Why Indian Business Families Are Setting Up Private Trusts

Prominent business families that run empires such as the Reliance Industries Group and the Shriram Group have been in the news recently for their plans to set up trusts to ensure smooth transition of assets and control of the business to their heirs.

This is primarily to avoid the messy legal battles and litigation seen among business groups in the past.

Succession planning for a large or small family business entails transition of the management, the ownership and control of the business to the next generation of leaders, most often from within the family.

Over the years, this process has changed from writing a will to setting up a management trust to manage the assets of the business and to ensure systematic decision-making and execution, helping the business become a wealth creator even after the demise of its founders.

A trust is a fiduciary relationship in which one party, called a trustor, transfers an asset/ property, to another party, called a trustee. The trustee then manages this asset for the benefit of a third party, called a beneficiary.

Trusts are tax-efficient. Very broadly, the transfer of assets to a trust in which your family members are the beneficiaries are not taxable at either end. It means neither the transferor nor the beneficiary will be taxed.