Many people have been compelled to think about estate management by the unanticipated losses brought about by covid related diseases. Though a Will has been the most popular instrument for succession and estate planning, family trusts too have been beneficial.
In a Will, a person may specify the manner in which his/her properties shall be distributed after his/her death.
Family trusts are set up as private trusts under the Indian Trusts Act, 1882, either for specified persons or a class of persons who are not specifically named. Properties are transferred to the trust by the settlor, which are managed by the trustee/s for the benefit of the beneficiaries.
Family trusts have traditionally been seen as a good way to settle the distribution of assets during the lifetime of the person settling such a trust. In Trust, the settlor ensure that the management of the assets remain with the trustees, while the income may be divided among the beneficiaries. This is particularly advantageous if the beneficiaries are of a young age or have lived experience of disability or are otherwise vulnerable.
In many business families, family trusts may also provide continuity to businesses and prevent disruption due to subsequent fight after the demise of the head of the family.
Wills remain more popular than family trusts. The reason lies in stringent laws relating to the trust & stamp duty implications, when assets are to be settled in a family trust as well as tax provisions. Distribution of assets among legal heirs through a Will does not result in tax implication on the legal heirs. Since the Will comes into effect only upon death, the person retains control over the assets and may also be able to alter the manner and the extent of distribution during his/her lifetime.
Before planning for succession, It is important to take advise from practising advocate and practising chartered Accountant.