Family trusts become a relevant choice for succession or transfer of assets when the family structure and the assets involved are complex. It could be income from a family business, ancestral property or even liquid assets invested in the capital markets. It’s when family structures involve many sub units or when families are broken by way of divorce or similar complications, that a trust structure brings clarity in asset transference. 

The Trust structure provides for this flexibility and ensures that the income received from assets in the interim is safeguarded as per the conditions of the trust. 

How can this be done?

The activities of the trust are governed by the Trust Deed and managed by a legally appointed Trustee. The Trust Deed starts by setting out the purpose of forming the trust, underlines the family values as a foundation for the trust and ultimately details the manner in which assets and income thereof can be transferred.  

The assets are not transferred to the beneficiary directly, the Trust holds these assets till such time as is specified for the transfer. For example, parents may want their children to inherit assets after attaining adulthood or the head of a family may want ancestral property to be divided up only after his or her death.

The Trust structure provides for this flexibility and ensures that the income received from assets in the interim is safeguarded as per the conditions of the trust. 

Assets included

All kinds of assets can be part of a Trust including life insurance policies. This means whether you have deposits in a bank, small savings, gold, equity shares, mutual funds or property everything can be included in a trust.

The biggest benefit is that a private trust will shield these assets from business creditors. Which means, in the event that the family business fails or goes bankrupt, assets transferred to a trust cannot be used to repay creditors. 

For family members who are beneficiaries in the Trust this helps to safeguard a financial future. The individual who sets up the Trust decides the beneficiary and can also decide the end use of the asset and when the beneficiary can receive income from the asset. Beneficiaries may be allowed to access Trust funds in the interim, but a provision for the same needs to exist in the Trust Deed.

There are several nuances in forming a Trust, the more complicated a family structure and the assets to be transferred are, the more work there is in drafting a relevant Trust Deed.

The second most important aspect is finding the right Trustee. Trustee can be an individual or even a corporate; the purpose of the Trust can be a guide in determining who the Trustee is. 

Family Trusts are not for everyone; there is a greater awareness now and high net worth individuals find benefit in being able to enforce the directives of a Trust while they are alive and also in the discipline of managing assets along with a clearly spelt out succession process.