I intend to form a trust in favour of my son, who is 38 years old, to meet his retirement needs. How should I go about this and what precautions should I take? Can I also bequeath my house to this trust? I am governed by Hindu laws.
I am assuming that the trust you intend on setting up is a private trust for the sole benefit of your son. As per the Indian Trust Act, 1882, a trust may be created for any lawful purpose and may be formed by the settlor (the person creating the trust) in her life time by a non-testamentary instrument or thereafter, through a testamentary instrument (a Will).
If the trust is created for the sole benefit of your son (where he is the sole beneficiary under the trust) and he is competent to contract, then pursuant to Section 56 of the Indian Trust Act, he would be entitled at any time to require the trustee to transfer the trust property to him or to such person as he may direct, in which event, the trust will come to an end. If the house that you are referring to is your sole and absolute property, you could bequeath it (under your Will) to the trust that you propose to set up. However, in the event that your property is transferred to a trust during your lifetime, then the transfer could become liable to the payment of stamp duty and would also be required to be registered under the Indian Registration Act. Stamp duty and registration charges differ across states. If, however, your property is conveyed to the trust under your Will, then as per stamp laws (in force as of date), no stamp duty would be payable on the transmission of the property to the trust under your Will.
For the purpose of creating a private trust, you will need to execute a trust deed (if the trust is created during your life time) or create the trust through your Will.
You will also have to appoint trustees for the purpose of administering the trust. The trust deed or Will, as the case may be, should clearly specify:
the intention to create a trust
purpose or object of the trust
beneficiary or beneficiaries
trust property that is to be transferred by the settlor to the trust at the time of creation of trust unless the trust is being declared under a Will, in which event, the property will get transmitted to the trust at the time of your death.
If the trust is created during your lifetime, further properties can also be transferred to it, including under your Will.
It is also advisable to set out whether the trust is to be:
discretionary (i.e., where the distributions would be at the discretion of the trustee) or non-discretionary (where the author of the trust states specifically how the distribution of the trust property is made to the beneficiary)
revocable or irrevocable. This also has relevance from an income tax perspective for the settlor as well as the beneficiary.
We also recommend that you seek independent tax advice to ensure that the structure adopted is the most tax efficient.
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