Trusts are considered as a favoured instrument for succession planning. Private trusts are governed by the Indian Trust Act, 1882. As per the Indian Trust Act, 1882, a trust may be created for any lawful purpose and may be formed by the settlor i.e. the person creating the trust, in his or her life time by a non-testamentary instrument or thereafter, through a testamentary instrument i.e. a Will.
As the word itself suggests, a testamentary trust is a trust created by last Will and testament, which comes into effect only upon the settlor’s death as compared to a living trust which is created during the lifetime of the settlor and comes into effect within that period. As testamentary trust is a trust created by Will and therefore it is essential that a valid Will in consonance with the Indian Succession Act, 1925 must be in place. As testamentary trust comes into effect upon the death of the testator therefore till the demise of the testator the testator may at any time and as often amend the terms of trust by amending the Will. There can always be more than one testamentary trust in the last will and testament. The testamentary trust comes into existence on completion of the probate process, where obtaining of probate is mandatory.
A testamentary trust involves three parties i.e. the settlor, the beneficiaries and the trustees. It is always advisable to take prior assent of the persons who shall be acting as trustee to avoid future disputes. The three main certainties required for a valid trust are certainty of intention, subject matter and object. The lack of any one of the three uncertainties will make the transaction and purpose ineffective.
Intention can be ascertained from the words and therefore the settlor must be clear that the settlor wishes to create a private trust in its will. The subject property of the trust must be clearly identified as the trustee must know what is and what is not included in the trust. Furthermore, it is also essential for the trustee to be known of the entitlement of interest of each beneficiary in the trust of the property. The persons who are entitled for the benefit of the trust known as “beneficiaries” must be clearly identified and ascertained in the Will.
Generally, property of any sort can be held in trust. The main object of testamentary trust is to have a legal arrangement created in a person’s Will to address and allocate any estate created during the settlor’s lifetime as well as the estate received any after the demise of settlor in matters of litigation suits, proceeds of any policies, etc. It is always advisable to specifically state out whether the trust will be discretionary or non-discretionary and revocable or irrevocable.
Testamentary trust is useful in matters where the beneficiaries are children or differently abled persons. The major benefit of a testamentary trust is that the settlor has the control over the disbursement of his/her properties. Another advantage is the low upfront costs that are involved. That said, having a testamentary trust is one of the most viable and attractive options for estate and succession planning.
The article represents the personal views of the author