Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more
Download
Standard view
Full view
of .
Save to My Library
Look up keyword
Like this
1Activity
0 of .
Results for:
No results containing your search query
P. 1
No 9, c Jayaram

No 9, c Jayaram

Ratings: (0)|Views: 273|Likes:
Published by lotusvv
tax notes
tax notes

More info:

Categories:Business/Law
Published by: lotusvv on Oct 16, 2010
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PDF, TXT or read online from Scribd
See more
See less

10/16/2010

pdf

text

original

 
Y
ou work hard to build your assets—your investments,home, personal property—andto provide a level of financial security for loved ones. Then, doesn’t it make senseto work just as hard to protect them in theevent something should happen to you?That’s the primary goal of estate planning—to protect, preserve andmanage your estate/assets during and postyour life.
What is Estate Planning?
Estate Planning is a process of arrangingand planning a person’s succession andfinancial affairs. An Estate Plan whichincorporates a person’s wishes about hisestate, could be regarding EstateManagement, Estate Preservation andEstate Legacy during and post life. The primary goal of estate planning is ensuringthat the estate of the individual passes tothe estate owner’s intended beneficiaries,often including efficient tax and succession planning and avoiding or minimizing court proceedings in succession matters andobtaining probates (i.e. a “Will” certifiedunder the seal of the court with the grant of administration to the estate of person whohas made the Will).Though earlier India had estate tax,today we have no estate tax or estate dutyunlike many advanced market economies.First introduced here in 1953, Estate Dutywas abolished in 1985. Estate Planning byTrust Structures was primarily done tominimize Estate Duty/ Tax which isimposed on all property transferred atdeath.Some people may see no need for estate planning until they reach a certainage, or they might believe that it’s only
TAXPLANNING
Effective estate planning
through creation of trusts
Estate planning through trusts will ensure that the estate passes to intended beneficiariesand minimise court proceedings in succession
40 |FINANCIAL PLANNING JOURNAL | JULY - DECEMBER 2007
 
for the wealthy. But it is wise for everyoneto begin the estate planning process asearly as possible. In fact looking at thevarious disputes in families in the publicdomain, Estate Planning is becomingincreasingly necessary for everyindividual to ensure a planned succession,avoid family feuds leading todisintegration of businesses and lengthycourt battles. Also if Estate Duty isreinstated in India today or in the near future, Estate Planning may turn out to bethe best tool to minimise the Estate Duty.Why is estate planning so important?Because it allows you to accomplish anumber of crucial objectives like:Harmonious and planned successionand disposition of the estate which helpsensure that your money and other assetsgo to the people you choose.Efficient management andaccumulation during and after life.To take care of unforeseeneventualities by providing for who willcare for your minor children if you becomeunable to.Defusing potential conflicts over thedistribution of your assets.
Modes of Planning One’sEstate
One can plan his estate in two ways i.e.either by writing a Will or by creatinga Trust. Writing a Will as we all knowhas been a traditional way of passingon all what a person has earned andwhat he has inherited from hisancestors to his future generations.Trust has been used as a vehicle bymany people in the past to pass on thewealth in a planned manner and over a period of time.A Will is a legal declaration of a person’s intention with respect to his property which he desires to be carriedinto effect after his death. Thus a Willoperates only after the death of the person.A Trust involves transferring of one’sestate to a Trustee for the benefit of certain beneficiaries which may include the person creating the Trust who is called theSettlor. A Trust provides for managementof the estate during one’s lifetime and also provides for distribution and managementof one’s wealth post demise in a plannedmanner over a period of time.Traditionally, Wills have been the primary tool people use to distribute assetsaccording to their wishes. But withfamilies going to courts on disputes arisingout of Wills either on the authenticitythereof, mental soundness of the personmaking the Will or alleged forgery, theTrust route created during the lifetime of the individual is emerging as a more viablesolution to estate planning. The groundson which a Will may be challenged arenumerous, the time taken in India to get a probate of the Will in case the Will iscontested could be several years and itcould be a very expensive affair, exactlywhat any family doesn’t need.Further the necessity to obtain a probate of the Wills in most of the casesentails the Will being made public andgoing to courts for obtaining a Probate. A public document, a will is subject toscrutiny by anyone who wishes to knowits contents. If someone feels they’ve beentreated unfairly, they can contest the will.Such challenges can tie up assets for months or even years, and cost your estatea huge amount of money.
Trusts
In a Trust, a person transfers his propertyto another person i.e. the Trustee to hold itfor the benefit of certain beneficiaries or itcan be for the benefit of beneficiaries andhimself .By adopting a Trust Route a personcan avoid the issues which arise in a Willand make a ring fenced structure to ensurethat the person’s future generations are well protected through a vehicle created by himand according to his directions. The Trusthas the following components:
Author of the Trust/ Settlor 
- A personwho settles the Trust or the author of theTrust.
Trustee
- The person who is appointed bythe Settlor to administer the Trust and whoaccepts the responsibility of acting as aTrustee.
Beneficiary
- the person for whose benefit the Trust is created is called theBeneficiary.
Trust
-property or Trust money- thesubject matter of the trust is called theTrust property or trust money. Trust property can be in the form movable or immovable property viz. cash, jewellery,land, investment instruments etc.For creating a Trust, legally thereneeds to be a i) Certainty of an intentionto create a Trust, ii) Certainty of the purpose of the Trust iii) Certainty of the beneficiaries of the Trust i.e. the personsfor the benefit of whom the Trust iscreated; and iv) Certainty of TrustProperty and transfer of the Trust Propertyto the trustee of the Trust.
Characteristics of TrustStructures are as follows:
a)Title to the Trust property gets
BY ADOPTING A TRUST ROUTE a personcan avoid the issues which arise in a will andmake a ring fenced structure to ensure that hisfuture generations are well protected througha vehicle created by him and according to hisdirections.
JULY - DECEMBER 2007 |FINANCIAL PLANNING JOURNAL | 41
C Jayaram, CFP
CM
Executive Director, Kotak Mahindra Bank Ltd 
 
transferred to the name of the Trustee. b)The Trust property constitutes aseparate fund and is not a part of Trustee’sown estate.c)The Trustee has the power and the duty,in respect of which he is accountable, tomanage, employ or dispose of the Trust property in accordance with the terms of the trust and the special duties imposedupon him by law. There exist a fiduciaryrelationship between Trustee and the beneficiaries and thus the Trusteeexercises a higher duty of care then a mereagent.d)The Trustee shall hold the ownershipof Trust properties for the benefit of another or for another & the owner butnever for the benefit of the owner alone.The owner who settles the Trust can beone of the beneficiaries.e)A Trustee’s ownership is not anabsolute ownership as known to law (i.e.trustee’s ownership is the legal ownershipnot the beneficial ownership)
Types of Trusts
The Indian Law classifies trusts only onthe basis of their purpose, namely private purpose (Private Trust) or public purpose(Public Trust) and religious/charitable(Religious / Charitable Trust).A Public Trust is for the benefit of the public and the beneficiaries are incapableof ascertainment and a private trust iscreated for benefit of certain specifiedindividuals who are ascertained or arecapable of being ascertained.Besides the classification on the basisof purpose of trusts, trusts can also beclassified as either revocable or irrevocable in nature. A Trust createdunder a Will may be revoked at the pleasure of the person writing the Willor if the power to revoke is retained inthe Trust by the Settlor. Further if the person creating the Trust retains controldirectly or indirectly over the income or the assets of the Trust then also that Trustwould be deemed to be a revocable Trust.A Trust which is not revocable isirrevocable.
Taxation of Revocable/Irrevocable Trust
When a person looks at options of creating a revocable or an irrevocableTrust it is important to understand howincome generated by these Trusts would be taxed. In case of a revocable Trust,the income of the Trust is taxed in thehands of the creator of the Trust i.e. theSettlor. The tax imposed would be at therates applicable to the Settlor. In caseof an irrevocable Trust, the income of the Trust is taxed in the hands of the beneficiaries. The tax imposed would beat the rates applicable to theBeneficiaries. However, if the beneficiaries are not determined at thetime of executing the Trust Deed thenthe Trust would become a discretionarytrust and any income of such a Trustwould be taxed at maximum marginalrate.
Trust Acts in India
The Indian Trust Act relates to PrivateTrusts and Trustees. Public Trust primarilymean trust created for either a public,religious or charitable purpose.The Bombay Public Trust Act providesfor the administration of public, religiousand charitable trusts in the state of Maharashatra.
Estate Planning by a TrustStructure
Creating a private trust can be an efficientmode of planning one’s Estate. EstatePlanning by a Trust structure can beexplained by the diagram 1
Who should be a Trustee of your Trust?
Traditionally people from the family or confidants were appointed as Trustees of their Trust by the creator of the trust.However, that entails appointment of twoto three Trustees to take care of the trustin the eventuality of death or bankruptcyof the appointed Trustees.Appointment of a Corporate Trusteevis-à-vis individual trustees bring many benefits likeContinuity of administration, as acorporate will have perpetual succession.Professional advice, as the CorporateTrustee can achieve efficient financialmanagement of the Trust property byappointing experts for the same.Avoidance of changes in thetrusteeship and cost of such changes.A large measure of security.Keeping of proper accounts of theTrust, audits of the same and review of the investments made by the Trust atregular intervals by competent personsfamiliar with business.Impartiality whilst dealing with the beneficiaries.
Protector/ Administrator of the Trust
While appointing a Corporate Trustee a person creating a Trust may also appointcertain family persons as Administrators/Protectors of the Trust settled by them toretain control indirectly over the Trust. Byappointing Administrators/ Protectors the person creating the Trust can ensure thatthe activities of the Trust are conducted by the Trustee under the supervision andguidance of the Administrator/ Protector 
STRATEGIES ARE DESIGNED to suitindividual goals and comfort level as well as totake advantage of tax saving opportunities. Forany plan to be effective, it is necessary toimplement these strategies and to reviewyou’re the goals periodically.
42 |FINANCIAL PLANNING JOURNAL | JULY - DECEMBER 2007

You're Reading a Free Preview

Download
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->