Your Legal Guide To Estate Planning

Your Legal Guide To Estate Planning

Your Legal Guide To Estate Planning
(Dreamstime)

Estate planning in India is still in its infancy. A process of succession and financial planning, it makes provision for an estate’s management, its preservation and creation of a legacy. 

But, in India, people tend to neglect it for a number of reasons including complacent attitude or to save on taxes. This often results in protracted legal battles for succession. For the smooth succession of assets, hence, it is advisable to form a private trust — a popular way of estate planning. 

Under the Indian Trust Act, 1882, a trust may be created for any lawful purpose by the settlor (the person creating the trust) in his lifetime by a non-testamentary instrument or through a Will. One can create a family trust or for the sole benefit of an individual. 

What the law says?

If the trust is created for the sole benefit of a person, then under Section 56 of the Indian Trust Act he at any time could ask the trustee to transfer the trust property to him or to a person as he may direct, in which event, the trust will come to an end. If the family trust has been set up then more number of people would be involved. A settlor could also bequeath his absolute property (in his Will) to the trust that he proposes to set up. However, if the settlor wants to transfer the property in his lifetime then the transfer becomes liable for stamp duty under the Indian Registration Act. 

In case, the settlor’s property is conveyed to the trust as per his Will, then no stamp duty would be payable on the transmission of the property to the trust.

Creating the trust deed

To translate the intentions of the settlor into a document called the trust deed is the logical next step. A charter document of the trust, it should be drafted and reviewed carefully to remove any anomaly.  

Structure of the trust

The nature of the trust is decided keeping in mind a number of factors such as the citizenship of the settlor or beneficiaries, the ownership pattern and location of the assets, etc. Depending on all these factors, the nature of the trust is decided. It could be discretionary (i.e., where the allocation would be at the discretion of the trustee) or non-discretionary (where the settlor states specifically how the distribution of the trust property is to be made). It could be revocable or irrevocable. It has an implication from income tax perspective as well for both settlor as well as the beneficiary.

Composition of the trust

A number of trustees are appointed for the administration of the trust. The trust deed or Will should clearly specify the intention behind the creation of the trust, its purpose or objectives, and who would be the beneficiary or beneficiaries. If the trust is created during the settlor’s lifetime, further properties can also be transferred to it.

Who will be involved?

A trust is set up keeping the welfare of certain individuals in mind. Following are the persons who are associated with the trust. These include:

Settlor: He is the person who is creating the trust and plans to settle his assets;

Trustee/s: They are the people who will manage the trust. While some individuals name themselves, a family member, or friend as a trustee; others trust a financial institution to get continuity, and expertise.

Beneficiaries: These are the people for whose benefits the trust is being formed.

Instrument of trust

The trust deed is executed by the settlor and trustee elaborating on the intentions of the settlor and the nature of the trust structure. It should clearly state the name of the settlor, trustees and beneficiaries, their powers, appointment and removal, distributions to the beneficiaries and their succession plan and the date of dissolution of the trust. 

Getting the right advice

As the structure of the private trust is technical in nature, and requires legal and tax expertise, it is advisable to get the trust deed made by professionals.

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