Creating wealth does not merely end with creation of wealth. It also entails valuing and respecting it in ways it is entrusted or invested. This is the real test of how wealth grows and receives due importance in your life. Estate planning is an effective approach. It is a reflection of the fact that you care for your loved ones when you are not around.
Estate planning is a process in which an individual’s estate is transferred during or after lifetime. Many choose to write a ‘Will’ as it means to achieve their objectives. One should create a ‘private family trust’ to achieve the same objectives in a relatively smooth manner.. Here are a few reasons why a Trust can address your estate planning goals better than a Will:
A Will is expected to go through the legal process of obtaining ‘probate’ in order to get the assets transferred in the name of the beneficiaries mentioned, whereas in case of a private family trust, the assets are held in the name of trust. Hence the handover of possession can happen in a frictionless manner.
A private family trust starts functioning during the lifetime of the creator of the trust and goes beyond to serve the family members. There is no need to run around at every milestone events such as birth, death, separation or marriage in a family or any other changes in family structure.
When assets are passed on by the Will, they stay in your family’s name. Control of such assets can be lost by family members in case of claims by creditors or outsiders. But, if the assets are held by a Trust then such claims cannot snatch assets from your loved ones. In case of divorce/separation or malicious claims by some family members too, the assets remain in safe custody of the Trust and the family continues to enjoy the benefits arising out of the assets.
In India, in case of intestate succession, personal laws decide the distribution of assets. To avoid such a situation, a private family trust can help family members enjoy the benefits of your assets without the hassle of dealing with personal laws.
For special needs:
There are differently-abled people or kids with special needs. A private family trust with institutional trustee or external trustee with some specific expertise is a good solution. They can be taken care of.
A private family trust can help you decide an investment policy—both for physical as well as financial assets. Such an investment policy can be administered over a long period of time for the benefit of the family. As the assets are pooled together, economies of scale kick in and external professional expertise can be employed to manage money better.
Estate duty and inheritance tax:
In 1985, estate duty was abolished in India. However, there is a possibility that estate duty may be reintroduced in one form or the other. In such a case, the legal heirs may have to pay to the government a fraction of the market value of the asset inherited. If the assets are transferred to the Trust then the impact can be minimised. For the non-resident Indians who have family assets in India and live in countries where inheritance tax is applicable, a private family trust becomes an effective tool.
A private family trust helps maintain confidentiality of an individual’s estate plans and also distribution to the family members. A trust with professional institutional trustees can be very effective for this purpose.
If giving back to society is on your mind, then you can carve out some assets for it under the Trust structure or have a certain percentage to be apportioned out of the total trust income. Such a structure leads to effective implementation of charitable initiatives beyond one’s lifetime.
The author is Senior Group Vice President -Trust & Estate Planning, Motilal Oswal Wealth Management