Benefits of a Trust

Trusts are useful for estate planning and reduce court proceedings. This means that a person can adopt a trust route to avoid probate and create a ring-fenced structure for his future generations.

A Trust, therefore, enables the transfer of an estate to a Trustee. This is possible for certain beneficiaries. The Trustors/Settlors/Donors are the people who create the Trust.  Also, A Trust allows for the management of an estate throughout one’s life and provides for the distribution and management post-death in a planned way over some time.

Difference between a Will and a Trust

Wills were traditionally the main tool used by people to distribute their assets per their wishes. The Trust route, created during an individual’s lifetime, is becoming a viable option for estate planning. Families are now going to court to dispute Wills. They can come under challenge for authenticity, mental soundness, or alleged forgery. There are many reasons for disputing a Will. The time it takes in India to obtain a probate of the Will could take several years. It could also be very costly.

In most cases, the necessity to get probate of Wills means that the Will is made public and goes to the courts to obtain a Probate. Anyone can view a Will as a public document. A person can challenge a Will if they feel the treatment is unfair.   Hence,These challenges can encumber assets for months or even years and could result in your estate losing a lot of money.

A Trust is a way for a person to transfer his property to another person. The Trustee can hold the property for certain beneficiaries or his benefit. A Trust Route allows a person to avoid all the problems that arise from a Will. It creates a ring-fenced structure that protects the future generations of the person through a vehicle he created and according to his instructions.

These are the components of The Trust

Author of the Trust/ Settlor – The person who settles the Trust or its author.

Trustee: A person appointed by the Settlor for the administration of the Trust and who accepts responsibility is a Trustee.

Beneficiary:    for whom the Trust is formed

Trust-Property, or Trust money: This is the subject matter of the Trust. You can have trust property in the form of movable or immovable assets—cash, jewellery, land, investment instruments etc.

A Trust must be established legally under the following grounds

1. The certainty of an intention to create Trust.

2. The purpose of the Trust

3. The Trust must ensure the security of the beneficiaries,

4. Trust Property is guaranteed, and the transfer of Trust Property to the trustees

 Characteristics of trust structures

Title to the Trust property is transferable to the name of the Trustee.

The Trust property is a separate investment and not part of the Trustee’s estate.

The Trustee is able and obligated to manage, use or dispose of Trust property according to the terms of the Trust and any special duties imposed by law. 

The Trustee has a fiduciary relationship with the beneficiaries. Therefore, the obligation of the  Trustee is to take care of the beneficiaries more than a mere agent.

The Trustee will hold the Trust property ownership for the benefit of the owner, but not for the owner. One beneficiary can be the owner of the Trust.

The ownership of a Trustee is not absolute, as it is as per the law. The legal ownership of the Trustee is not beneficial ownership.

Types of trusts

The Indian Law classifies trusts only based on their purpose, namely private purpose (Private Trust) or public purpose (Public Trust) and religious/charitable (Religious/Charitable Trust). Public Trusts are for the public benefit, and beneficiaries cannot ascertain it.  The creation of Private trusts are for specific individuals who can be ascertained. Trusts can be classified based on their purpose.

A trust established under a Will can be revoked any time by the person who wrote it or if the Trustor retains the power to revoke it. If the Trust creator retains direct or indirect control over the Trust’s income or assets, then the Trust is deemed a revocable trust. Unrevocable Trusts are considered irrevocable.

Taxation of Irrevocable/Revocable Trust: When someone considers creating a Trust, it is important to understand how income from these Trusts will be taxed. The income from a revocable Trust is subject to tax in the hands of the Trust creator, i.e. The Settlor. The Settlor would pay the tax.

The income of an irrevocable trust is subject to tax in the hands of the beneficiaries. The rates applicable to beneficiaries would apply to the tax.

Trust Acts in India

The Indian Trust Act covers private Trusts and Trustees. Public Trust is primarily a  creation for public, religious, or charitable purposes.

A Trust Structure can be useful to plan your Estate. 

Who is the Trustee for your Trust? The trust creator usually names a Trustee from their family. This requires the appointment of 2 or 3 Trustees managing the Trust in the event of death or bankruptcy of appointed trustees.

There are many benefits to appointing a corporate trustee vis-a-vis individual Trustees.

The main benefit of this arrangement is continuity in administration. A corporate will have permanent Succession as well professional advice. As the Corporate Trustee can ensure efficient financial management of Trust property, the Corporate Trustee may appoint experts. You can avoid changes in trusteeship and the associated costs by providing a high level of security. They maintain proper accounts of Trust and audit the same. Business-savvy persons conduct regular reviews of investments by Trust. They act impartially when dealing with beneficiaries.

Protector/ Administrator of Trust: A person may appoint a Corporate Trustee. However, they can also appoint family members as Administrators/ Protectors to the Trust. This allows them to retain indirect control over the Trust. The person who creates the Trust can appoint Administrators/ Protectors to ensure that the management of the trustee’s activities under the supervision of the Administrator/ Protector, and according to instructions given by the Trust deed.

Benefits of estate planning through the creation of trust structures

The following are the goals of adopting the Trust Structure to plan one’s Estate:

Estate Protection: A Trust is a remote bankruptcy structure.

Expert advisors can help you manage all kinds of assets.

Accumulation of the Estate during the lifetime and post death through the hands of Trustees

Avoidance of family conflicts leading to the disintegration of family businesses

It is important to keep confidentiality as it is not necessary to obtain a Probate

The Trust creator can be himself a beneficiary and receive the benefits of his Estate throughout his life.

Efficient Succession Planning through providing for grandchildren and children.

Making Provisions for charitable or religious purposes.

A will has lower contestability than a will.

Management of The Estate is like a trust to ensure efficient administration during the life and after death of the Client. This will allow for the future administration of assets, which will protect against incapable beneficiaries.

Conclusion

Planning one’s Estate can feel difficult, but procrastination can lead to higher costs. Many people think that estate planning is tough, expensive, and time-consuming. It is not difficult to set up an estate plan. It is easy and involves the following steps.

A Trust Deed is a document that appoints a Trustee and names your beneficiaries. It also specifies the distribution of the Trust’s assets  to beneficiaries.

You can transfer some or all your assets to a Trust (which could include bank accounts, investments, real estate, and so on). You can also transfer personal property such as jewellery, antiques and furniture from your name to the Trust.

The Trust allows for the transfer of assets owned by any person, whether the Settlor or another individual.

In the case of a Revocable Trust, after you have transferred the assets, you still have the same access and control you had before you placed them in the Trust.

If you have an irrevocable Trust, you can still retain some control by having the Trustee consult with you or appointing an administrator who will be consulted directly by the Trustee. Nothing is lost, but you can be certain that your wishes will always be followed, regardless of what happens. This is without having to go through probate by professional and competent Trustees.