India is on the verge of an inter-generational shift of wealth where several family businesses are passing the baton to the next generation. As the scale of wealth and the quantum of disposable incomes in the wallets of senior corporate heads, professionals, entrepreneurs and traditional business families surges, the complexities of managing it also increases.
In order to make the optimum use of what one has gathered over the years, and to protect it for one’s heirs, it becomes imperative to plan. One of the most crucial factors to ensure that wealth is transferred to future generations is to do estate planning.
Let me attempt to de-mystify the jargon. Estate planning is a process of arranging and planning your succession for management and distribution of your wealth, in a systematic and pre-determined manner to a certain beneficiary/ beneficiaries of your choice. An estate includes any moveable or immovable property, assets, bank accounts, cars, furniture, jewelry and so on; everything that is owned, which then gets passed on to the next generation.
Estate and wealth preservation is part of the financial planning process which enables you to achieve your financial objectives during and after your lifetime for the family members’ well being.
An estate plan could include estate management, estate preservation and estate legacy for your lifetime and for the future. This exercise also allows for retirement planning, and takes care of unforeseen eventualities.
Traditionally in India, a ‘Will’ has been the most preferred mode of estate planning. However, estate planning through a Trust structure involves much more than merely making a Will. This is also effective during your life time and continues post your death. It involves strategically arranging your investments so as to provide for a succession that is to the maximum benefit of your heirs.
Estate planning through a Trust route is one of the most reliable ways to assure that your assets will be managed for your family and loved ones as you had intended. Having said this, by forming a Trust, a Will does not become unnecessary. But Trust has advantages over a Will.
In Estate planning through the Trust route, the person who owns the estate sets up a Trust, appoints trustees to manage the Trust, transfers his estate to the trustees and names the beneficiaries of the Trust. This enables a harmonious and planned asset transfer process.
Let me put forward certain advantages on why one should opt for a Trust over a Will.
Estate planning is crucial because it helps in the harmonious and planned disposition of the estate, ensuring that your assets are passed on to the people you choose and that this devolution happens smoothly, not only without acrimony but also without causing any untoward problems for your heirs. The primary disadvantage of a Will is that it can be disputed after the death of the person making the Will. It can be questioned on issues of authenticity or the mental soundness of the person making the Will.
While Will is a legal declaration of your desire to distribute your property after your death, a Trust involves transfer of your estate to a trustee for the advantage of certain beneficiaries while you are living. Trust leads to efficient management and accumulation of wealth during and post-life.
One of the biggest advantages of estate planning is that the trust also provides for management of the estate during your lifetime besides the distribution and management of estate, post your demise. It can provide for administration of assets for incapacitated beneficiaries. The appointed trustee ensures that the estate is not kept idle but is transformed to an income-generating model.
It is a more secured route to ensure that your heirs, as well as you, are well protected through the duration set for the Trust. The duration can extend well beyond your lifetime with professional trustees overlooking the estate. Trust can also take care of and be structured to provide financial security in the event of an unforeseen eventuality like mental and physical disability.
A Trust is not subject to probate and can be kept confidential, whereas a Will becomes public document once probated. A properly structured Trust can act as a bankruptcy remote vehicle for the family assets.
While one can write more about the advantages of a Trust structure over a Will, in simple language, a Will is a simple distribution of property which in most cases goes to the kith and kin of the maker. The focus of the Trust is on preserving, managing and the growth of your wealth.