In my previous write-up writing a Will, I mentioned that this should be one of the most important activity on the to-do list for all but is unfortunately neglected by a lot of people. Hope you have read the article, and if not, I encourage you to read it. This write-up in on Trusts.
What is a Trust?
The Indian Trusts Act, 1882 defines Trust as being a legal obligation annexed to the ownership of property and arising out of a confidence reposed in the trustee by the settlor, for the benefit of the beneficiaries as identified by the settlor including / excluding the settlor himself.
Following are the three parties in a Trust:
Trustmaker: The person who creates the trust agreement, also commonly referred to as the Grantor, Trustor or Settlor.
Trustee: The person or entity responsible for managing the property that the Trustmaker decides to title in the name of the trust.
Beneficiary: The person or entity who is to receive the benefits of the property that is titled in the name of the trust.
For setting up a Trust, you would need to know why it is being set up, since there can be different types of trusts depending on the objective. Before you set up a trust, you should do research and obtain proper legal advice to ensure that the trust is proper and legal, and carries out your intentions. Else, the whole purpose will be defeated.
What is the difference between a Will and a Trust?
Wills and Trusts are often used inter changeably. However, there are certain key differences between them
A Will only goes into effect after death, while a Revocable Living Trust goes into effect as soon as it is signed.
A Will only governs the disposition of property owned in the Testator’s name, while a Revocable Living Trust only governs the disposition of property transferred into it.
In case of a Will, the property is passed through probate, while the Revocable Living Trust avoids probate.
What is the law regarding inheritance of property?
Property can be inherited in various ways: natural succession, a Will or a Trust. Indian law defines the process in which a property can be inherited. Care should be taken to follow the process, more so if there can be multiple claimants as heirs for the property to ensure a smooth transition. After you inherit a property, you should first obtain the testator’s Will, if prepared, by filing an application with the district registrar. If the person has died intestate (which means without preparing the Will), then the appropriate Hindu, Muslim or Indian Succession Act, 1925 will come into effect.
Check that the property documents have a clear title in place and if property is let out, rental agreement is in place. Then, you need to apply for mutation in the local municipal department, enclosing relevant documents and for cases where there is no Will, producing a No Objection Certificate from other eligible/natural heirs.
After the mutation is done, then you need to decide what you want to do with the property. If you want to retain it, then transfer the ownership of all the utilities into your name. If you want to rent it out, then the rental agreement should have your name as the new owner. If you want to sell the property, then transfer the property into new owner’s name and you need to ensure that you make the payment of the applicable capital gains tax liability.
So, as it can be seen from the above, not having a Will can become a cumbersome exercise for your loved ones. They would not only be dealing with the emotional loss but will also be put through such hassles.
So what should you do?
Prepare your Will or the Trust at the earliest, completely by yourself or by consulting your advocate. Do not keep postponing the preparation. Remember that you can always edit it in the future. Do review periodically, especially if there has been a change in the composition of your family or circumstances and you can then make changes, as warranted.
Please do note that this topic is not my expertise and is based only on my interest and reading of various articles on this topic and my interaction with people. You are advised to talk to an expert and get your Will’s and/or Trust’s completeness validated.