Family Trusts: Shielding Wealth in India

Once a tool for the wealthy, family discretionary trusts are now helping more Indians protect assets from debt and divorce, if set up correctly.

Family discretionary trusts are gaining popularity in India as a way to safeguard assets and plan for succession, with legal experts sharing insights on their benefits and pitfalls. Recent discussions, led by professionals like Kunal Savani from Cyril Amarchand Mangaldas, highlight how these trusts offer flexibility for everyday families amid rising financial disputes.

Why Trusts Are Becoming a Go-To Option and How They Work

The appeal of family discretionary trusts lies in their ability to keep assets out of reach from creditors or family conflicts, like divorce, by giving trustees full control over distributions. Essentially, it's a setup where the trust holds the assets, and beneficiaries only get what's decided upon, not what's automatically theirs. This structure helps families avoid messy legal battles down the line.

Experts explain that this works because beneficiaries don't have a fixed claim until the trustees act. As Kunal Savani noted, "Beneficiaries of a discretionary trust do not have any vested interest in the trust property. Their interest is contingent and dependent upon the trustees exercising their discretion." For instance, Shweta Tungare from Law Tarazoo pointed out that courts often treat these trusts as separate from personal estates, citing a 2014 Supreme Court ruling where assets weren't touched in a dispute. However, it's not foolproof—Ashutosh K Srivastava from SKV Law Offices warned that if the trust looks like a sham to dodge debts, judges can override it under laws like Section 53 of the Transfer of Property Act. Alay Razvi from Accord Juris added, "Indian courts uphold such trusts when used genuinely for succession or asset planning, but will pierce their veil if the trust is merely a cover to evade creditors or lawful alimony claims."

The Impact on People, the Market, and Policy

For individuals, these trusts can provide real peace of mind, especially for middle-class families dealing with business risks or inheritance issues, allowing them to pass on wealth without fueling sibling rivalries or divorce claims. In the market, this trend is boosting demand for legal and financial advice, as more people turn to trusts for estate planning, potentially increasing investments in related services. On the policy front, it's prompting discussions around clearer regulations, with court decisions shaping how trusts are viewed—experts suggest this could lead to updates in tax laws to make them more accessible, though it might also raise scrutiny on wealth hiding.

Trusts have been around for years, but they were mostly for big industrialists until recent economic shifts made them relevant for the middle class. Back in the early 2000s, high-profile cases of family disputes in business dynasties highlighted their value, and the 2014 Supreme Court ruling was a turning point, clarifying their legal standing. With India's growing economy and more people accumulating assets, social media and expert advice have popularized them, building on events like the pandemic that exposed financial vulnerabilities.

Where Things Stand and What's Next

Today, family trusts are more common, but their success hinges on solid setup to avoid legal challenges. If you're thinking about this, the next steps might include talking to a lawyer to draft one properly—start by assessing your assets and goals. As Razvi put it, "True strength lies in careful structuring, transparent intent, and legal compliance." If I were chatting with a friend, I'd say it's a smart move for protecting what you've built, but don't rush; get expert help to make sure it's done right.