Estate Planning: A private trust scores over a will | The Financial Express

Estate Planning: A private trust scores over a will

A private family trust is formed between three parties — the settlor of the trust, the trustee, and the beneficiary — and is set up for the sole benefit of family members.

private family trusts, estate planning, Insolvency and Bankruptcy Code
Moreover, a will requires a probate which can take some time and also involves some costs.

If you want your assets to be distributed the way you want after your death, creating a private family trust is better than writing a will. A private family trust is more tax-efficient and the option to challenge it is very limited. The trust includes plans for asset control, distribution of movable and immovable assets and even instructions regarding nominees for successor.

Experts say high-net-worth individuals prefer to set up private family trusts to secure their wealth as a will can be challenged and lead to legal disputes. Setting up a trust is more expensive as it involves lawyer’s fees, registering and stamp duty costs of around 5% of the total wealth. However, it helps in succession planning and is effective in safeguarding the assets of the settlor. A trust can ensure that the assets are utilised for the benefit of the beneficiaries. Moreover, a will requires a probate which can take some time and also involves some costs.

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How is it formed
A private family trust is formed between three parties — the settlor of the trust, the trustee, and the beneficiary — and is set up for the sole benefit of family members.

The settlor is the person who wants to transfer his property and reposes confidence on another for setting up the trust; the trustee is the individual who accepts the confidence for the creation of the trust and the beneficiary is the individual who will benefit from the trust. The trust can manage family assets for the future generations and after the trust is set up, the settlor of the trust has no direct control over its assets.

The movable and immovable assets are safeguarded from any action taken by creditors and the lenders cannot ask a court to liquidate assets of a trust if the business fails. A family trust helps to protect the beneficiary’s future even in the case of any legal action against the settlor. However, as per the Insolvency and Bankruptcy Code, there is a two-year period and within that period the trust cannot protect your assets against any claims. At the time of setting the trust, the settlor should specify the asset allocation the trust must follow.

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First published on: 14-11-2022 at 00:45 IST