Which is Better – a Trust or a Will ?

India is a country where awareness about estate planning is still in its infancy. The properties of a person that he owns, and controls are available to his legal heirs after his/her death. In absence of a will or any other similar express provisions, there are higher chances of disputes among the family members who are supposed to be legal claimants of the properties like bank accounts, stocks, business interests, immovable properties, tangible and intangible assets. The solution is to make a Will or set up a Trust.

A trust or a Will which one is better?    

 A will is the more popular way of estate planning. It is a unilateral legal declaration wherein the creator of the will, known as testator, declares his/her intention concerning his/her assets which comes into action after the death of the testator. Will offers the following benefits:

  • It serves as an inventory of assets. Legal heirs might not be aware of the assets of the deceased person. Many bank accounts as well as immovable properties remain unclaimed due to lack of knowledge on the part of the immediate family. When a Will is made, all the belongings of the person making it are listed therein and that reduces the chance of losing track of assets.
  • The distribution of the property of the person making the Will is done as per his/her wish after death. When any person needs to be given a larger share of the inheritance like a special needs child, it is easier to do so by making a Will. 
  • If there is no Will, the asset of the deceased is divided among the legal heirs equally as per the Succession Act. The financial security of any member of the family particularly spouse or a child studying abroad is not taken into consideration in such cases. Making of a Will assures all those who need preference-a major allocation of the resources left takes place in their favor in case of death.
  • If you have minor child/children, it is more appropriate to make a Will otherwise a Guardian shall be appointed to take care of the minor children. Mentioning the name of the best person who can act as Guardian for your children in the Will is possible, rather than accepting the one fixed by the court in case of your demise.
  • There are several cases pending before courts in India for settlement of property disputes of the deceased. All these cases take a lot of time and huge legal costs in addition to loss of mental peace for years to come. It would be better to make a Will to avoid all such complications. 
  • For those with limited assets, making a Will is a worthwhile choice.
  • A trust needs to be settled by a lawyer as it involves registration formalities but making of a Will is less formal and more popular.
  • Distribution of assets among legal heirs through a Will does not attract any tax liability. 
  • The will comes into force only upon death of the maker, he/she exercises control over the assets and may change the share of the legal heirs anytime.

However, changing a Will is difficult if the testator becomes physically or mentally challenged. A Will divides the beneficiaries. The testator should be of a sound mind and a Will needs to be attested. (An unregistered will too however is enforceable.)

Setting up of a Trust avoids many hassles. Family trusts are set up as private trusts under the Indian Trusts Act,1882 either for specified persons or a class of persons who are not specifically named. Properties are transferred to the trust by the settlor, which are managed by the trustee(s) for the benefit of the beneficiaries. 

Advantages offered by setting up of a trust

  • There have been amendments in tax laws and specific trusts are taxed at the same rate as the beneficiaries.  But due to the rumors that estate duty may be brought back, many family trusts are set up to avoid estate duty. 
  • Family trusts provide a guarantee of continuity to businesses for business families and in case of death of head of the family, the operations are not affected.
  • They serve as a better way to settle the distribution of assets during the lifetime of the person settling the trust. While the beneficiaries enjoy the distribution of income, the trustees continue to manage the assets. 
  • When the beneficiaries are disabled or are vulnerable in any other way or young, settling of a trust is more fruitful.
  • The settlor can guard the beneficiaries if there are probabilities of insolvency proceedings and consequent liabilities. 

However, the transfer of immovable property to a trust result into payment of a large amount of stamp duty and the increases the cost of setting it up. To make it tax-free, the beneficiary should fall into the category of specified relatives of the settlor.

A Will is simple and comes into effect only after the death of the testator, hence it is a very practical way to fix the share of each legal heir post his/her death. During the lifetime of the testator, he/she is free to use the assets. If you have children, choosing a Will could be a better option. Whereas in case of a trust, the assets become subject to a distributed pool. But to avoid conflict of interest where the assets comprise of valuable properties, trusts are more beneficial. It all depends on the ultimate goals behind the estate planning. Whether you choose a Will or a Trust, seek professional advice. Some experts recommend having both a Will and a trust. Having property and assets to place in a trust along with minor children, may need you optimizing your goals by using both the estate planning options together.

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Krishna Rath is a SEBI Registered Investment Adviser, and since 2015 has been educating netizens on investments and insurance. Krishna is a fee only SEBI RIA and is Odisha's first SEBI RIA. With background in IT, Krishna is changing the advisory space with new innovations in AdvisoryTech.

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