Establishing a Trust Fund using Insurance or Takaful Funds

 

Summary of features of the arrangement.

1.  Objective: To create a fund upon the death of a policy owner (PO) or participant (P), whereby the moneys are professionally managed by trust company. It is to be gifted to the beneficiaries over a period of time, according to the wishes and intention of the PO or P. 

2.  The PO or P must create the fund by purchasing a suitable life insurance policy or family takaful contract. The initial sum assured will represent the basic fund value. 

3.    Discussions must be held with a chosen trust company (trustee) as to the intentions of the PO or P (settlor) and all the relevant terms and conditions of the trust which will be stated in the trust deed which will be prepared by the trust company. 

4.      A trust deed is therefore an agreement between the settlor and the trustee.

 As part of the arrangement, the policy or contract must be absolutely assigned to the trustee. 

6.     There are initial fees and expenses to be paid to the trustee and when the claim arises, management fees and expenses will be charged. This will depend on the trust company. 

7.     The trust funds thus established, will not be considered as part of the estate of the policy owner. 

8.    The trust created will usually be an irrevocable trust ie. it cannot be revoked without the consent of the trustees. 

9.    The fund established may only be deemed “creditor proof” only if it satisfies the relevant bankruptcy rules – as an example and in simplest terms, the trust should be created at least 5 years prior to any bankruptcy proceedings commenced against of the settlor.

 The documents required for this arrangement include an absolute assignment, a trust deed, a power of attorney and others as required by the trust company.