NEARLY one in six Singaporean households has a net worth in excess of $1 million and the number of millionaires in Singapore is expected to more than double by 2016. With high net worth foreigners choosing to use Singapore as the centre for their wealth management, the issue of estate and succession planning is becoming increasingly relevant.
The trust – which has numerous advantages such as flexibility, protection from creditors, and preferential tax treatment – has become the estate and succession planning vehicle of choice for wealthy individuals. But choosing the right practitioner to plan and implement the trust is as important as deciding who and how to bequeath your wealth.
Currently, the two main professional groups servicing the wealthy are lawyers and private bankers. Although lawyers may have a natural advantage because of their legal background, it is not necessary for estate planners to be legally trained. Successful estate planners should possess three critical qualities: competence, depth, and substance.
Competence
An estate planner must, of course, be competent in trust law. The nature of trust law is complex with different types of trusts comprising different sets of legal principles, rules, advantages, and limitations. Singapore’s trust jurisprudence is limited and relies heavily on English trust law. Even for lawyers, mastering trust law requires decades of toil and experience.
Trust jurisprudence is constantly evolving with the increasing tendency of local and English judges to adopt principles developed in other jurisdictions. A good estate planner must keep abreast of global trust developments and appreciate the ramifications on Singapore trust law.
Depth
In addition to trust law, estate and succession planning requires knowledge in other areas such as creditor protection and tax planning. A successful estate planner must be be able to advise on the creation of tax- efficient trust structures.
This requires deep knowledge of the local tax laws and any relevant exemptions that may be applicable, either for the trustee or to the beneficiaries. Quite honestly, there is nothing more wasteful than paying unnecessary taxes on account of poor planning.
Substance
A trust must cater to a client’s unique needs. Successful estate and succession planning requires an adviser to identify the different legal issues that arise or may arise by virtue of an individual’s circumstances. This necessitates an adviser to utilise multi-disciplinary knowledge to resolve those issues.
In the case of “international” families (ie, with members and/or business interests in other jurisdictions), an estate planner must be alive to the cross-border complexities involved in structuring such an estate. Issues such as the differing tax regimes and forced heir-ship rules must be considered.
The structure must be finely balanced to ensure that it is flexible enough to meet the evolving needs of the family and business over time. It must also be able to resist attacks from creditors and non-beneficiaries. This would require the skills of a highly experienced practitioner who is up to date with legal developments in other jurisdictions.
Privilege vs confidentiality
In addition to the three core qualities discussed, privilege is the other important factor. The difference between privileged and confidential information is that the latter can be disclosed if public interest outweighs the individual’s interest in keeping the information confidential.
In comparison, communications which carry legal professional privilege (such as advice from your lawyer) are protected. Privilege is guarded by the courts and, in most instances, is absolute. With the premium many individual’s place on keeping their financial affairs private, privilege is rapidly increasing in importance.
The recent amendments to the Singapore Income Tax Act (providing for exchange of information under the numerous double tax treaties that Singapore has entered into), specifically protect from disclosure information which is subject to legal privilege. This makes communication between a lawyer and his or her client absolutely confidential; a court of law cannot compel its disclosure.
Hence, a successful estate planner must be proficient in the law and also possess the ability to translate the client’s needs into the trust. The ability to create a flexible structure which can evolve over time with changes in the law and an individual’s circumstances is the most important quality the right estate planner must possess.
In deciding whether to choose a lawyer or a banker for estate planning, legal privilege is not the titling factor in favour of lawyers. What may be decisive is that trust lawyers know the law and the complexities which allow them to create flexible structures that work and can evolve with a client’s needs.
Bankers, on the other hand, have knowledge to give financial advice and offer innovative structures or products which lawyers may not be familiar with; and generally have deeper relationships with the clients they service.
In the final analysis, it may not be a question of just one adviser. It is how best to use the respective know-hows of both the lawyer and banker to achieve the objectives of estate and wealth planning; both complement each other. You will never achieve comprehensive or optimum solutions if your advisors are “silo-ed” or blinkered.
The writer is is managing partner, KhattarWong LLP
