Sunday, May 13, 2012


Rich Indian's new faith: Succession planning via trusts


Nobody likes thinking or talking about death except lawyers and undertakers. Indians are no different. As a result, a majority of Indians depart for better worlds, without leaving behind a will. Surprisingly, a significant number of India's ultra rich, more than 60,000 households on last count, do not pen wills. In some cases, even nominations are incomplete, say wealth managers who ET on Sunday spoke to. Given their piles of riches spread across several asset classes and opaque succession laws in India, it's hardly surprising that their descendants end up waging long-drawn, acrimonious legal battles.

The lackadaisical attitude to estate planning can be in part attributed to the fact that Indians, unlike their counterparts in developed economies such as the US, the UK and Australia, do not have to worry about estate or inheritance tax, at least for the moment. So the compulsion to arrange ones estate in a tax-efficient manner does not really exist.

But some of this attitude has changed in the past two years or so, largely driven by the advent of professional wealth managers. The well-heeled, especially the newly rich, have become savvier about preparing for the inevitable. And their favourite instruments of choice for bequeathing their riches: trusts and family offices.

New Money, New Managers

Industry watchers ET on Sunday spoke to contend that growing interest in trust funds can be attributed to two main factors. One, the changing mindset of individuals, especially wealthy professionals and first-gen entrepreneurs, in the 45-60-year age group, towards succession planning. Two, the rise of the professional wealth managers and corporate trustees.

Today, a bunch of domestic and foreign private banks offer wealth management services. Some of these wealth managers have played activist roles pushing their clients to plan beyond their lives. What has also helped is the coming of corporate trustees (which help manage client's property held in a trust) like Warmond Trustees and Executors and Kotak Mahindra Trusteeship Services.

The coming of the corporate trustees has also meant that India's wealthy can access professional and institutional service in succession planning, without worrying about the fate of their trust if an individual trustee were to predecease them.

Will or Trust

Pause before you reach out to a corporate trustee. Not everyone needs to set up a trust. Often, a simple will is sufficient. "But there can be no 'either-or' debate over a trust and a will. A will is an absolute necessity," says Sandeep Nerlekar, MD and CEO, Warmond Trustees and Executors, a firm that provides corporate trustee services. "Establishing a trust is a means to an end. As private wealth managers, we come across investors keen to set up a family office or a trust. The first thing we would do in that instance however is complete a financial plan for the investor which would provide us with an understanding of the investment objectives and underlying risk appetite," says Rohit Bhuta, CEO, Religare Macquarie Private Wealth.

A trust makes sense only after an individual has accumulated enough wealth to justify the cost and bother of creating a trust, say investible surplus of at least Rs 5-15 crore. But that is not to say, trusts are meant only for the ultra rich. There are any number of reasons why people create a trusts. For instance, parents with a child with special needs should create one to provide for the child's care should something happen to them.

Untimely and accidental deaths are also reasons for professionals creating trusts. Rising divorce rates, and the ensuing battles over property and providing for the offspring's future, is yet another reason. Trusts have been used to prevent wealth from moving out from families to new members, who may claim their share through marriage alliances. Businessmen have been known to ring-fence personal wealth with trusts, budgeting for the eventuality of a business failure.
source:ET

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