Demystifying wills and trusts: A guide to secure wealth transfer

A key distinction between the two is that while a will comes into effect only on the demise of the person, with no recourse to seek clarity, a private family trust can be set up during the lifetime of the person, ensuring that members of the family are familiarised with and accustomed to the process. Let’s delve deeper into certain key features of wills and trusts.

The role of wills in estate planning

A will is a legal document that specifies how a person’s assets will be distributed after their death. It lets them appoint an executor who acts as interim administrator who collects their assets, pays their debts, and distributes their property to the beneficiaries. A person can also designate a guardian in their will for minor children, or for other things such as last rites.

Importance of writing a will

Without a will, the estate of a person is governed by the intestate succession laws, which may lead to conflicts and assets going to unintended family members. A will addresses such challenges and allows one to bequeath their assets to anyone that they desire, such as a friend or a charitable organisation.

Understanding private family trusts

A private family trust is a legal arrangement in which assets are held by a trustee for the benefit of designated beneficiaries. Family trusts are designed to protect and manage family wealth and facilitate its seamless transfer across generations.

Benefits of private family trusts

• Asset protection: Can safeguard assets from creditor claims and lawsuits.
• Special needs: Simplifies the planning of lifelong care for dependents with special needs.
• Milestone distribution: A private family trust can provide for the distribution of assets on the achievement of certain milestones such as graduation or marriage.
• Avoiding probate: Bypasses lengthy legal processes after death. Probate is the legal process of deciding if a person’s will has been made correctly and if the information it contains is correct.

Types of trusts

Private family trusts are broadly of the following two types:

• Revocable trust: As the name suggests, a revocable trust is one that can be revoked anytime at the discretion of the person settling/forming it. It provides complete flexibility to the owner of the assets. Upon the death of the settler, the trust becomes irrevocable and assets are either held in the trust or distributed in adherence with the trust deed.
• Irrevocable trust: In such a trust, once the assets are settled, they cannot be revoked by the owner of the assets. It helps to ring-fence assets and is tax efficient if inheritance tax and estate duty applies to the receipt.

Wills versus trusts

Whether you should choose a will or a private family trust depends on your needs. A will may be suitable for simple estates with straightforward asset distribution needs while a private family trust is ideal for managing substantial wealth, avoiding probate, and ensuring privacy.

However, they complement each other and are usually used together. You can, for example, transfer certain assets during your lifetime through a trust, and others after your death through a will.

Other legal tools for estate planning

Estate planning extends beyond wills and private family trusts, incorporating additional legal frameworks for comprehensive security:

• Power of attorney: Grants a designated person authority to make financial or legal decisions if you are incapacitated.
• Beneficiary designations: Directs assets like insurance policies or retirement accounts to chosen individuals.
• Gift deed: Allows you to promptly transfer an asset to a recipient.

Importance of regular reviews and updates

Life events—such as marriage, divorce, the birth of children, or significant financial changes—necessitate periodic reviews of an estate plan. Updating documents ensures that they align with evolving personal circumstances and legal frameworks.

Professional guidance in estate planning

Given the complexity of estate planning, seeking advice from legal and financial professionals is crucial. Estate attorneys, financial advisors and tax planners can help create plans that are legally sound and tailored to individual goals.

Estate planning is not just about managing wealth—it’s also an emotional process, reflecting one’s desire to care for family and uphold values across generations.

Conclusion

Comprehensive estate planning secures wealth, minimises legal hurdles, and ensures that one’s legacy endures. Wills and trusts, combined with other legal tools, can help create a robust plan for transferring assets while protecting loved ones. It’s important to harness the expertise of professionals and conduct regular updates.

Family office investment advisors such as Entrust offer specialised guidance to create personalised estate plans, ensuring seamless wealth transfer and helping families achieve peace of mind. By taking proactive steps, individuals can preserve their wealth, ensure that their wishes are honored and leave behind a lasting legacy.

Rajmohan Krishnan is the principal founder & managing director at Entrust.