Will vs Trust: Which is the better option for your succession planning?

Succession planning ensures that the rightful inheritor can own the property in the most hassle-free manner with the clear title of the asset throughout the transition. Most importantly, there is no unnecessary dispute or quarrel in passing over a property from one generation to another. The two majorly used instruments of succession and estate planning are Wills and Trusts.

While a Will is an official document —with details of all the assets of the testator (the person whose Will it is)—that specifies how their belongings will be distributed after their death, the creation of Trusts is the alternative method of asset transfer. It is a legal relationship in which the holder of an asset or right (the Settlor) entrusts it to another person or entity (the Trustee/s) for the benefit of another person (the Beneficiary).

The decision to choose between a trust and a will depends on what is sought to be achieved. If the objective is to ensure a smooth transfer of property after one’s passing, a simple will would do.  “A private trust would be advisable for someone who wishes to ring-fence certain property for the benefit of and to preserve the quality of life for future generations, wishes to dictate the manner in which certain property should be enjoyed by the beneficiaries even after his/her passing; or create a long-lasting mechanism for the operation of certain entities, such a family-owned businesses, etc,” says Pranav Bhaskar, Partner, SKV Law offices.

A major reason for the rising popularity of Private Trusts is also the operation of the Insolvency and Bankruptcy Code (IBC), 2016, which has ensured that even long-standing companies can undergo insolvency proceedings due to a relatively short period of financial strain. In such cases, even the personal or family property of company promoters is not protected because of the personal guarantor clauses present in IBC. Not only that, Bhaskar says that speculation about the introduction of an estate duty by the government has also spurred many business families to consider creating Private Trusts to safeguard their wealth.

Another option to consider is transferring the property via a gift deed. “A gift deed is a document that states and records the act of providing a gift from the giver to the recipient (recording the gift). Each of the above methods of succession plans have its own advantage over the other and therefore we cannot straight out the pros and cons. Rather the succession plan should be prepared to keep in mind the asset size, objectives, and legal scenarios,” says Aditya Chopra, managing partner, Victoriam Legalis, Advocates & Solicitors.