Estate planning is the process of organising and managing your assets in an effective, efficient, and compliant manner, for the smooth intergenerational transfer of wealth (and to ensure other objectives of the estate owner are met), during their lifetime and beyond. It involves making arrangements for the management and distribution of your assets, such as property, investments, and personal belongings, as well as designating beneficiaries for them, so that you are well provided-for during your lifetime and your wishes are carried out after your death.

Estate planning is an essential aspect of financial planning that is often overlooked, or postponed, until it’s too late. Depending on one’s requirement, there are several estate planning methods available, which can be used in combination or separately. Some of these include writing a Will, gifting property during one's lifetime, adding Nominations, creating joint ownership for financial or immovable assets, and creating a private family Trust.

In this article, we will dive deeper into what a private Trust is, explore the various options available in India, and shed light on why creating a Trust may be helpful for you and your loved ones.

What Is A Private Family Trust?

In basic terms, a Trust is a legal arrangement between the settlor (the person setting up the Trust) and the Trustee, such that the assets transferred to the Trust are managed by the Trustee for the benefit of certain Beneficiaries, keeping in mind the wishes of the settlor. Upon execution of the Trust deed, the Trust is formed and all pertinent information regarding asset management and distribution, the extent of powers granted to the Trustee, and succession of the Trustees, are recorded within it. It is also possible to include details of the Guardians who will take care of the finances for any minor Beneficiaries. Since the Trust deed serves as the charter document, it is imperative to ensure that all details are clearly and accurately outlined.

Should A Trust Be A Part Of Your Estate Plan?

Creating a Will is one of the most common methods of estate planning in India. A Will is a legal document that specifies how a person's assets should be distributed after their death. Trusts can offer many advantages over a simple Will. The decision to include a Trust in your estate plan depends on several factors, such as the nature of your assets, your family situation, and your goals for the distribution of your assets during and after your death, which cannot be achieved through a Will. A Trust can provide a number of benefits, such as:

• ‍Avoiding Probate: One of the primary benefits of a Trust is that it can help avoid the time-consuming and expensive process of Probate.‍
• Control over asset distribution: A Trust can give the settlor greater control over how their assets are distributed after their death. The settlor can specify how and when the assets should be distributed to beneficiaries. This can be particularly useful if the Beneficiaries are minors, have special needs, or if the settlor wants to ensure that the assets are used for a specific purpose.‍
• Protection of assets: A Trust can offer protection for assets against creditors and other potential threats.‍
• Estate duty planning: Depending on its type, a Trust can protect families from estate duty/ inheritance tax with respect to Indian assets in offshore jurisdictions. India currently does not levy an estate duty, but a Trust can potentially help with estate duty planning, if it is reintroduced in India.‍
• Privacy: Unlike Probate, which is a public process, a Trust is a private arrangement. This means that the settlor's assets and distribution plan can be kept confidential.

A Trust can be a powerful tool for estate planning, offering a range of benefits that can help ensure that assets are distributed according to the settlor's wishes, while minimising legal, financial, and tax-related challenges.

Revocable & Irrevocable Trusts

Depending upon your requirement, you can opt for a revocable or irrevocable Trust structure. A revocable Trust allows the settlor to make changes or revoke the Trust at any point during their lifetime, while an irrevocable Trust cannot be revoked once it has been established while putting in place controls on the extent of changes that can be carried out. With a revocable Trust, the settlor can retain control over the assets, while with an irrevocable Trust, the assets are no longer considered part of the settlor's estate and are managed by a designated Trustee. Revocable Trusts are often used for estate planning purposes, while irrevocable Trusts may be utilised for asset protection or tax planning as well.

Determinate & Discretionary Trusts

A Trust can also be either determinate or discretionary in nature. In a determinate Trust, the specific percentage or amount that each Beneficiary will inherit is predetermined. On the other hand, in a discretionary Trust, the Trustees have the discretionary power to decide how and/or when to distribute assets among Beneficiaries, giving them more flexibility in managing the Trust.

The Bottom Line

Trusts are an essential tool in estate planning and can provide numerous benefits to individuals and families. However, it is important to carefully consider the structure and terms of each Trust, as well as the potential tax and legal implications, to avoid any issues or disputes down the line. You must ensure that your Trust is properly structured and tailored to your unique needs and goals. With proper planning, Trusts can provide peace of mind and security for you and your future generations.

At Yellow, we place great emphasis on ensuring that our clients receive the best guidance that is in their best interests. With more than 50 years of experience, our team of estate planning professionals provides accurate and expert advice to assist you in selecting the appropriate estate plan, whether it is a Will or a Trust. Our professionals ensure that you receive customised solutions that are unique to your specific needs and situation.

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