High net worth individuals of India not comfortable with traditional methods of estate planning

By Vipin Agnihotri

Image courtesy of the Hindu Business Line

High profile slug-fests such as the Birla-Lodha spat regarding inter-generational wealth transfers in big business families and those of high net worth individuals (HNWIs) have exposed the inadequacies of the traditional methods of estate planning. Taking this into account, I'm not surprised that the number of financial services providers are now stepping in to remedy this.

In my opinion, plenty of high net worth individuals of India are no longer comfortable leaving estate planning issues only to professionals such as lawyers and chartered accountants. As a matter of fact, they are now seeking the security of institutional backing for the entire routines.

DSP Merrill Lynch Trust Services, a subsidiary of the investment bank, was among the first wealth managers to offer trusteeship services this year. If experts are to be believed, it has around 2,000 families as customers for wealth management in India. Indications are that DSP Merrill Lynch Trust Services hopes to convert few of them to customers of its trust services as well.

Point to be noted here is that DSP Merrill Lynch helps to form trusts for proprietary wealth that is managed by it, while others, such as IL&FS, oversee assets managed by third parties. IL&FS offer trusteeship for around Rs 100 crore belonging to over 20 High Net Worth Individuals. According to sources, SQ Private Banking and a few other foreign banks are also planning to offer such services.

The main attraction is the flexibility that trusts give as compared to wills. The pivotal factor here is that once a trust is formed, the trustee in these cases, the financial services firm becomes responsible for overseeing the management of the trust assets in accordance with the wishes of the settlor, the original owner of wealth. In my opinion, the main benefit it offers is that the trust settlor can put the structure in place in his/her lifetime and, therefore, avoid disputes and litigations later.

It is quite important that one must understand the differences between a Will and a Trust. In general, a last Will and a Testament is implemented on death of testator. On the other hand, probate is basically a lengthy and often expensive routine that results in public disclosure of wealth, required prior to distribution. Furthermore, assets are subjected to legitimate claims against testators estate. Remember that it may be amended and superseded at any time during the testators lifetime.

Talking about Trusts, it is implemented during the lifetime of the settlor. Apart from that, assets do not form part of the settlors estate. More importantly, management of assets and timing of distribution to beneficiaries can be arranged on the basis of settlors preferences.

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