MAKING A TRUST
· The biggest handicap of a Will is that your estate will devolve only after your death.
· If you want to give away assets while you are still alive, there are two ways of doing this: making a trust, and gifting away the assets.
· A trust is made for another person, usually a child, elderly person or a special needs relative.
· Here, your assets are to be utilized for the benefit of the other person, but you retain control over how they are to be used as a trustee.
· You could appoint other trustees too, so that even if you die, the functioning of the trust can be carried on smoothly.
· A trust cannot be challenged after you die as it becomes operational during your lifetime itself.
· This ensures financial security for your heirs as well as hassle-free transfer of your property.
· A trust also allows you to list a specific investment mandate for the beneficiaries, which cannot be done through a will.
· If you face a financial loss later in life, it will not impact the stability of the trust, as the assets that become trust property are protected from financial losses that a family faces.
· This is why most HNIs opt for trusts, which other estate planning instruments don’t provide.
· When there is a divorce, the estranged spouse cannot claim assets that have been put in a trust.
· So, it becomes an efficient tool for wealth management as well as asset protection.
· A feature unique to trusts is that they can be used to secure the financial future of unborn persons, as it does not infringe upon the rule of perpetuity.
· The rule of perpetuity means that a property cannot remain in abeyance forever.
· In a trust, this can be done without provoking any legal problems.
· While you can keep changing your Will several times, you cannot pull out an asset once you hand it over to a trust, unless it is a revocable one.
· So, you need to ensure that you put only those assets in the trust that you won’t require during your lifetime.
· Whether the assets can be pulled out or not depends on how the trust has been set up.
· Making a trust is more costly than writing a Will as it is a complex legal structure and requires professional help.
· However, the biggest problem is to find reliable trustees, as you can never be sure when temptation leads a trustee to cheat money from the beneficiaries.
· One way to prevent this is to have at least 3 trustees who are not related to each other.
· An even better choice is an institutional trustee—a bank or a firm that specialises in trusteeship servicesi, as it is unlikely to be biased or tempted to commit fraud or cheat the beneficiaries as it has many safeguards to check such activities.