Wealth brings along with it the responsibility to plan for its protection, preservation and efficient transmission to the next generation. Succession-related aspects are no longer restricted to assets, but also extend to the family business.
The starting point in the succession planning process could be creation of a family charter, which outlines the values/traditions within which a family operates. It could also outline mechanisms for avoiding conflict as well as an exit plan for a member of the family.
Another facet is asset (wealth) succession. This focuses on ownership and aspects like who would have the control over the business, modes of transmission of business, etc. In the context of asset succession, it is imperative for the patriarch of the family to consider the requirements of members of the family and determine the best mechanism for transmission of wealth. It is well known that in absence of a Will, the property devolves according to legal rules of intestate succession, i.e., in terms of the Indian Succession Act or personal law, as applicable. Leaving a Will has its own flaws, viz., it can be contested in the court of law.
Also, there are hassles of probate. The probate entails distribution of property to heirs after settlement of debts. Considering these and many other aspects, it has been realised that the straightforward use of Wills for all succession purposes is not very viable. Various mechanisms are being explored, which include setting up family holding vehicles to provide clear demarcation of business and their succession with various members of the family. Of these vehicles, private limited companies, limited-liability partnerships and trusts are preferred.
The trust as a vehicle to manage succession is becoming a preferred choice, since it does not involve complications associated with probate or any potential litigation that may arise out of Will. The choice of the type of trust depends on the objectives that the settlor wants to achieve. For example, an irrevocable discretionary trust is a choice for asset protection; a revocable trust is used when the settlor does not want to give up control on the asset settled and a determinate trust is used to clearly demarcate income/property between the identified beneficiaries.
To ensure control and security for the settlor, i.e., the family patriarch, adequate funds could be locked in to secure the medical and other needs of the patriarch. With the relaxation of the Indian foreign exchange regulations, businesses have assets located outside India as well. This requires creation of vehicles that can efficiently deal with cross-border wealth.
Smooth inheritance
The starting point in the succession planning process could be the creation of a family charter, which outlines the values/traditions within which a family operates
It is imperative for the patriarch of the family to consider the requirements of members of the family and determine
the best mechanism for transmission of wealth. It is well known that in absence of a will, the property devolves according to legal rules of intestate succession, i.e., in terms of the Indian Succession Act or personal law, as applicable Trusts, as a vehicle to manage succession, are becoming a preferred choice, since they do not involve complications associated with probate or any potential litigation that may arise out of will
The choice of the type of trust depends on the objectives that the settlor wants to achieve
The writer is partner, Deloitte Haskins & Sells LLP. With inputs from Parul Shah, dy manager, Deloitte Haskins & Sells LLP
