Leap of ‘Trust’ – Why should parents with exceptional wealth opt for creating a trust

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When it comes to securing generational wealth and our children’s future, there is nothing more important than succession and estate planning. At its heart, estate planning is the simple act of preparing for the transfer of a person’s wealth and assets during and/or after their death. One of the most important tools in estate planning is a Family Trust (“Trust”). While Wills are hygiene documents put in place to take care of inheritances in a simpler manner, they have their own set of limitations:

  • There is no provision for contingencies such as incapacitation of a testator.
  • Wills have to go through a probate process during which information regarding a HNI’s assets and beneficiaries names can go public.
  • There is a significant amount of time and cost involved in the probate process and beneficiaries may not be ready to go through this pain period especially if they are NRIs.
  • The direct transfer of assets to beneficiaries through a Will, without any real assessment of their preparedness to tackle financial matters and other complex business decisions, is a matter of concern.

The probability of a Will being contested in court or being drawn into long legal battles is high. A Trust adequately addresses all the above issues. Additionally, a Trust has several other benefits, especially for HNIs and UHNI families and parents looking to secure the financial future of their children such as:

Asset Protection:

One of the biggest advantages of having a well-planned and drafted Trust is that the assets held within it can be protected from legal proceedings, creditors, and marital claims. Thus, locking of assets into a Trust means that in case of unfortunate events such as bankruptcy or shutting down of business, your children’s future will be safeguarded.

Customized & Efficient Succession Planning:

A Trust allows for flexibility in terms of naming beneficiaries and controlling how wealth is disbursed to them. This means that you can specifically name heirs who are to receive control of assets and as well as wealth. A Trust thus ensures that hard-earned familial wealth goes to intended beneficiaries listed in a Trust and no one else.

Spendthrift Safeguard:

It is a well-known fact that scores of wealthy families lose their fortune by the second or the third generation. This often happens due to the younger generation being unprepared to handle wealth wisely. A Trust can be designed to prevent spendthrift beneficiaries from squandering hard-earned wealth in a matter of years by controlling payments over a long period of time. Instead of lump sum amounts, creators of a Trust have the option of setting up monthly, quarterly, semi-annual or even annual payments. In many cases, Trusts can be designed in such a way that money from it is only disbursed when children reach a certain age when they can be financially responsible. This is especially important for minor children. Trusts can also include clauses pertaining to the manner in which the money can be used. For example, certain distributions can be reserved for the purpose of education or marriage of children.

Control over Wealth:

In general, a Trust gives its creator greater control over their wealth. It has provisions for more complex situations such as asset distribution to children from more than one marriage. As opposed to a Will, a Trust can be made operational during the lifetime & post death of a settlor. And last but not the least, it provides for the administration of property for incapable beneficiaries.

In times of global volatility such as this current pandemic, parents can never have enough safeguards for their children. A Trust is an all-encompassing tool that can secure the financial future of a child and make sure that wealth is passed down only to deserving beneficiaries in a hassle-free manner.

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Disclaimer

Views expressed above are the author’s own.

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