Estate planning requires careful consideration, but it isn't complete until you take action. When it comes to leaving a legacy, you need to know whether to choose a trust or a will
Estate planning is a crucial step in ensuring your legacy. However, many people delay this important task. While most are familiar with Wills, they often postpone writing one for various reasons. Both Wills and Trusts serve the same purpose: to pass on your assets to the beneficiaries you choose. The key difference between the two lies in how they are created and executed.
According to the Indian Succession Act, 1925, Section 2(h), “The legal declaration of the intention of a testator with respect to his property which he desires to be carried into effect after his death”.
It is a simple but crucial document where the testator (writer of the Will) mentions all assets the person holds and to whom these are to be bequeathed. Writing a Will is simple as it can be written on plain paper in the presence of two witnesses and signed by both of them as well as the testator in their presence. However, while drafting a Will, one should be careful and include all the necessary details and follow the formalities to render it valid. It is important to prevent the Will from being challenged in the court after the testator’s death.
A Will can be questioned in court for its validity if it's not probate. Here comes the point of probate.
According to the Indian Succession Act, 1925, Section 2, Probate is "The copy of a Will certified under the seal of a court of competent jurisdiction with a grant of administration of the estate of the testator".
Probate is a court-supervised proceeding for a Will, which is done to validate that the Will is proper and valid. It is a time-consuming process due to the necessary requirement of court intervention.
Once the competent court passes a decree, no one can challenge the Will again.
A trust is a legal arrangement. As per the Indian Trusts Act, 1882, “A ‘trust’ 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”.
Anyone who is legally competent to enter into a contract can create a trust. A trust can also be established on behalf of a minor if permitted by the principal civil court within the jurisdiction. There are three parties involved in a trust: the settlor (who creates the trust), the trustees (who manage the assets), and the beneficiaries (who benefit from the trust).
When it comes to estate planning, individuals have two main options to consider: writing a Will or creating a Trust. Ultimately, the choice depends on personal requirements, as experts indicate that there is no one-size-fits-all solution.
Cost is a significant factor. Creating a Trust typically ranges from Rs 10,000 to Rs 50,000 or more, depending on legal fees and the complexity of the case. In contrast, a Will is generally less expensive, starting around Rs 5,000, and can be even cheaper if it is not registered.
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Another important consideration is the personal liabilities of the deceased. A Will does not protect beneficiaries if there are any outstanding debts or other personal liabilities attached to the deceased's name. On the other hand, Trusts can safeguard beneficiaries’ rights and ensure that assets are used for beneficiaries as intended.
While, one can amend the Will as many times as one wants during a lifetime, Trust deeds can also be amended as many times but under the scope specified in the trust deed. Additionally, Wills require a probate process, which is not necessary for Trusts, a significant advantage for those choosing a Trust.
So, it is essential to consider factors like control preferences and the complexity of managing assets when deciding between a Will and a Trust. For instance, if you simply possess assets, such as a house, a car, jewellery, fixed deposits, and savings, drafting a Will might be the simpler choice. Conversely, if your estate includes a business, multiple properties, diverse investments, and additional assets, a Trust may be better suited to address the complexities and protect your assets from any potential liabilities.