Erstwhile, “Estate duty tax” popularly known as “Inheritance tax” was levied at the time of inheriting assets as per the provisions of Estate Duty Act, 1953. During the estate duty regime, the tax was payable by legal heirs, at a progressive slab rate, which was as high as 85% on estate exceeding a prescribed threshold. This statute was later abolished in 1985.
Considering other nations such as USA, France, Germany, Japan and UK are already imposing tax on inheritance, going forward, if at all, India re-introduces estate duty tax, a private family trusts is likely to remain outside its ambit.
Given the on and off speculation around the comeback of estate duty tax, apart from harmonizing family discords, a need for a robust succession plan in order to ring fence family and business assets has become of paramount importance for large Indian families.
Traditionally, a Will remains as one of common modes for transferring the assets through generations. However, a need for probate, possibility of family members disputing the Will and overall fragmentation of family wealth has compelled large families to evaluate setting up a private family Trust for the beneficiaries. A family trust not only enables the Settlor to settle the assets during his lifetime thereby maintaining a control over how assets are managed / distributed but also protects family assets for the current and future generations.
By understanding the overarching objective along with the family structure, its ethos, nature & geographical location of assets, residential status of the beneficiaries, income-tax and stamp duty implications, etc., a water tight succession plan can help with a smooth transition of power, wealth, and business control within a family.