Succession planning by high net-worth individuals

Wondering how to transfer your private wealth to the next generation in a legal and efficient manner? High net-worth individuals (HNIs) in India have been plagued with this very question and commonly resort to execution of wills and/or setting up private trusts under the Indian Trusts Act, 1882, to organise and transfer wealth within the family.

Devolution through a will is recommended when the family structure and assets are not complicated or if there are no potential disputes anticipated to arise among family members in the future. A will is a legal declaration of the intent of the testator (i.e. person making the will) with respect to his or her assets, to be distributed after death. While there is no specific format for a will (which can also be hand written on plain paper) and there is no requirement to register a will under the Indian Registration Act, 1908, a will should:

• Mention the name of the executor(s) i.e. the person(s) who will oversee the distribution and settlement of assets in accordance with the wishes of the testator;
• Clearly set out the assets and the manner in which they should be bequeathed to beneficiaries;
• State that it has been executed by the testator in good and sound health, after fully understanding its terms and that the testators mental faculties are working fine;
• State that it has been voluntarily made without any coercion;
• Be attested by 2 (two) or more independent witnesses - it is essential to note that while a beneficiary can be appointed as an executor to the will, she/he cannot be a witness to the will as a bequest to the attesting witness of a will is void; and
• Include a residuary clause which should state the name of the heir to the residue of the assets of the testator which have not specifically been bequeathed to a particular person or any property which the testator may have erroneously left out while drafting the will.

For complex family, asset and business holding structures, the establishment of private trusts by HNIs is sometimes preferred to wills as a private trust provides a simple and practical way to devolve assets to heirs, without losing control during the lifetime of the settlor (i.e. person creating the trust). While a will takes effect on the death of the person making it, a revocable private trust can be set up during the life time of the settlor, which could become irrevocable on the death of the settlor.

A private trust is created by execution of a trust deed and must clearly state the name of the trustee(s) (independent professionals or corporate trustees are preferred to avoid any bias or vested interest), the beneficiary (ies) and the assets that are being transferred by the settlor to the trustee to be held in trust for the beneficiaries. The trust deed should also expressly state the duties and powers of the trustee(s) and the manner in which the trustee(s) can be replaced, if required.

The trust deed for a private trust is mandatorily required to be registered under the Registration Act, 1908 when the assets of the trust include immovable property and is optionally required to be registered under the Registration Act, 1908 if the assets are only movable property. Unlike a will which could be disputed and for which a probate is required to be obtained from the relevant High Court (which is an expensive and cumbersome process), there is no court intervention to oversee the process of devolution of assets in case of a trust, unless of course the creation of the trust or the process of devolution is itself contested by an aggrieved party.

Effective succession planning provides security over inheritance in an efficient and cost effective manner and should be considered by HNIs to avoid disputes for the future generations as well as delays in the inheritance process on account of a lack of clarity in intentions and expressions.

Views are personal.

The author is partner at Indian Law Partners