Why setting up a family trust scores over making a will in estate planning

For joint families or larger business houses, trusts offer a strategic solution to the challenge of managing control and ownership.

Nisha Khurana

A family trust is a powerful tool that enables families to achieve their estate and succession planning goals. While having a will is essential for clearly outlining the distribution of assets according to one’s wishes, a trust can be a more effective solution in cases where a will alone cannot fulfil specific objectives.

A will takes effect only upon an individual’s death, leaving no opportunity to explain why certain assets were distributed in a particular way. This can lead to disputes, especially in cases where the authenticity of the will is challenged. In cases of family disputes, the authenticity of a will might be questioned, leading to prolonged legal battles. Such legal issues can drag on for years in court, rendering the assets inaccessible for use, sale, or transfer until the disputes are resolved. Assets remain inaccessible during such disputes, disrupting their use or sale by rightful heirs until the matters are resolved. Furthermore, wills often require probate—a lengthy, costly legal process in which some courts charge fees based on the value of the estate, adding to the burden on beneficiaries.

When a trust is established and assets are transferred into it, the trustee becomes the legal owner of the trust assets, while the beneficiaries hold beneficial ownership. These assets no longer belong to the individual who contributed them and, therefore, do not form part of their estate upon their demise. A trust allows for flexibility in adding or omitting beneficiaries, while the title of the assets remains with the trust.

Since assets held in a trust are excluded from the will, they bypass the probate process entirely. This simplifies the transfer and management of assets, sparing families the lengthy and costly administrative procedures typically required for assets governed by a will, saving time and costs for families.

Protecting assets through a trust

A trust not only helps avoid probate but also serves as a robust mechanism for asset protection. Trust structures allow safeguards to be put in place regarding how the assets should be used, invested, and managed. For instance, the older generation can plan effectively for the next generation, creating a platform that minimises the risk of wealth erosion due to inexperience or mismanagement.

Family members often differ in their financial proficiency. By holding assets in a trust and managing them professionally, families can ensure the long-term preservation and growth of wealth for the benefit of all beneficiaries.

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Building a financial safety net

Changing economic conditions, regulatory policies, and business demands can significantly impact family wealth and business holdings. No business, no matter how successful, is guaranteed to remain profitable indefinitely. Establishing a trust allows families to set aside a portion of their earnings, ensuring that not all wealth is tied up in the business and reducing overall financial risk.

For joint families or larger business houses, trusts offer a strategic solution to the challenge of managing control and ownership. By segregating management control from economic interest, trusts empower capable individuals to oversee business operations while ensuring that all family members can benefit financially. This helps maintain the valuation of the business, prevents fragmentation of holdings, and fosters long-term stability.

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The growing popularity of trusts

High networth individuals (HNIs) increasingly recognise the benefits of trust structures for seamless wealth transition and asset protection. Trusts provide a practical and effective way to preserve family wealth, safeguard assets from unforeseen liabilities, and ensure the smooth transfer of assets across generations.

By adopting trust structures, families can protect their legacies, mitigate risks, and secure their financial future, making trusts an indispensable tool for modern estate planning.

The writer is Director at Warmond Fiduciary Services Ltd.

Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.