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Many Purpose – One Solution: Private Family Trust

PREAMBLE:

A Private Family Trust is a legal arrangement in which the Trustee holds and manages the property in a representative capacity on behalf of the beneficiaries. A Private Family Trust is created for the benefit of one or more beneficiaries and not for the public benefit.

As per Section 3 of the Indian Trust Act, 1882, “A Trust is an obligation annexed to the ownership of the property and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for benefit of another, or of another and the owner”.

The author or settlor of the trust is the person who transfers the assets. The Trustee is the person appointed by the author or settlor to administer the Trust affairs. The beneficiary is the person for whose benefit the Trust is created. Trust Deed is the instrument through which the Trust is created. A beneficiary also can be the Trustee of the Trust. 

OBJECTIVES FOR CREATION OF PRIVATE FAMILY TRUST:

The Settlor have various objectives for creating a Private Family Trust. Some of them are: Estate Planning, Ensuring a smooth transition of property to beneficiaries, Wants to provide for different contingencies and flexibilities for the distribution of income and properties.

Planning Succession: 

The Private Family Trusts are the most practical and suitable tool for holistic succession planning. The Private Family Trusts can help in a smooth succession of properties avoiding any operational and administrative interruptions and delays.

For ensuring continuity in business, with families having multiple generations and members having multi-jurisdictional presence, creating a Private Family Trust is the most appropriate option. Structured plan through Private Family Trust providing clarity over family, business ownership, management, etc. ensures enduring family business. 

The Private Family Trust is very useful during unexpected and unfortunate situations such as sudden death, or incapacitation of key family member. 

Interstate succession planning laws in India are unfavourable for women. Hence, women must use the tools such as Private Family Trusts to ensure their choice of Property and Income distribution. 

Many issues can be resolved through a Private Family Trust, viz. family litigation, separation, children’s future, financial security, old age medical care, etc. 

Planning for Special Needs:

The Private Family Trust can be a useful tool for those beneficiaries who are unable to manage on their own, such as minors, individuals with special needs or are disabled, or bankrupt individuals.

Planning for Emigration: 

It will be a good measure to create a Private Family Trust at the time when a person and/or his family moves to another country, for the preservation of wealth, management, avoiding taxation at the destination country, etc. 

The Private Family Trust is also a very useful measure to handle the situation, for distribution of part or all of the assets to the beneficiaries who would not be entitled to benefit under the laws of their country of residence, as there are fixed laws of inheritance. 

Protecting Wealth:

Properties managed under a Private Family Trust are protected from personal creditors and other potential threats. 

Planning Business: 

An entrepreneur has to ensure a distinction between his personal and business assets. During business disruption on account of external unavoidable and uncontrollable events and if the solution is prolonged, for the continuity of business creating a Private Family Trust is an advisable solution. 

Distribution and Management of Properties:

The Private Family Trust is an effective tool with an inheritance benefit that can ensure that assets are distributed and managed according to the settlor’s wishes.

The Private Family Trust ensures proper management of properties, in the circumstances such as increased age, health issues, special beneficiaries, etc. 

Through well-defined provisions in the Trust Deed, the settlor will have greater say and control for the distribution of his properties and income, even during his absence, more particularly he wants to ensure for a specific purpose. 

Preservation of Properties: 

The Private Family Trusts are created for possessing specific properties which are inappropriate or impractical to split. This will facilitate the preservation of properties’ capital value for future generations. 

The Private Family Trust ensure the safeguard of vulnerable beneficiaries’ interests as they are not capable of making prudent financial decisions.

Through Private Family Trust, the settlor can ensure the preservation and passing of Family wealth from one generation to the next.

Privacy: 

As the Private Family Trust is a private arrangement, the settlor’s estate, and distribution plan can be kept private. 

The Private Family Trust can be used to conceal the beneficial ownership of real estate. 

The Private Family Trust can provide a great level of privacy, as they do not have to be filed with the court. 

Planning Taxation: 

In certain jurisdictions, Private Family Trusts are essentially tax–exempt as long as the settlor and beneficiaries are not residents of that jurisdiction. This is subject to other important factors to be taken into consideration. 

As of Today, estate duty is not leviable in India. However, if the same is reintroduced, Private Family Trusts can potentially help with estate duty planning. 

As the Private Family Trust is a separate legal entity, the same can be used for tax planning purposes, subject to the Income Tax provisions. 

Probate Avoidance: 

Since the legal title of the properties passes from the settlor to the Trustee once they are settled. There is no change of ownership at the event of the settlor’s death. This avoids the need for probate for the Trust properties. This will avoid the economic hardship sometimes suffered by surviving beneficiaries while waiting for probate to be granted. Also, obtaining probate in one country on a will executed in another country can be a complex and time–consuming process and may add to the distress of bereaved relatives.   

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