I once wrote an article about a lady who was referred to me by a client of mine. Her husband had just passed away and she was in need of some financial advice. Her family was your typical expat family: husband and wife from different countries, children in international schools, and the last ten years spent working in countries around the world.
The husband had been an investment-savvy person and he was the one who controlled the family’s finances. They had accrued various properties and bank accounts across Asia, and had made many solid investments. However, what the husband did not do was make his wife fully aware of all of their investments and bank accounts. More importantly, the family did not have an up-to-date will or a trust in place.
Each country has its own strict, unique procedures for when a person dies. The issue becomes a whole lot more complicated when you have assets in multiple countries. In this situation, the assets you have in each country are subject to the unique laws of that jurisdiction. This often creates a situation where they are not distributed to your family as you would wish. A will or trust is a simple way to ensure that your estate is divided the way you would like it to and a way to minimize any taxation upon death.
Since sharing this story, I have been inundated with enquiries from families who fear they do not have adequate planning in place and want to know what to do.
What Is a Trust?
Every time I turn on the television, I seem to see “Kardashianesque” families talking about a trust fund they have set up for their beautiful 15-year-old daughter named Madison or Chelsea. These children often seem to have no real understanding of what a trust is, and I guess when I was that age I didn’t really understand them either. I just thought it was a big pile of cash that the son or daughter would receive at the age of 21, and as it turns out I was mostly right. But to understand trusts fully, we need to know a little more about where they came from.
The origins of trusts lie in old British law. Back in the old days, when kings and queens lived in castles, the men would go off to fight in the crusades and they would have to leave their family and home behind. Women were not allowed to own property so the men would have to leave their house with their male friends or family. Thus, you “trusted” someone with your property.
Women can now own property, but the fundamentals of a trust are essentially the same. The most common use of a trust is to create a legal entity or agreement around your property in preparation for your death.
When I was 15 years old, I came home from school one day and saw my parents sitting with their financial advisor. At the time, I didn’t know what a financial advisor was or that my family had one and I definitely didn’t think we had enough money to need one.
He jokingly said to me, “Your parents have now just given you all of their money.” My parents had put their property in trust with my brother and I as the beneficiaries. Under UK tax law, if my parents put their property in trust and stayed alive for the following seven years, then the property would belong to my brother and I free from any inheritance tax. For them, this simple planning has performed its function and my parents can live the rest of their lives confident that their wishes will be carried out.
What Is a Will?
A will is something we are all more familiar with; indeed, I think we all secretly hope that we will get a letter one day saying that a long-lost great aunt has passed away and written us into her will for a slice of her country estate.
Like a trust, a will is a legal document that you write up in preparation for your death. It should be updated whenever your family’s financial situation changes, not when you start fearing death. You should own a will in every jurisdiction where you hold assets as to avoid problems associated with retrieving them if the holder passes away.
Furthermore, it is good advice to arrange your family’s finances in a simple and accessible way. If you leave a country and have no intention of returning, then it makes sense to close all your accounts. If you are using bank accounts to pay debt on a property in this country or a similar arrangement, then use a single centralized international account if possible. If you have left an investment behind with an advisor in the same country, it is usually possible to meet an advisor in your new country who may be happy to take over the asset’s management.
Trusts and wills both offer different benefits and can range from very simple to very complex depending on each person’s situation.
To summarize, the benefits of a will or trust include:
- Holding assets outside of your estate to reduce tax
- Ensuring that your wealth is passed on to the right people
- Speeding up the probate procedure
When in doubt, speak to a professional.
Please note that beijingkids does not necessarily endorse the views presented in this article.
About William Frisby
William originally arrived in Beijing as a finance guy on a bicycle and will probably leave as a finance guy on a bicycle. He works for Premium Finance Group (PFG), a financial consultancy that has been established in China for over ten years. PFG offers clients no-nonsense, personalized advice and serves the whole of China from their Beijing and Shanghai offices. Services include international property, investment, insurance and financial planning. To contact William, email william.frisby@premiumfinance-group.com.
Photos: Laszlo-photo, Ota_photos, Images of Money (Flickr)
