Make a will or set up a trust? :: Business Line

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The need for estate planning is rapidly growing, with joint family systems being replaced by multiple family systems such as the DINKs (double income, no kids) category.

While such families are generating considerable wealth, they are also realising the absence of an appropriate succession plan. There are also families with differently-abled children, who need a customised succession plan.

Many such families still plan succession by writing a will.

Considering the specific needs of such families, it is advisable to complement a will with a private trust. Here is why.

Problems with wills

One, being a testamentary instrument, a will is executed only after the demise of its author and hence it can’t be assured that the assets left by the person shall be utilised for the desired purpose. Two, wills are required to be probated.

Three, if the will is contested by a family member or an outsider, long litigation battles can ensue.

Four, a will provides only for distribution of property and does not really address long-term management of property. A suitable trust structure can ensure that assets are ring-fenced against any unforeseen claims.

As a trust is operational during the lifetime of the person who created it, it is difficult to contest a validly created private trust.

Succession plan of families with differently-abled children or adults must provide for situations when their parents are old and unable to look after their welfare. These plans must ensure that each family member has sufficient financial security and minimum administrative hassles.

The succession must have adequate safeguards to ensure that wealth is preserved and is being used for the benefit of their special children and not misused by other relatives or persons.

Setting up a trust

That private trusts are relevant only for multi millionaires is a myth that is fading fast. More and more families with special requirements and a net worth of ₹2 crore and above are increasingly reaching out for succession planning.

Further, unlike in the past when families used to approach their family lawyers for drafting their succession documents, they are now approaching professional companies.

Since a private trust is created for multiple generations, it is important that the planning is done thoroughly.

The typical cost of setting up such structures is approximately ₹5 lakh per trust and may vary depending on the complexities. But these costs are still negligible compared to the benefits that will accrue to the family through creation of an appropriate structure.