Will or private family trust: choosing the right instrument in India

Ask ten advisers whether you need a trust and you will get ten answers, most of them shaped by what they are selling. Here is the version we give clients across the table.

Start with what each one is

A Will is a declaration of what should happen to your property after you die. Until that moment it does nothing at all. You can change it any number of times, it costs very little, and registration is optional (though we recommend it).

A private family trust is a transfer that happens now. You (the settlor) move assets to trustees, who hold them for named beneficiaries under a trust deed. It is governed by the Indian Trusts Act, 1882, and it begins working the day it is executed.

The five questions that actually decide it

1. Does anything need to work while you are alive but incapacitated?

This is the strongest argument for a trust and the one most families never consider. A Will is useless during a stroke, dementia or a long coma. A trust with a functioning trustee keeps school fees paid, EMIs serviced and a business running.

2. Will your heirs need probate?

In the jurisdictions of the Bombay, Calcutta and Madras High Courts, probate of a Will is mandatory for immovable property (and for Wills made by Hindus, Buddhists, Jains and Sikhs relating to property there). Probate means court, months, and court fees calculated on the value of the estate.

Assets already inside a trust do not form part of the estate, so there is nothing to probate. For a family with a large Mumbai or Chennai property, this alone can justify the cost.

3. Is there a beneficiary who cannot manage money?

A minor child, a dependant with a disability, an heir with an addiction, or a spouse who has never handled investments. A Will hands them a lump sum on a date. A trust lets you write the instructions: monthly distributions, education first, a corpus that vests at 30, a trustee who exercises discretion.

For families with a special-needs child, we consider a trust close to essential. A Will gives them money; a trust gives them a system that outlives you.

4. Do you own a business, or shares your family must not sell?

A trust can hold promoter shareholding, keep voting rights consolidated, and prevent a fragmentation of the cap table across ten cousins in one generation. It is also the standard structure for a family constitution to hang from.

5. Do you want the arrangement to stay private?

A probated Will becomes a public court record. A trust deed does not.

The honest case against a trust

• Cost. Drafting, stamp duty on the transfer of assets (which varies materially by state), registration where immovable property is involved, and ongoing trustee and compliance costs.
• Tax. Trust taxation in India is its own subject. A specific (determinate) trust is generally taxed in the beneficiaries' hands or at the rate applicable to them; a discretionary trust can be taxed at the maximum marginal rate. This must be modelled before you settle anything, not after.
• Irrevocability trade-off. A revocable trust is flexible but offers weaker protection and is usually taxed in the settlor's hands. An irrevocable trust protects better but you cannot casually change your mind.
• You still need a Will. A trust covers only what you put inside it. Everything else — a car, jewellery, a new bank account, an inheritance you receive later — needs a Will to catch it. The two work together.

What most families should actually do

A word on sequence

Do not start with the structure. Start with an asset register — every account, folio, property, policy, locker and digital asset in one place — and a clear statement of who you want to receive what, and when. Nine times out of ten, the right instrument becomes obvious once that page exists.

General information only. Trust taxation and stamp duty vary by state and by structure — get specific advice before you settle assets.