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Will or Trust? The key choice to make in estate planning

A good estate plan not only addresses your current needs, but also assesses all possible tools considering your unique circumstances

June 23, 2021 / 10:51 AM IST

If there is anything the COVID-19 pandemic has taught us, it is to be better-prepared for uncertainties in life. Your estate plan should be one of the first step towards such preparation. A good estate plan not only addresses your current needs, but also assesses all possible tools considering your unique circumstances and objectives. The most popular tools that come to one’s mind when creating an estate plan are the Will and Private Family Trust. And consequently, the question, ‘Do I need a Will or a Private Family Trust?’ The question should not be ‘this or that,’ but rather ‘which tool is the most relevant to my objectives.’

Let us now understand the significance of both these popular tools and learn to concentrate on our objectives that should drive the plan.

Why a Will is critical

Everyone must have a Will in place. However, not everyone is convinced about its effectiveness owing to its high contestability. Well, yes, a Will is a document that comes into effect after the lifetime of its creator (known as Testator/Testatrix) who is not present to justify his/her intentions when disputed. But what one needs to ponder over is, are we adopting a holistic approach to Will-planning (as discussed in our last column) or limiting it to a pen-to-paper exercise that is locked into our closets once created.

A Will is one of the most powerful tools in an estate plan, though it is often undermined due to its ill-repute in court battles. It enables you to distribute your wealth as you wish to. In its absence, the intestacy laws would come into play, whereby your wealth will be distributed in a pre-defined manner to pre-defined inheritors. A well-planned Will holds the potential to avoid complicated ownership of assets that otherwise has the potency to give rise to family disputes, and protect the interest of your loved ones, especially minors, by enabling you to appoint testamentary guardians. Further, a Will may also prove to be effective if you are passing on wealth to inheritors residing overseas where estate taxes prevail.

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The question arises as to how a Private Family Trust help then?

Usefulness of a trust

A Trust enables you to set up a structure during your lifetime that could meet a number of objectives. These include succession planning of your wealth, including your business shareholdings, ensuring uninterrupted financial support to your loved ones and obviating the lengthy process for obtaining a probate (the process to get the Will certified to establish its authenticity). These apart, asset preservation for minor and dependent beneficiaries, optionality of ring-fencing of your wealth with a bonafide intention and insulation from impending estate duty are other benefits. Further, unlike a Will, a Trust enables you to distribute your wealth in such a way that minors or young inheritors do not inherit a sizeable estate at one go, which may expose them to bad influence or imprudent management of wealth, resulting in its erosion.

A Trust definitely is a sophisticated structure with numerous benefits; however, it is essential to understand:

-As to who the constituents of the structure will be, i.e., the Settlor: the creator of the Trust; Trustees: who will manage the day to day affairs of the Trust and be responsible for following the Trust deed as chalked by the Settlor; and Beneficiaries: who will benefit out of the assets parked in the Trust’. You may also consider having a friend, family member or a close confidante appointed as a ‘Protector’ of the trust to keep a check on the trustees.

-Kind of assets that would be infused into the Trust – financial investments, real estate, business shareholdings – as some of them may have an overhead cost for transfer or require regulatory approvals.

-The citizenship and residency status of the constituents of the Trust.

The above factors will have an impact on the Trust and hence it is essential to ascertain the consequences before concluding on the structure. Further, since a Trust is typically set up for a considerable number of years, it is very important to not just weigh the current circumstances, but also the likely future scenarios so that the structure does not become defunct.

While a Trust is an all-encompassing estate plan, it is a structure that is far more complicated than a Will and requires considerable planning. Hence, it is always advisable to thoroughly assess the need for one. If you do have the need for a Trust, it may also be beneficial to create a Will in order to cover your left-over assets.

It is vital to approach the process of estate planning without over-complicating matters. Adopting simplicity in estate planning is important, as it will not only untangle even your most complicated holdings but also provide your loved ones with a blueprint on how to deal with the estate after your lifetime. An expert can create customised solutions for you.
Sneha Makhija is Head of Wealth Planning, Products & Solutions, Sanctum Wealth
first published: Jun 23, 2021 10:51 am

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