Skip to main content

For estate planning, a trust proves to be more effective than a will

It is simply a process for an individual to arrange the transfer of his assets in the event of his death or incapacitation

Estate planning is not just for the rich and famous. It is simply a process for an individual to arrange the transfer of his assets in the event of his death or incapacitation. In fact, as soon as you acquire some assets or have dependants, you should start planning for your succession.


The goals of estate planning are to protect, preserve and manage your estate/assets during and post your life. In fact, looking at the various disputes in families in the public domain, estate planning is becoming increasingly necessary for every individual to ensure a planned succession, avoid family feuds leading to disintegration of businesses and lengthy court battles. Also if estate duty is reinstated in India today or in the near future, estate planning may turn out to be the best tool to minimise the estate duty. As this process is legally binding, it is important to do so in a timely manner in order to provide for the family. So, what does it take to make an efficient estate plan? Your starting point should be to draw up a comprehensive list of assets. Then figure out how you want to bequeath these assets, ideally in consultation with your family members.


Trust versus will: A will can be challenged in court. Usually, in a high-profile family, some member is likely to be unhappy over the distribution of wealth under a will.


Such a person could always raise hands in a court. But he cannot do so if wealth has been put into a trust.

A trust protects your assets from probate, keeps it out of the creditors' clutches and provides confidentiality, since the names of the beneficiaries are not disclosed, nor are the assets listed.

The main reason for this is the lack of flexibility and control over the end use of your assets. You cannot list out an investment mandate for your wealth nor can you allocate your wealth for somebody who is yet to be born, which you can do with a trust. Also, India doesn't have the concept of a living will. A trust helps you manage your wealth during your lifetime, unlike a will that is operational only after your death. Given these numerous advantages, a trust definitely scores over a will in a big way.


Before you opt for a trust: Though trusts give you the much-needed flexibility, you need to be careful of certain bloopers that you might make. First, choose the right trustees. A major problem could arise if you don't get the right trustee. After all, it is the trustee who manages your trust. Second, envisage your beneficiaries well.


There's very little that you can do if you choose the wrong beneficiaries.

A disadvantage of using trusts is that you cannot pull out an asset that you have put into a trust. So, make sure you only put that part of your wealth into the trust that you are not going to require in your lifetime. Also, people who have several listed companies need to be careful as to how they use their trusts. Most of the ultra HNIs, who have several listed companies, will be advised to create a holding company. In terms of structure, this is perfect but one more step can complete the succession planning, by creating a family trust above the holding company. This trust will hold personal as well as holding company assets. Certain long-term succession and taxation and personal objectives can be met through this structure. There is no thumb rule to this but it could work for most.


Types of Trusts: The Indian Law classifies trusts only on the basis of their purpose, namely private purpose (private trust) or public purpose (public trust) and religious/charitable (religious /charitable trust). A public trust is for the benefit of the public and the beneficiaries are incapable of ascertainment and a private trust is created for benefit of certain specified individuals who are ascertained. Besides the classification on the basis of purpose of trusts, trusts can also be classified as either revocable or irrevocable in nature.


Taxation: In case of a revocable trust, the income of the trust is taxed in the hands of the creator of the trust--the settlor. The tax imposed would be at the rates applicable to the settlor. In case of an irrevocable trust, the income of the trust is taxed in the hands of the beneficiaries. The tax imposed would be at the rates applicable to the beneficiaries.
Conclusion: Though planning one's estate may feel uncomfortable, the cost of procrastination can be high. Setting up an estate plan is not as complicated as it sounds.

You execute a trust deed where you appoint a trustee, name your beneficiaries and specify how and when the properties of the trust would be distributed to the beneficiaries.

In a trust, you transfer ownership of some or all of your assets (which can include investments, real estate, bank accounts) and even personal property (jewellery, antiques or furniture) from your name to that of the trust.

Transfer of ownership of assets to the trust can be done at anytime after the creation of the trust either by the settlor or any other person.

After you transfer the assets, you maintain the same access and control as you did before you put them in the trust in case of a revocable trust.

In case you create an irrevocable trust then you can retain some control over the assets in the trust by either having the trustee consult you or by appointing an administrator/protector who will be consulted by the trustee.

You lose nothing, but gain the assurance that your wishes will be carried out if something happens to you, without the time or hassles of probate through the hands of competent and professional trustees.

Hence estate planning is the foremost judicious step in securing your family's future and fulfilling your desires during your life and after you depart from the world.

 

Popular posts from this blog

Tata Mutual Fund

Being a part of the Tata group, the fund has the backing of a very trusted brand name with strong retail connect. While the current CEO has done an excellent job in leveraging the Tata brand name to AMC's advantage, it is ironic that this was just not capitalised on at the start. Incorporated in 1995, Tata Mutual Fund remained an 'also-ran' fund house for around eight years. Till March 2003, it had a little over Rs 1,000 crore in assets and 19 AMCs were ahead of it. But soon after that the equation changed. It was the fastest growing fund house in 2004 and 2005. During these two years, it aggressively launched six equity funds, two debt funds and one MIP. The fund house as of now stands at No. 8 in terms of asset size. This fund house has a lot to offer by way of choice. And, it also has a number of well performing schemes. Tata Pure Equity, Tata Equity PE and Tata Infrastructure are all good funds. It also has quite a few good debt funds. The funds of Tata AMC are known to...

UTI Mutual Fund

Even though only a few of UTI’s funds are great performers, this public sector fund house has many advantages that its rivals do not. It has a huge base of retail equity investors and a vast distribution network. As a business, it looks stronger than ever, especially in the aftermath of credit crunch. UTI is, by a large margin, the most profitable fund company in the country. This is not surprising, since managing equity funds is more profitable than debt. Its conservative approach and stable parentage is likely to make it look more attractive to investors in times to come. UTI’s big problem is the dragging performance that many of its equity funds suffer from. In recent times, the management has made a concerted effort to improve performance. However, these moves have coincided with a disastrous phase in the stock markets and that has made it impossible to judge whether the overhaul will eventually be a success. UTI’s top performers are a few index funds, some hybrid funds and its inf...

Salary planning Article

1. The salary (basic + DA) should be low. The rest should come by way of such allowances on which the employer pays FBT and you don't pay any tax thereon. 2. Interest paid on housing loan is deductible u/s 24 up to Rs 1.5 lakh (Rs 150,000) on self-occupied property and without any limit on a commercial or rented house. 3. The repayment of housing loan from specified sources is also deductible irrespective of whether the house is self-occupied or given on rent within the overall ceiling of Rs 1 lakh of Sec. 80C. 4. Where the accommodation provided to the employee is taken on lease by the employer, the perk value is the actual amount of lease rental or 20 per cent of the salary, whichever is lower. Understandably, if the house belongs to a family member who is at a low or nil tax zone the family benefits. Yes, the maximum benefit accrues when the rent is over 20 per cent of the salary. 5. A chauffeur driven motor car provided by the employer has no perk value. True, the company would...

8 Investing Strategy

The stock market ‘meltdown’ witnessed since the start of 2005 (notwithstanding the recent marginal recovery) has once again brought to the forefront an inherent weakness existent in our markets. This is the fact that FIIs, indisputably and almost entirely, dominate the Indian stock market sentiments and consequently the market movements. In this article, we make an attempt to list down a few points that would aid an investor in mitigating the risks and curtailing the losses during times of volatility as large investors (read FIIs) enter and exit stocks. Read on Manage greed/fear: This is an important point, which every investor must keep in mind owing to its great influencing ability in equity investment decisions. This point simply means that in a bull run - control the greed factor, which could entice you, the investor, to compromise with your investment principles. By this we mean that while an investor could get lured into investing in penny and small-cap stocks owing to their eye-...

Debt Funds - Check The Expiry Date

This time we give you an insight into something that most debt fund investors would be unaware of, the Average Portfolio Maturity. As we all know, debt funds invest in bonds and securities. These instruments mature over a certain period of time, which is called maturity. The maturity is the length of time till the principal amount is returned to the security-holder or bond-holder. A debt fund invests in a number of such instruments and each of these instruments would be having different maturity times. Hence, the fund calculates a weighted average maturity, which would give a fair idea of the fund's maturity period. For example, if a fund owns three bonds of 2-year (Rs 30,000), 3-year (Rs 10,000) and 5-year (Rs 20,000) maturities, its weighted average maturity would be 3.17 years. What is the big deal about average maturity then, you may ask. Well, knowing a fund's average maturity is important because it tells you how sensitive a fund is to the change in interest rates. It is ...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now