Trust is known to be the vehicle for the ultra-rich who seek to protect their assets from any financial threats. However, in reality, trust is a tool that can be used by anyone to attain worthwhile financial goals. Yet, the legal complexities of the estate planning market have left many in India uncertain about the entire scenario, restricting many from using it. It is time to take a deeper look at it and figure out if trust can help you and your family.
4 Reasons to opt for Trust
What is a trust?
As per The Indian Trusts Act, 1882, a “trust” is an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner. In simple terms, a trust is a legal format containing a set of instructions stating the exact way and time to pass on the assets to the trust beneficiaries. It gives the power to separate the legal ownership of any assets from the advantageous enjoyment of the asset. The trust is like giving the responsibility of the management and preservation of the property to an entity or a person called a trustee. The beneficiaries of the trust receive property as per the terms and conditions, established by the author of the trust.
Here are the reasons to opt for a trust
The most direct and powerful strategy to use a trust is to enable timely access of the wealth to the heir. While a Will can involve probate proceedings which are expensive, time-taking and public, a trust can ensure the avoidance of all these, giving greater control over the estate planning. However, in India probate process is mandatory in Kolkata, Mumbai, Delhi and Chennai. With a revocable trust, which can be altered or amended by the grantor anytime, the trustee can privately and timely settle the trust creators’ estate handling to the beneficiary without the probate proceedings.
By making a trust, the grantor can establish various ways of passing it to the beneficiaries. He/she can designate specifications regarding the money or the asset treatment and can also manage a periodic interval of distribution. Also, with a charitable remainder trust, the grantor’s family can receive a yearly payment from the trust during their lifetime, with the balance transferring to the specified charity when the trust terminates.
Trust can limit withdrawals from the retirement account’s required minimum distributions (RMDs) to ensure that the account is not liquidated and wasted wrongly.
There might be concerns about assets getting transferred beyond families due to surviving spouse getting remarried or similar situations. With a qualified terminable interest property (QTIP) trust provision can be used to help the property stay in the family even if the spouse remarries and it also ensures that it is transferred to the identified beneficiaries after the death of the current beneficiary.
While one has all the reasons to opt for a Trust, he/she should also look into the disadvantages of having it. Here are the pitfalls of having a Trust
- The entire structure of the Trust is complicated.
- It can be expensive to establish as well as maintain it.
- With the addition of loan structures and borrowing, problems might arise, creating additional complexities.
- The trust deed also restricts the power of the trustees.
- A Trust should be considered at times when more than one family is involved in running a business.
There are various types of trusts to look into and each of them has a specific goal to be achieved. Our expert legal advisors can help you determine which type (or types) of trusts are most appropriate for you. So get in touch with us!