Discover the benefits of using a Trust as a strategic tool for estate planning. Learn about trust structures, tax implications, and why trusts offer advantages over other alternatives. Explore expert insights on when to consider a trust for effective succession planning.
Estate planning involves determining how an individual’s assets will be preserved, managed, and distributed after death. It also takes into account the management of an individual’s properties and financial obligations in the event that they become incapacitate.
Alternatives for Estate planning
Trust as a tool for succession planning
“Trust is an obligation annexed to the ownership of property and arising out of a confidence reposed in or accepted by the owner, or declared and accepted by him, for the benefit of another, or of another, and the owner.” The above definition is as per Section 3 of the Indian Trusts Act, 1882.
Types of Trust structure:
Taxability of a Trust
Why Trust over Other Alternatives of Estate Planning?
1. Planning succession through a trust might prove more beneficial since a Will is a document that comes into effect after the lifetime of its creator (known as Testator), who is not present to justify their intentions when disputed. Since trust operates during lifetime of the Settlor, it continues to follow the objective for which such trust was created.
2. Family trusts may provide continuity to businesses and prevent disruption due to subsequent feuds after the demise of the head of the business/ family.
3. A Trust structure can help in reducing family disputes by providing an opportunity for the family members to pre-empt all possible scenarios and document the same, which will result in efficient operation and preservation of family wealth.
4. Setting up a private family trust is better if the ownership is complex and spreads out across geographies.
5. A LLP being a separate entity provides total control over the assets held by it to the LLP not the partners and any reconstruction of deed can be made only by approval of all the partners. Whereas, while forming the trust, the settlor decides terms of distribution as a part of trust deed which provides enough flexibility for subsequent distribution of assets.
6. Trust Structure is not prone to excessive statutory requirements, which results in easy operation and provides greater flexibility in structuring the succession plan in a smooth manner.
7. Since the information about private trust is not public, it will help in maintaining confidentiality to the settler and family members.
8. According to the Indian Succession Act, 1925, a will can be amended any number of times, which could be biased to any member if the testator makes an amendment under undue influence or coherence. There can be a situation if testator makes an amendment in his will when he is of unsound mind.
When Should You Consider A Trust?
While a Trust is an all-encompassing estate plan, it is a structure that is far more complicated than a Will and requires considerable planning. Hence, it is always advisable to thoroughly assess the need for one. To assess the best suited alternative for succession planning for an individual, following factors should be taken into consideration:
- Assets and size of the estate
- Family dynamics of the donor
- Inheritance objectives – whether business succession is planned for several generations.
- Existing and contingent liabilities of donor as well as family members.
(This article represents the views of the authors only and does not intent to give any kind of legal opinion on any matter)
Authors:
- Prabhjot Kaur | Manager | +91-9811604647| Email: nara@masd.co.in
- Krish Rathore | Associate Consultant | +91-7718951422| Email: rathore@masd.co.in
Author Bio
