How can I ensure that my hard-earned wealth, including business assets, are ring-fenced from the fallout of a marital dispute?
—Name withheld on request
Though not fool proof, a prevalent practice adopted to prevent value erosion on account of formal separation is via a trust structure. As an effective tool of succession planning along with asset management and protection, a quintessential trust structure would entail setting up of an irrevocable discretionary trust with independent professional trustee(s) with beneficiaries being family members including future lineal descendants.
The underlying rationale being by transferring assets into the trust, the same are excluded from being considered part of personal net worth during divorce settlements. A hygiene check would be to ensure that family members do not exercise direct control over the functioning of the trust.
Spouses, either are excluded in entirety from the trust benefits or are excluded from the list of beneficiaries on happening of certain pre-specified events mentioned in the trust deed say divorce proceedings. Trust deed, which governs the functioning of the trust, may also provide for periodic pay-outs for the health, education, maintenance, marriage etc. of children.
A key consideration in determining the favourable outcome of the whole arrangement is the timing of setting up of the trust structure. It is advisable to set up and transfer the assets well in advance of any marital issues, to avoid suspicion of malafide intentions.
Is there a way to create a trust via a will?
—Name withheld on request
A trust formed through testamentary instruments such as will is a middle ground that amalgamates the solutions extended by both, will and trust and takes effect only upon the death of the testator and the deceased’s estate is bequeathed to such trust via will.
The testator in this case, provides directions in their will for a designated executor, outlining how their assets are overseen by trustee(s) and distributed to beneficiaries.
Since, a testamentary trust is established within a will, it has to comply with legal standards for both trusts and wills. Such requirements intricately detail purpose of the trust, identification of beneficiaries of the trust, and specifying the assets held through the trust.
It is recommended for the testator to consult with and inform the individuals whom he intends to appoint as individual trustees.
However, it’s crucial to note that a testamentary trust fundamentally differs from a life trust from a control (both trust property and trust functioning) and privacy perspective. I would recommend defining your succession planning objectives and consult your estate planners who can understand the nuances in detail and help devise a suitable trust structure that best supports your requirements.
Rohit Jain is managing partner and Keshav Singhania is head-private client at Singhania & Co.
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Published: 02 Apr 2024, 05:03 PM IST