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TaxTMI 
Preventive Succession Planning: The Role of Trusts in Avoiding Intra-Family Conflict
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....reventive Succession Planning: The Role of Trusts in Avoiding Intra-Family Conflict<br>By: - Vidhi Chetnani<br>Investments - Wealth<br>Dated:- 16-7-2025<br>Introduction: Redefining the Purpose of Trusts Trusts have been known in Indian law since time immemorial, but little is understood about their usefulness. Conventionally linked with tax evasion or philanthropy, they have a reputation for being the weapon reservoir of the mega-rich. This myth has worked against the possibilities of trusts becoming dynamic mechanisms of preventing conflicts, particularly in family systems. As the Indian economy has grown, and individual wealth is becoming even more diversified and connected across the world, we have an urgent demand to redesign our attit....
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....ude about governing our wealth. It is a case that this article will be making, rethinking the concept of the family and reconstituting the idea of the family regarding how to prevent the tensions of family feuds, as well as how to preserve family and wider intergenerational wealth, and how to institutionalise peace within the family. It encourages law practitioners, especially those dealing with privately retained clients, to move into proactive structuring as opposed to reactive litigation. The Disintegration of Traditional Family Structures Traditionally, the Indian family systems have been run through a joint family model wherein the patriarchal authority, the joint community living, and sharing of resources ensured that the familial b....
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....onding as well as conflicts did not tip either way. But individualism, mobility of people, intercultural marriages, a nd the evolution of the family-owned businesses into the corporate ones have destroyed the joint family structure. In the present day, succession planning is no longer associated with inheritance only- it is the issue of legacy, control, and trust. The nuclear and dispersed typical Indian family must contend these days with a much more complex family of emotional, legal, and financial tensions. In that context, lack of a formal succession plan is not an oversight anymore, it is anliabilityy Indicative of this is the size of intra-family disputes in the Indian courtrooms. Civil courts have been flooded with partition suits, ....
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....contested wills, and sibling boardroom battles. More frequently, these conflicts are not caused by greed, but by ignorance. In the event that there were no clear guidelines of succession or control over any type of asset jointly owned by two or more heirs, the latter became a curse to harmony. Though the Indian legal system is so strong, it was never created so as to effectively adjudicate such personal and emotionally involving disputes. It follows that lawyers and other advisors need to encourage clients to accept conflict-avoidance instruments such as trusts, instead of trying to resolve the issues when it is too late. The Legal Framework: A Canvas of Flexibility Private trusts are regulated by the Indian Trusts Act, 1882, which lays a....
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.... bare but flexible skeleton due to which the settlor has broad latitude. A trust is stated as a legal responsibility that is imposed on the trustee to possess property on behalf of the beneficiary. Notably, this framework does not specify a certain model of trust and instead gives practitioners an opportunity to tailor-make structures that best fit the needs of the family. The trust deed regulates relations between the settlor, the trustee, and the beneficiaries, which may cover various aspects, including the lines of succession, payouts, educational and medical costs, voting, business handover, or means of asset sell-off. Trusts can either be revocable or irrevocable, designated or discretionary. Such a broad list of options can provide t....
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....he retention of control and separation of ownership. An example would be the use of discretionary trust, where the trustee selects the beneficiaries to whom income and assets may be distributed, as well as when this occurs. Such a trust would enable change according to the development of the family. Trusts can take the form of a sunset clause or long-term family governance objectives (such as perpetual) and give them legal expression. Its flexibility is the best thing about this legal instrument, and the most unused strength. Trusts as a Tool for Succession Planning and Intergenerational Harmony Indian families tend to fail in succeeding. The most commonly used means of disposal of property is a will, which is, in most cases, deficient. T....
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....hey do not work until after a person dies, cannot work without going through the probate (particularly in metros like Mumbai and Chennai), and are usually challenged based on undue influence provided, or seen to be not of sound mind, and most importantly, they do not even include a governance structure. A trust, on the contrary, starts functioning after its execution and transfer of assets. It facilitates the orderly transfer of property or resources over time: some may be given away while still alive; others after death, which helps trim down upsets and disappointments. To families having children of different marriages, differently-abled heirs, unmarried daughters, inter-faith members, a well-designed trust will provide equal treatment a....
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....nd a sense of dignity without the personal goodwill of those who will succeed to an estate. Rather than leave rights, obligations, and contingency plans to passion or court decision, the settlor is capable of determining in advance entitlements, obligations, and contingency plans. The trust structure can also be beneficial to a business family in that it allows reservation of voting shares and nominations to the board, which can then be held in the trust without allowing representation to dormant family members. It strikes between inclusion and meritocracy and ensures continuity of operations. Neutral Governance: Preventing Accusations of Bias Conflicts within the family in India do not, in many cases, arise because of unequal distributio....
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....ns, but because within the family, more favours are given to some members than others. Removal of emotional subjectivity that shades in succession decisions in a trust is done through the appointment of independent professional trustees or protector committees. Legal practitioners have the option of informing the clients to incorporate reputed accountants, lawyers, or family business advisors on the board of the trust to make sure that the decision-making process is objective-driven. This group can be asked to have some supervision on investments, transferring of assets, or even educational and medical support to beneficiaries. As an example, a trust can provide that the grandchildren can only get trust distributions to pursue higher educa....
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....tion in an overseas university when they get into a top 100 university. These are rules of thumb, non-discriminatory stipulations, so they help in clarity and ensure there is no room for speculative eligibility. Trust protectors in high-value families can be given the authority to oust or change trustees when they breach their duties so that, in effect, checks and balances are created, as is the case with a corporate board. Business Continuity and Control of Family Enterprises In India, family businesses comprise a large part of the private wealth. When these businesses grow or professionalise, they are many times confronted by the question of ownership and management. Aptitude or interest in managing the business may not be there in the ....
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....second-generation family members, but they might hold a large share. The in-laws or third-generation people make the situation further complicated. It is possible to benefit from a trust structure to separate beneficial ownership and merge the legal ownership into a single title-holding entity, the trust. By elective rules incorporated in the trust deed, the settlor can make sure that power is kept within the hands of competent, active family members. The model especially comes in handy in terms of retaining the founders vision even after retirement or death. Business profits are allowable to be shared by all members of the family, whereas decision-making can be dominated by one. Also, the trust deed may include dispute resolution processe....
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....s, non-compete clauses, or even buy-back opportunities at the mutually agreed-upon valuation, and this will help to avoid court fights. Big family-owned companies such as Murugappa and Godrej Groups have used a trust structure to help them stay in control, succession, and harmony. Trusts as a Safety Net for the Vulnerable In every family, one can find the weak component- the minor children in the family, the unmarried daughters, the widow, and the disabled ones. Indian courts have shown such disregard or disinheriting of uch people on many occasions. A trust enables the settlor to cloister assets that belong to such members without the latter economically taxing others. There are exclusive sub-trusts that can be set up on behalf of certai....
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....n beneficiaries in case they have incomes of their own, emergency funding, or a provider until the end of their lives. The settlor can define disbursement milestones, i.e., an age-based disbursement, a marriage gift, or health reimbursement. This will not only make the vulnerable safe but also be less stressful on the finances and emotional well-being of other members of the family. Notably, these also protect the beneficiaries in such arrangements against manipulation or exploitation in situations where there is a lack of mental capacity. Cross-Border Planning: Navigating the Global Family Due to the internationalization of families, it is imperative that cross-jurisdictional planning takes place. There is an increasing number of Indian....
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.... families either with children or investments overseas. The result can be that in such situations, probate can be a process that is both cumbersome and multi-jurisdictional, especially in the case of the UK, U,S or the UAE. Trusts avoid ths, in that they eliminate court-driven succession. Foreign assets may be owned in a domestic trust, as long as they comply with FEMA and are reported according to RBI norms. Instead, an offshore trust (in Singapore, Jersey, or the Cayman Islands) can be employed together with a domestic one in a master-feeder approach. These types of hybrid models enable them to provide asset protection, tax neutrality, and flexibility in distributions. However, such families have to be advised so that they do not land in....
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....to trouble under the black money Act or the Benami Act. Legal and tax advisors and a professional trustee should make disclosure and documentation water-tight. Judicial Precedent and Tax Treatment The ability of the Indian judiciary to support the legitimacy of a privately held trust has always been upheld. Commissioner of Wealth Tax, Rajkot Versus Estate of Late HMM Vikramsinhji of Gondal - 2014 (5) TMI 286 - Supreme Court, the Apex Court upheld the principle of non-vested beneficial interest by holding that the income of a discretionary trust was not taxable in the hands of the beneficiary in the absence of the distribution of such income. Subhadra Rani Pal Choudhary Versus Sheirly Weigal Nain & Ors. - 2005 (4) TMI 657 - Supre....
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....me Court, the Court decided that the choice of a testator to establish conditional advantages in a trust is not legally invalid and is neither discriminatory. Taxation-wise, how a trust will be treated depends on the nature of the trust. A specific trust has to pay tax in the hands, and the discretionary trust will have to pay tax at the highest marginal rate in the hands of the trustee. But there are also carve-outs-particularly to trusts established to benefit minors, or the disabled, under not only section 80DD but certain religious and charitable trusts. The structure of trust must be drafted with these differences in view, and a legal counsellor has to advise in line with family needs rather than purely financial expediency. Integrat....
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....ing Family Constitutions and Advisory Protocols The new pattern in governance is the upcoming of the family constitutions- they consist of non-binding charters that establish family ideals, tasks, conflict resolution procedures, as well as succession desire. Although these are not legal in themselves, they may be discussed in the context of trust deeds to add context to it. A binding trust deed and a guiding family constitution provoke the alignment of both relationship and legal reinforcement. As an example, a family constitution can place a requirement that every adult member of the family should first attend a training programme prior to taking up management issues. The trust deed may then provide that the disbursement of the managemen....
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....t-linked income is to be subject to such compliance. These two structures, legal and aspirational, combine predictability and common values of family governance and minimize the risk of misunderstanding or anger. Conclusion: Preventive Law as a Pathway to Harmony No time in the history of Indian society has there been a more pressing requirement than legal foresight as India dithers on becoming a society of joint responsibility instead of being a society of joint families. Trusts have the beauty of being secret, binding, and solve in a nice way the ugly issues of family relations, worries of what will be inherited, and confusion on the subject of succession. The devise is an instrument of peace that attorneys should not only promote as a ....
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....method of tax or estate planning; lawyers need to promote the devise as a conflict resolution device that detects conflict in advance and defuses it with clarity, control, and empathy. In law firms, particularly the firms undertaking trust, dispute resolution, or tax practice, trust advisory is a progressive opportunity. Through directing families toward structure, foresight and institutionalisation, the legal profession recovers its loftiest goal, not victory, but preventing the battle.<br> Scholarly articles for knowledge sharing by authors, experts, professionals ....