About Trust

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All About Trust

Private Trusts in India-Why do you need Trust?

A Trust is a legal arrangement whereby the owner (the Settlor) entrusts another party (the Trustee) to take care of his asset/s for the benefit of the beneficiaries he has chosen under instructions in the form of a trust deed.

A Trust is an effective estate planning instrument for an Individual to ensure that his assets are protected and looked after by a Trustee or Trustees for the benefit of the trust beneficiaries.

There are three parties involved in a Trust.
  • The Settlor – Person who sets up the Trust.
  • The Trustee – The person or a corporation who manages the Trust assets
  • The Beneficiary – the person who receives benefits from the Trust

Why do I need Trust?

Because the Trust is an excellent solution for many different kind of problems regarding wealth accumulation, wealth protection, wealth preservation and wealth distribution (Click here to see our various Trust products) A trust is ideal for example when your children are too young and you are concerned that the guardian may not do a good job of safeguarding the assets meant for their university education and life needs.

How does a Trust Work?

Trust requires the Settlor to give away his assets such as shares, money and property to a trustee such as to hold them on trust for the benefit and enjoyment of the beneficiary(ies). The Settlor may impose conditions for the Trustee to follow, such as releasing monies only for a certain purpose or in a staggered manner.

Thus, in a Trust the Trustee receives the assets from the Settlor and is legally obligated to hold and manage the assets for the enjoyment of the beneficiaries during the trust period set by the Settlor.

Would having a Will be sufficient, without having a Trust?

Without doubt, having a Will written is important. However, unlike a Will, a Trust can serve many purposes to complete estate planning. For instance, a Trust allows wealth protection and preservation which a Will cannot do.

What Assets can be included in a Trust?

The assets commonly used to set up a trust are: cash, insurance policies, mutual funds, properties, shares. The property under Trust do not belong to the Trustee personally. Though the trust property is registered in the Trustee’s name, it is NEVER part of the Trustee’s own properties when he dies. Only the Trust beneficiaries will be entitled to the Trust Fund NOT the Trustee’s own beneficiaries.

Who is the Protector of Trust?

A person appointed by the Settlor with the following job scope:

  • Act as a watchdog for the Settlor when he passed on
  • Advise the Trustee on the needs of beneficiaries
  • Recommends payment to beneficiaries using Letter of Wishes
  • Has the power to remove and replace the Trustee
Example of Common Usage of Trust
Distributing Wealth to Avoid Grant Of Probate
Trust of this nature is useful when you have:-
  • Minor children and spouse who is a homemaker or who is not the main bread winner.
  • Special children requiring funds for medical, education and living expenses.
  • A second family to provide for.
  • To finance children’s higher education.
Protecting Wealth
  • Protecting Wealth Against Wasteful Beneficiaries:
    • The Protector appointed will ensure there is no wastage of moneys receives under the Trust. Protector can stop disbursement of fund to undeserved beneficiaries.
  • Protecting wealth against Creditors, Beneficiaries and Disgruntled Family Member
    • Protector will instruct Trustee to stop the disbursement of fund when any beneficiary has become a bankrupt.
  • Protecting Wealth Against the Settlor's or Beneficiaries Creditors
    • When a person has taken a loan, or stood guarantor for a loan his/her creditors can attach his personal property to recover their loan. Trusts can offer protection against this.
  • Protecting Wealth Against the Disgruntled Family Members
    • A disgruntled family member like a separating spouse can take away your or your beneficiary assets as alimony. Trusts can safeguard your wealth against this as you longer hold the title of the property once it is transferred to the trust.

Protecting Wealth Against The Beneficiaries’ Creditors

This can be achieved by creating a Discretionary Trust. So that in case any beneficiary becomes bankrupt, he or she will no longer be entitled to benefits from the trust.

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Preserving Wealth For Your Children/ Grandchildren/ Great Grandchildren

Preserving assets for your great grandchildren.

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To provide funds for various Family Requirement:

For example education, marriage, setting up business or compensating a non-active family member in business.

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WHY DO PEOPLE SET UP A TRUST?
IT IS BECAUSE...

Benefits of a Living Trust

  • Assets held under Trust are not frozen upon demise.
  • To ensure the wealth is protected against lawsuits as well as creditors
  • For the distribution of wealth, including periodical payment
  • For preservation of wealth
  • Fulfilling various personal objectives, including maintenance of dependents and education funds.
  1. Distributes the way you want it to
    • For example, you can set goals to be achieved (such as a college degree) before your loved ones receive anything from the trust or to be used for their medical expenses. This avoids wastage of the trust fund.
  2. You decide who is to receive
    • Just like a Will, it is your choice, no one can challenge it.
  3. No fuss and instantly available as it is not part of the estate
    • No lengthy legal process. Trust Fund is readily available for the beneficiaries’ use because it is in the Trustee’s name. It complements the Will you wrote.
  4. Have peace of mind
    • Once the trust is created and the Protector appointed, the well-being of your beneficiaries are taken care of
  5. Assets can be protected from creditors - Irrevocable Trust
    • When assets have been in the trust before the loan goes bad.
  6. Not easily contested
    • Disgruntled family members who are not receiving anything from the trust are unable to make claims against the trust because the assets are no longer under your name.
  7. Your instructions on distribution in the Trust Deed can prevent you wealth from being mis-spent.

A COMPARISON OF A TRUST AND A WILL

TRUST WILL
When is the actual transfer of assets? During the lifetime of the Settlor. After the demise of the Testator and Grant Of Probate extracted.
When does it become operational? Upon transfer of assets to the Trustee. Upon the demise of the Testator
Is Court intervention necessary to implement? No. Yes.
Can there be more than one? Yes. Yes (The latest ‘Will‘prevails) But one can have separate will for separate properties.
Can it be revoked? Yes, if the Trust is Revocable. The Settlor can revoke it. Any time before the death of the Testator
Creditor protection? If it is an irrevocable trust. No
Can conditions of transferring of assets be stated? Yes Yes
Can I give to any person / organization I choose, even if unborn? Yes (Subject to the rule of perpetuity) Yes (Subject to the rule of perpetuity)
Can the Trustee/Executor be removed? Yes, the Settlor can do so by creating a supplemental deed. Yes, by rewriting the Will or adding a Codicil.

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