Why HNIs choose a trust over a will

Increasingly, high net worth individuals (HNI) are going in for trusts as a means of succession planning as opposed to wills. A trust is a relationship whereby the property is managed by one person (or persons, or organisations) for the benefit of another.


Say, Mr X has 100 acres of land which he wants to pass on to his sons. He would have two options to do so: one through a will and the other through a trust. To make a will, he would have to write how his property is to be divided among his sons or daughters on a piece of paper that is attested by two witnesses. Mr X also has the option of using a trust.

In this method, he, as the owner of the land, can put his land into a trust, and appoint another person (who will be the trustee) to manage this land for his sons who would be the beneficiaries. He also has the option of appointing himself as the trustee.

The idea of controlling the end use of your wealth even when you are no longer alive is gaining currency among individuals whose wealth runs into hundreds of crores. "Out of 10 clients who come to us for planning their estates, at least six want to go in for trusts," says Sandeep Nerlekar, MD & CEO, Warmond Trustee & Executors.

Earlier, people mainly opted for wills, but this is changing now. A number of factors are responsible for this change. "Earlier, there used to be the joint family system, where the head of the family would take care of all the matters. But with fragmentation of families into small nuclear families, uncertainties have increased.

There may be a situation where the mother lives alone in India and her sons are abroad. If she were to die suddenly, then how would the property be divided? Given the change in the outlook of people, and increase in wealth, people are now increasingly opting for trusts," adds Nerlekar.

Why the rush for trusts?
Usually, trusts work very well for people at the very high end. Says Altamount Capital Management director Richa Karpe, "It is an efficient tool for management of wealth for people who are promoters of businesses or have large family businesses."

Many legal experts are of the view that trusts save you from a host of problems that most HNIs are prone to. For instance, huge assets need protection. Asset protection is one of the key features that a trust offers.

Says Rajesh Narain Gupta, managing partner, SN Gupta & Co, "HNIs go in for trusts not only to plan their succession but also for other reasons, the main being asset protection." Trusts are a great way to ring-fence your assets.

Points out Karpe, "Your company may get into trouble or there may be huge losses in your family business but the assets that you put into the trust will remain safe. That way at least that portion of your wealth is safe."

Another major hurdle that a trust would help you overcome is litigation