Succession planning is thus not a one-time event but rather a continuous and an evolving process. It is an art and not a science. There is no playbook to be followed by families while making their succession plans. Family values, business objectives, vision and mission play a vital role in determining the succession plan.
There are various instruments/tools which are used by the families for developing the overall framework of this plan e.g. Trust, Will, Family Charter, etc.
Succession planning through fiduciary structures, i.e. trust structures, has gained importance in the recent times due to the varying degrees of advantages offered by it.
The concept of a trust has been prevalent in India since the 20th century. Trust structures were primarily set up as a tool to plan estate duty / inheritance tax, leviable on the estate of the deceased individual (the rate was as high as 85%). The subsequent abolishment of estate duty / inheritance tax in the year 1985 resulted in trust structures falling out of favor. However, there has been a gradual shift in the landscape wherein the wealthy Indian families have again started preferring more formal, sophisticated trust arrangements to achieve their succession goals especially amidst talks of probable re-introduction of the erstwhile estate duty in some form.
A Trust as per the Indian Trust Act, 1882 is “an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him for the benefit of another, or of another and the owner.”
In layman terms, a Trust is a fiscally transparent entity where property of the Trust is vested /placed by the settlor / author of the trust under the control of a person or persons (Trustee) for the benefit of specified individuals or organizations (Beneficiary).
Key benefits offered by the Trust structures include giving the succeeding generation the benefits of family wealth without sacrificing control over key assets, catering to the specific demands of the family such as providing for their recurring lifestyle and maintenance expenses, a better legal framework, charity / philanthropy desires of the families etc.
Additionally, in view of the ongoing pandemic situation caused by Covid-19, High Net Worth Individuals (HNIs) have realized the importance of making a Will to ensure hassle free succession in these uncertain and unprecedented times. Will writing is the legal intention of an individual (Testator) with respect to their properties which they wish to bequeath or devolve, after their lifetime.
The integrities amongst Trust and Wills can be explained with the following comparison: