Plan Special Needs

Which asset/s should be transferred to the trust and how?

The transfer of the assets to the trust can be planned. Ideally there no cost associated when movable assets are transferred to the trust during settlor lifetime. But it’s the immovable assets where cost is incurred if transferred during the lifetime. Hence the transfer of the assets to the trust has to be planned with 2 Specifics:

Is there any cost incurred when assets are transferred to the trust?

In general, the transfer costs are incurred when immovable assets like resdiential house, plots are transferred to the trust in owners lifetime. But the cost is quite less when the same assets are inherited by the trust through Will. Contrary to this transfer of movable assets like bank accounts, investments in mutual funds etc do not have cost associated.

What is the tax liability on trust if assets are transferred by the settlor/family relatives?

A private family trust is treated an Association of Persons under income tax provisions. Hence any assets transferred/gifted by blood relatives including Parents, grandparents, siblings, etc. is tax exempted within the definition provided under income tax.

What happens to the assets of the trust at the end of the beneficiary life?

This provision has to be incorporated by the settlor in the trust deed. The assets then get channelized by the trustees as per the trust deed provisions. The tax liability and legal considerations have to be discussed with legal experts while creating any provision for assets distribution post beneficiary lifetime.

Are there any legal restrictions on investments of funds by the trust?

Since its a private family trust there are no legal constraints on investment of trust corpus. However, the settlor/s if they wish to, can create provisions of investing the trust funds in a specified manner and in specified instruments.

When it is advisable to move real estate to the trust?

If it’s an irrevocable trust then the existing ownership of the property will be transferred to the trust. This means you lose control of the asset once it is owned by the trust. The transfer cost in the form of stamp duty during your lifetime is also an important consideration. Thus, Parents has to take different factors into consideration to decide when the asset should be transferred to trust.

Do you need to register the trust?

If the trust includes only movable asset like cash, investments in mutual funds, bank deposits, etc then registration is not mandatory. A notarized trust deed is valid. However, now or whenever an immovable asset gets transferred to the trust then registration will be mandatory. But we recommend registering the trust deed even if it involves movable assets.