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.
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.
- The person who is appointed bythe Settlor to administer the Trust and whoaccepts the responsibility of acting as aTrustee.
- the person for whose benefit the Trust is created is called theBeneficiary.
-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
Executive Director, Kotak Mahindra Bank Ltd