the writing of a will. However, the use of trusts as an effective tool in estate planning should not be underestimated. Interestingly enough, trusts have been compared to a long term family friend with some crucial key features such as understanding, honesty and flexibility.
A trust is generally nothing more than a private legal agreement made between two parties i.e. the settlor and the trustee whereby the settlor transfers the legal ownership of assets to the trustee for the benefit of third parties called the beneficiaries. The beneficiaries could include the settlor himself. A trust is a very flexible relationship and given the right circumstances and provided the legal requirements are present, it can actually be designed to do whatever the settlor wishes to achieve. Additionally, the very notion of the trust is that property should be preserved for the future while present enjoyment is not denied.
However, trusts are not a one size fits all vehicle and the instrument of trust which is the document setting up the trust must be a made to measure document, drawn up by a lawyer after a number of meetings with the settlor, which document must naturally reflect the circumstances, needs and objectives of same settlor. All of your assets could be included in the estate. This could include assets such as bank accounts, real estate, stocks and bonds and furniture, cars and jewelry.
Trusts are commonly used by high-net worth individuals worldwide to plan their financial affairs and provide for other individuals, including future generations, in an efficient and practical manner. Trusts have in fact a major role to play in the process of asset holding, asset protection and succession planning. We have spendthrift trusts which can be employed as a way of avoiding the spendthrift getting through his inheritance by spending it recklessly and leaving his children with nothing.
We have accumulation and maintenance trusts where a wealthy parent may wish to make provision for his children and grandchildren with a view to achieving particular goals, like acquiring homes and a proper education of their choice. Outright gifts offer no means of ensuring that the assets are used for their intended purpose. By placing the assets into trust, on the other hand, very specific provision can be made by which the settlor's objectives can, if possible, be guaranteed. In this way, the children and remoter issue can be protected, first, from themselves and, secondly, from others.
Trusts can offer an administrative bridge from one generation to another that cannot be provided by other means. A trust could help in this case to ensure continuity of ownership and asset management in the most complex of situations. Looking to the assets themselves, they are afforded protection from external attacks. Trusts could also hold the collective ownership and management of family assets, thus generating liquidity without putting other assets at risk.
Dr Galea specialises in trust law at Fenech & Fenech Advocates.
www.fenechlaw.com