Building Generational Wealth: Trusts and Estate Planning

“Wealth is not just about money; it’s about legacy.”

In India, discussions around wealth are often focused on accumulation—earning, saving, and investing. However, what is often overlooked is what happens to that wealth once we’re gone. Who manages it? Who benefits from it? Will it be preserved or squandered? These questions form the foundation of estate planning and building generational wealth.

This chapter explores how Indian families can use trusts, wills, and succession planning to preserve and transfer wealth to future generations without unnecessary legal hurdles or emotional disputes.

1. Why Generational Wealth Matters

Generational wealth is the financial legacy you leave for your children, grandchildren, and beyond. In the Indian context, generational wealth often includes:

• Family businesses

• Real estate

• Gold and jewellery

• Investments in mutual funds, FDs, PPF, EPF

• Life insurance

• Agricultural land and ancestral properties

However, lack of proper estate planning has led to countless family disputes, stalled businesses, and wealth erosion. Creating a clear, tax-efficient, and legally sound wealth transfer mechanism is essential for long-term family stability and prosperity.

2. Key Elements of Estate Planning in India

Estate planning involves organizing your assets during your lifetime to ensure they are transferred efficiently and peacefully after your death. The core elements are:

a) Wills

A will is a legal document that outlines how your assets should be distributed after your death.

Why it's important: In the absence of a will, Indian inheritance laws (Hindu Succession Act, Muslim Personal Law, etc.) decide who gets what. This may not align with your wishes.

What it should include:

• List of all assets (movable and immovable)

• Named beneficiaries

• Appointment of an executor

• Guardian for minor children (if any)

• Registration: Though not mandatory, registering a will adds an extra layer of protection.

b) Trusts

A trust is a fiduciary arrangement where a trustee holds and manages assets for the benefit of beneficiaries.

Use Cases:

• Protecting minor or special needs children

• Succession planning for family businesses

• Avoiding probate (a lengthy legal process)

• Reducing inheritance tax risks (if laws evolve)

Types of Trusts in India:

• Revocable Trust: Can be modified or dissolved by the settlor

• Irrevocable Trust: Once created, cannot be changed; offers better protection from creditors

• Private Trust: For specific beneficiaries (family, heirs)

• Public Trust: For charitable purposes

Advantages:

• Avoid family disputes

• Ensure long-term management of assets

• Confidentiality (unlike wills which may become public during probate)

3. Legal Framework for Succession in India

Inheritance and estate planning are governed by personal laws in India:

• Hindu Succession Act, 1956: Governs Hindus, Sikhs, Jains, and Buddhists

• Muslim Personal Law (Shariat) Application Act, 1937: Applies to Muslims (no concept of will over more than 1/3 of estate if legal heirs exist)

• Indian Succession Act, 1925: Applies to Christians, Parsis, and inter-faith marriages

Each law has different interpretations of who qualifies as a legal heir and how property should be divided. This makes proactive estate planning even more essential.

4. Building a Family Trust: Step-by-Step

Let’s say you are a business owner or property holder in India. Here’s how you could set up a family trust:

Step 1: Identify Goals

• Do you want to protect wealth?

• Are you preparing for minor children’s future?

• Do you want to bypass the public probate process?

Step 2: Choose Trustees

• Trusted individuals or professionals who can manage the trust impartially and capably.

Step 3: Draft the Trust Deed

• Clearly mention the settlor, trustee, beneficiaries, and rules of distribution.

• Hire a legal expert to avoid ambiguities.

Step 4: Transfer Assets

• Move selected assets (property, investments, business shares) into the trust.

Step 5: Maintain and Review

• Trusts need annual compliance depending on the assets and trust type.

5. Tax Implications

Currently, India has no inheritance tax. However, income generated from inherited assets (e.g., rent, dividends) is taxable. Trusts may also attract tax depending on the structure:

• Private Specific Trust: Income taxed in the hands of beneficiaries.

• Private Discretionary Trust: Income taxed at the maximum marginal rate.

Tax planning should go hand-in-hand with estate planning. Consulting a chartered accountant (CA) and estate lawyer is strongly advised.

6. Estate Planning for NRIs

Non-Resident Indians (NRIs) who hold property or bank accounts in India face unique challenges:

• Which country’s law applies?

• Can a will made abroad be enforced in India?

• Double taxation issues

NRIs should:

• Make separate wills for assets in India and abroad

• Understand FEMA (Foreign Exchange Management Act) rules

• Engage legal counsel with expertise in both jurisdictions

7. Common Mistakes to Avoid

• Not making a will at all

• Making an oral will (not legally valid in most cases)

• Not updating the will or trust after major life events like marriage, divorce, or birth of children

• Assuming all children will “understand” – many family feuds prove otherwise

• Overlooking digital assets (demat accounts, crypto, online investments)

8. Case Study: The Disruption of Wealth Without a Will

Mr. Sharma, a successful businessman in Mumbai, passed away without a will. His children and siblings were left fighting over his estate, including real estate worth ₹10 crores and a manufacturing unit. The business collapsed due to mismanagement during litigation.

Compare that to another family where the patriarch had set up a trust, appointed a professional trustee, and left clear instructions for succession. The business continued to thrive, and the children avoided legal disputes.

9. Tools You Can Use Today

• Will creation platforms: WillStar, LegalDesk, Vakilsearch

• Estate lawyers and wealth advisors

• Digital lockers (DigiLocker) to store digital copies of documents

Family meetings: Start conversations early to build trust and transparency

10. Conclusion: Legacy Beyond Lifetimes

Building generational wealth is not just about leaving behind riches—it’s about leaving behind clarity, peace, and purpose. In a country like India, where family ties and assets are deeply intertwined, proactive estate planning can ensure that your legacy is preserved, not litigated.

“Do not let your wealth become the reason for conflict. Make it the reason your future generations thrive.”

By creating a will, establishing a trust, and having honest family conversations, you can build a legacy that stands strong through generations.