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Trusts and wills India


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Trusts and wills India

  1. 1. Trusts & Wills
  2. 2. Definition As per Section 3 of Indian Trust Act,1882: A “Trust” is an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owners, or declared and accepted by him, for the benefit of another and the owner.
  3. 3. Parties in Trust  Author/Settlor  Trustee  Beneficiary
  4. 4. Terms Related to Trust  Trust property/Trust Money  Beneficial Interest  Instrument of Trust
  5. 5. Important Aspects:  Mere Transfer of Income alone is not sufficient  Transfer should be irrevocable  For Movable property, Ownership should be transferred  For Immovable property, writing and registeration is mandatory*
  6. 6. For Valid Trust  Author must Indicate:  His Intention to Create Trust  The Purpose of Trust  The Beneficiary  The Trust Property  Transfer of property to Trust
  7. 7. Types Of Trusts (1)  Specific Trust  Discretionary Trust
  8. 8. Types Of Trusts (2)  Public Trust  Private Trust
  9. 9. Types Of Trusts (3)  Executed Trust  Constructive Trust  Resulting Trust  Simple Trust  Special Trust
  10. 10. Settlor of a Trust:  A person who is competent to contract as per Indian Contract Act,1882 and is the legal owner of the property concerned.  A Limited Company can be a Settlor  A karta can be a Settlor on Behalf of HUF.
  11. 11. Trustees:  Anyone can become a Trustee. A Settlor himself can become a sole trustee or one of the Trustee. Note: The Clubbing provision is Governed by the Relationship between the settlor and the Beneficiary and not that between the Trustee and Beneficiary
  12. 12. Tax Planning Tips  It is Advantageous to have specific Trust for a Living beneficiary and a Discretionary Trust for Unborn persons  Trust should be in writing and Registered. Income of Oral Trust is subject to Maximum Marginal rate  Spouse should not be Settlor for the benefit of his/her spouse.  Father/Mother/Grand Parents should not Settle any Property for the benefit of minor child/Children/Grand Children  Inturn Maternal GrandParents may open a trust for Minor Grand Childrens  Also Brother in Law may Settle for Sister in Law and Vice Versa
  13. 13. Trusts for Relatives  Private Trust for Spouse  Private Trust for Minor Son/Daughter  Private Trust for Major Son  Private Trust for Married Daughter  Private Trust for Daughter-in-law  Private Trust for Parents
  14. 14. Private Trust For Spouse  When spouse’s in reciept of Regular Gifts.  Why: 1.) Where Spouse is Illiterate or Less Educated. 2.) Where one doesn’t have faith in Spouse’s Financial management .
  15. 15. Private Trust For Spouse  Settler Should not be: 1. Husband 2. Father/Mother –in-Law  No Restriction on Trustees
  16. 16. Private Trust For Minor Income of Minor to be clubbed with parent with higher Income Exception: 1. Where earning is from some specialised skill 2. In case of Physically Disabled Child.
  17. 17. Private Trust For Minor Tax Planning Tips: 1. Create 100% Specific Beneficiary Trust and make it a Partner in Partnership Firm 2. Create 100% Specific beneficiary trust with the provision of deferment of the benefit during the minority.
  18. 18. Private Trust for Major Son  Benefits: To teach Financial Management.  No restriction on Settler  No risk of Clubbing of Income.  Mentioning of share of each son is required in case of joint trust.
  19. 19. Private Trust for Married Daughter  Benefits: To avoid the money belonging to daughter, given through gifts to be used by In laws in case of Financial Crisis
  20. 20. Private Trust for Daughter-in Law Helps to create separate Income tax file  Before Marriage: Any one can settle the Trust  After Marriage: Spouse and father/mother in law should avoid become settler
  21. 21. Private Trust for Aged parents  To Support Old Parents with no sizeable Income.  No Clubbing  No Restriction on Investments.
  22. 22. 100% Specific Beneficiary Trust For Senior Citizens
  23. 23. Features  Advantageous for Ailing Senior Citizens  S.C can transfer all existing arrangement to this Trust.  Tax Treatment of Gifts will be same as in case of Individual and HUF.  The Trust Deed should thus Specifically mention the method of distribution of assets after demise or it should be mentioned through will.
  24. 24. Tax Planning through Discretionary Trust
  25. 25. Taxation on Discretionary Trust  Assessable to Income tax at maximum Marginal rate of Income tax  Maximum Marginal rate means the rate of Income Tax applicable in Relation to the highest slab of Income in the case of an Individual.
  26. 26. Exceptions  Where Discretionary Trust Created Through Will  Where DT is mainly created for the benefit of relatives in unfortunate circumstances e.g. orphans or Physically or mentally retarded.
  27. 27. Discretionary Family Trust  This is created for the Holistic Safety of Family members  It is to provide future Safety and Security for existing and Future family members.  It can be created by a living person and which can become immidiately Operational
  28. 28. Taxation Discretionary Family Trust
  29. 29. Taxation  In case DFT is created by living person , it will be taxed at Maximum marginal rate.  If Created through Will, then at normal Slab rates of Individuals.  No tax liability on Receiving Gifts more than Rs 50k from Non Relatives( Reason being the provisions of IT does not apply to DFT)
  30. 30. Wills & Succession Planning
  31. 31. Hindu Legal Heirs  Class 1 1) Son, Daughter, Widow, Mother 2) Son/daughter of Predeceased son 3) Son/Daughter of Predeceased Daughter 4) Widow of Predeceased Son  Class 2 1) Father 2) Son’s Daughter’s Son/daughter,Bro ther,Sister 3) Daughter’s Son’s son/Daughter, Daughter’s daughter’s daughter
  32. 32. Legal Heirs 5) Son/Daughter/Wid ow of a Predeceased son of a Predeceased son 4) Brother’s son/daughter, Sister’s son/daughter 5) Father’s Father/Mother 6) Father’s /Brother’s Widow 7)Father’s brother/Sister
  33. 33. Legal Heirs  --- 8) Mother’s father/Mother 9)Mother’s Brother/Sister
  34. 34. Overview of Will  A will is the statement of Intention for disposing of the Assets and Liabilities of a person after his death.  If a Person dies Intestate, then his various assets, get divided among his Legal Heirs as per Hindu Succession Act or as the case may be.  A Will is not an Irrevocable Document.
  35. 35. Wills  When one makes number of wills in respect of particular asset, it is the last will or that carries latest date that will be held valid.  Will has to be prepared properly by self signing with two witnesses, otherwise it will be held invalid  A person should clearly state in his will that s/he is of sound Mind and it is being prepared without any coercion
  36. 36. Few points to Consider  You are Free to Change your existing will.  Whenever a new will is written , particulars of previous wills must be mentioned.  The name of executor/alternate executor should be mentioned in the will  Through Will Assets can be Bequeathed to specified persons with conditions attached
  37. 37. Few Points to consider  A will generally make mention of all the existing assets and how the future assets ( If any) to be distributed.  It is fine if you do not give details of distribution of each and every item
  38. 38. Advantages of Will “ Making a will leads not only to more efficient, easy and quick distribution of wealth among your Successors; it will also pre empt lengthy and expensive legal disputes.”
  39. 39. Advantages  It provides you with Freedom in Bequeathing your assets  It is easy to reward and provide monetary benefits to relatives, friends.  It helps you to bridge a gap between Rich and poor Legal Heirs  You can Create a Annual Charge through Will which cannot otherwise be created.
  40. 40. Some Terms Associated  Executor/Executrix  Witnesses  Annual Charge  Probate  Registration  Codicils
  41. 41. Drafting a Valid Will  Write down all your Assets/Liabilities  Prepare a List of all those to whom you wish to bequeath something.  Match Both the above  Select Executor  Select Witnesses
  42. 42. Drafting a Will  If Trust is to be created through will then full details must b mentioned  If HUF to be opened through will Full details must be mentioned
  43. 43. Tax Planning Through Will  Create HUF though Will  Bequest to Minor Children  Transfer of Funds to Wife  Transfer of Funds to Daughter in Law  Through Discretionary Trust.
  44. 44. Thanks ---