Trust as a mode of succession planning

Trusts are an attractive headline for many clients: the word sounds permanent, private and — crucially — like it might avoid the time and cost of probate. After twenty-five years of advising private clients I can tell you plainly: if your sole reason for choosing a trust is to “save on probate fees”, you are looking in the wrong direction. In Maharashtra, for example, probate fees are capped (₹75,000). By contrast, transferring immovable property into a trust is a conveyance for stamp duty purposes and typically costs far more at the outset. A trust is not a shortcut; it is a carefully chosen instrument that must be matched to a clear intention.

Start with intention — everything follows from purpose

The first and non-negotiable rule when considering a trust is to be brutally honest about why you want one. Is your aim perpetual succession — keeping assets in the family for generations? Or is it short-term: estate management, ease of administration, or minimising exposure to imminent insolvency or creditor claims? Are you aiming for tax optimisation, confidentiality, or control over how and when beneficiaries receive funds?

If the objective is creditor protection or insolvency management, the design must reflect that. For creditor protection the trust must remove beneficial ownership from the settlor in a way that is legally and commercially irreproachable. That usually means an irrevocable trust with fixed entitlements: the settlor gives up control and the beneficiaries have defined, non-discretionary interests. If instead you want to keep the option to vary beneficiaries or revoke the instrument, a revocable or discretionary trust is appropriate — but those features defeat creditor protection because control stays close to the settlor and the trust can be attacked as a sham or a means to defraud creditors.

Understanding the Legal Forms of Private Trusts

In private client practice we rarely use public charitable vehicles; the relevant choices are private trusts, and within them a handful of commercially significant flavours. Inter vivos (living) trusts are settled during the settlor’s lifetime; testamentary trusts come into being on death. Revocable trusts allow the settlor to unwind the arrangement; irrevocable trusts do not. Discretionary trusts give trustees power to choose who benefits and when; non-discretionary (fixed) trusts specify beneficiaries’ shares.

Pick the type by matching features to your intention. Want the settlor to retain decision-making over who benefits? Discretionary. Want finality and separation from the settlor’s estate (for legacy preservation or creditor protection)? Irrevocable, fixed trusts are the more sensible, albeit more expensive and permanent, choice.

What “ownership” looks like after funding a trust

Many clients do not grasp the legal consequence of settling an asset. Once a settlor conveys property into a trust, the asset is no longer owned by the settlor; it belongs to the trust. The settlor may continue to enjoy the asset (for example, live in the house) if the trust deed allows—but enjoyment is use, not ownership. Disposal, sale or reinvestment of trust assets requires the trustees to act within their powers. If children as beneficiaries want to sell a flat held in the trust, their requests must be met by trustees acting in accordance with the deed and trust law; sale proceeds become trust property and must be reinvested in the trust name. You cannot “borrow” trust money back into personal accounts without breaching fiduciary duties.

This principle affects practicalities: title deeds, bank accounts, tax filings, utilities and maintenance all must be placed or operated in the trust’s name once the transfer is made. Failure to observe corporate formalities and to keep trust funds separate invites challenge and tax exposure.

Trustees: the hinge of any effective trust

Choosing trustees is as strategic as choosing the trust type. Family members make inexpensive trustees and are often trusted, but they bring emotional entanglement and potential incapacity issues. Corporate trustees provide continuity, professional administration and regulatory protections, at a cost: corporate trustees commonly take a management fee calculated as a percentage of the corpus.

Trustees must be competent, available and trusted by the settlor and beneficiaries to act impartially. Consider succession of trustees, powers to appoint and remove, indemnity and liability protection, and the mechanics of co-trustee decision-making. A badly chosen trustee will turn a well-drafted trust into a litigation risk.

Funding and statutory consequences — don’t underestimate cost and tax

Transferring assets into a trust is not a costless bookkeeping exercise. Movables and cash transfers are simple; immovable property is treated as a conveyance and attracts stamp duty under the Stamp Act, sometimes at rates and in ways comparable to outright sales. There can be capital gains consequences for the settlor, transfer costs, registration fees and professional fees for conveyancing. Probate may be avoided for assets in a living trust, but probate fees are rarely the principal economic consideration once you factor in immediate transfer taxes and administrative fees.

Tax treatment of trusts varies: in some cases trusts are taxed as separate entities, in others income may be taxable in the hands of beneficiaries or the settlor depending on the trust structure and residence rules. Tax and stamp implications are too granular to generalise — you must take local tax and stamp advice before you accept any presumed “saving”.

Creditor challenges and insolvency — why structure and timing matter

If the objective is to protect assets from creditors, two features usually doom the attempt: control retained by the settlor and transfers made when insolvency is imminent. Courts scrutinise transfers close in time to creditor actions; transactions intended to defeat creditors can be set aside as fraudulent. The safer architecture for creditor protection is an irrevocable trust where the settlor cedes control, and the trust has been funded at a time when the settlor was solvent and not anticipating litigation. Discretionary trusts are less protective because beneficiaries’ interests are contingent and control effectively rests with trustees who may be influenced by the settlor; fixed trusts with independent trustees present a stronger separation.

Always remember: separating legal title is a start, not an invincible shield. Transparent, well-documented transfers, independent trustees, and arms-length valuations strengthen a trustee’s position if challenged.

Costs and administration: the ongoing reality

Trusts cost to set up and to run. Drafting fees for a comprehensive deed, stamp and registration costs for immovable property, trustee remuneration, professional investment management, annual accounts and tax compliance add up. A trust can reduce friction at death, but it replaces one set of recurring costs (probate processes) with another (trust administration). The money saved at death is rarely more than the cumulative costs of establishing and operating a poorly conceived trust.

Common misconceptions — quick corrections

Clients often think a trust automatically guarantees confidentiality, creditor immunity and tax advantage. None of those follow automatically. Confidentiality depends on what records are required by tax or regulatory authorities. Creditor immunity depends on loss of control and the timing of transfers. Tax advantage depends on specific rules and anti-avoidance provisions. Always test each claim against the clear legal and fiscal position.

Finally

A trust is a powerful legal tool, but it is not a panacea. Its effectiveness depends on matching form to purpose, honest and early funding, competent trustees, and a careful appreciation of tax and stamp costs. If you are driven only by a desire to avoid probate fees, you are almost certainly making a false choice. If, however, you want controlled, durable succession, protection for vulnerable beneficiaries, or a vehicle to manage family wealth across generations, a correctly structured trust — drafted by experienced counsel and administered professionally — will often repay its cost many times over.