MUMBAI : A will makes sense for families with limited assets. But for the wealthy, forming a trust to distribute assets is a better option than relying on a will.
A trust is a legal structure. The trust owner (the settlor) appoints trustees to take care of his wealth for himself and his beneficiaries.
High net-worth individuals (HNIs) opt for a trust structure to ensure that the assets are distributed the way they want and to take care of the succession issues.
Trust allows settlors flexibility. They can specify anything and everything in a trust. Individuals forming trusts can allocate a percentage of the money for philanthropy. They can specify the monthly amount that the family should get for their expenses. A settlor can even specify the money children can avail for education, wedding, and so on.
Forming a trust is complex. There are irrevocable trusts (these cannot be changed) and revocable ones (these can be changed over time according to changing circumstances). They can be private or public. There can be a trust that comes into effect after the asset owner dies (testamentary trust), or there can be one for a specific need (for example, a structure that takes care of a differently-abled child).
When forming a trust, owners need to transfer assets to it, which means they won’t have absolute control over assets. However, they can make provisions in the documents to retain some control.
A trust can also be more tax-efficient if India introduces inheritance law in the future. Money paid through trust is typically not taxed as an inheritance.
A trust is also more expensive than writing a will, and takes more time. Depending on the lawyer’s fee, the cost of setting up a trust can run into lakhs of rupees. The costs depend on the complexity and assets.
As part of the trust, you can specify the asset allocation the trust must follow, expenses that it will provide for and also specify how the trustees should take care of the owner of the trust in old age. For business owners, there is an additional benefit. Lenders and creditors cannot ask a court to liquidate assets of a trust if the business fails, provided the trust was not formed with an intention to default.
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