Will your minor child's inheritance be safe? Private trusts could be the solution; here's why

A private trust offers families a structured way to protect assets and ensure financial stability for minor children until they reach adulthood. Setting clear terms safeguards wealth, prevents mismanagement, and provides for a child's education and welfare, offering parents long-term security and peace of mind.

Generally, parents put together various plans to secure the future of their children. Succession planning, with expert advice, has gained popularity and is widely implemented by individuals for the next generation. A key question for parents with minor children is how to secure their financial future in the event of an untimely demise. In such cases, the creation of private trusts by parents becomes essential.

Amit Pathak, Managing Director at Warmond Fiduciary Services Limited, says, "A well-structured trust includes provisions in the trust deed regarding the end usage of the trust assets. For example, upon the demise of one or both parents, periodic distributions could be made from the trust to the guardian of such minor children for their maintenance, education, and healthcare. The distributions from the trust could also be made directly to educational institutions, hospitals, clinics, etc., for the benefit of the children."

Family trusts also offer a mechanism for the smooth transition of control over business assets when the child reaches a certain age or milestone, without requiring the underlying asset to be transferred or fractionalized in ownership among the next generations. "Assets held in the trust avoid the lengthy and costly probate process or the need to establish succession entitlement as per a basic will," says Anant Jain & Suraj Malik of Legacy Growth Partners. "The designated trustee can make decisions regarding the children's needs without court intervention, based on the powers in the deed given by the parents," Jain adds.

A trust can also formalize the wishes of parents, such as requiring a beneficiary child to achieve higher education or comply with a family tradition or protocol to be eligible for benefits.

Often, families create rules to limit distributions in specific circumstances or restrict the ability to sell or encumber assets held under the trust. These measures aim to encourage children to become responsible adults while preserving family harmony and legacy. "While a minor attains the age of majority upon turning 18, they are generally still several years away from attaining true 'maturity.' Such young adults may not have the required financial acumen or maturity to put inherited wealth to good use. While creating wealth is difficult, squandering it is easy. To prevent this, parents set up private trusts with specific provisions around the distribution of assets—beyond regular maintenance, education, and healthcare—to their children in a phased manner, such as distributing a predefined percentage at ages 25, 30, and 35," says Pathak.

Additionally, parents may move assets into a trust during their lifetime or as part of their will. Determining the tenure of the trust and other rules allows each family to customize the trust deed according to their unique needs and requirements. "Trusts ensure that wealth is protected and available to meet children's needs in a structured, responsible, and efficient manner, offering significant tangible and intangible benefits for minor children. Even in a small and simple family structure, it is important to consider having a trust as part of one’s estate plan to ensure greater confidence in achieving succession goals," says Jain.