Home / Money / Personal Finance /  Private trust cannot be used to defraud legitimate rights of business creditors

How do I create a private trust so that in case if something happens to me or my business gets affected, all my assets will rightfully go to my legal heirs? Also, I want to ensure that in case of business problems, the creditors will not attach my private assets. Who can I approach for my succession planning?

—Name withheld on request

A private trust can be created during the lifetime of a person or it can be created through a Will of a person and become active after the demise of that person. A private trust may be incorporated by you as per the provisions of the Indian Trusts Act, 1882. A trust is formed for various purposes and can prove to be an effective vehicle for succession and estate planning. Trust is a concept which generally features around the author or settlor, the trustee and the beneficiary. The settlor can also be one of the beneficiaries together with his other family members.

In such a vehicle, the trustee manages the trust property, for and on behalf of the beneficiaries, up to a stipulated time period or for certain events to take place or both.

There are many advantages of creating a trust such as protection of wealth, welfare of family members, succession of property and so on. Further, the assets are transferred during the lifetime of the settlor; therefore, it avoids a lot of legal complication and hassle post the demise of the person making the trust as he is assured that the property will be distributed in the manner envisaged by him. In certain situations and cases, it is much better than preparing a Will as the Will may be challenged by anyone who is disgruntled.

One can create a revocable trust or an irrevocable trust. A revocable trust can be revoked at any time, as per the discretion of the settlor. Irrevocable trust as such are non-revocable and are of two types; (i) discretionary i.e. at the hands of the trustee and (ii) non-discretionary. In your case, it is advisable to create an irrevocable private trust during your lifetime so that your children or family members can reap the benefits of your estate after your demise.

Though a vehicle in the nature of a private trust helps in certain cases where there are business problems, this route cannot be used for defrauding the legitimate rights of creditors. Further, creation of private trust obviously requires planning and it is advisable to seek expert advice of a lawyer for creation of a trust and of a chartered accountant to deal with the tax implications.

Aradhana Bhansali is partner, Rajani Associates. Queries and views at mintmoney@livemint.com

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