Some Large HNI Investors create a irrevocable discretionary trust where the Husband and Wife are the Trustee and Children the Beneficiaries. The purpose of the trust is to grow the wealth by way of investments across instruments and also towards welfare of the beneficiaries. You ensure that (1) in case of any legal claim on Husband / Wife in personal capacity the assets in the name of the trust cannot be attached (2) just in case the erstwhile estate tax (inheritance tax) comes back this would provide some benefit
The Trustee cannot be a beneficiary. The period of the trust is to be specified. Trust is to be registered at the sub registrar office.
The property, shares or investments continue to remain in the name of the trust - not in the name of beneficiaries. However, you can set up a regular payout to beneficiaries or one off since the trust is a discretionary one. As and when the trust is closed down, the assets held will be distributed to beneficiaries detailed in the trust agreement. In fact from taxation point of view
Cash Infusion - Once funds (cash/shares/property) moves into Trust - it is owned by the Trust and the trustee has no relationship excepting being a guardian of the assets.
Trustee cannot utilize any proceeds from the Trust except a reasonable compensation by way of being the Trustee. The payouts to various beneficiaries is at discretion as the name suggests - it is a discretionary trust.
Taxation - No clubbing. Trust is an independent entity with its own PAN and hence handles any taxation on its own. Once the beneficiaries receive any thing from the trust, the resulting taxation would be borne by the individual beneficiaries as applicable.
Disadvantages Trust would be less effective as long term capital gains from share sales cannot be used for purchase of property - the section is unavailable as and when you file tax for the trust. This is a grey area and once needs to take the legal route.
