Choose a succession structure for both ownership and control
A will directs succession at death. A lifetime family trust can put trustees in charge of assets before death, once the trust and transfers are validly in place. Both can help preserve a family business. Neither instrument by itself decides who can act as a director, sign on bank accounts, or replace a personal guarantee.
Wills, trusts and probate after December 2025
A will generally takes effect at death and can be revoked or amended during life while the testator has capacity. For an ordinary unprivileged will governed by section 63 of the Indian Succession Act, check the signature and attestation requirements. Also check the succession law applicable to the testator and asset. Registration of a will does not replace proof of valid execution.
Before 20 December 2025, section 213 could require probate or letters of administration to establish an executor’s or legatee’s rights in court for certain wills, including classes covered by section 57(a) and (b). The Repealing and Amending Act, 2025 omitted section 213. Probate remains available, and a disputed will, pending case or particular transmission may still require additional evidence or a court grant. Check the savings clause for existing proceedings and ask the issuer, bank or registrar what proof it needs.
Under sections 5 and 6 of the Indian Trusts Act, identify the lawful purpose, beneficiaries and property with reasonable certainty and complete the required steps to place the property in trust. A lifetime trust of immovable property generally requires a signed, registered instrument. Movable property can also be settled by transferring ownership to the trustee as allowed by section 5. Where the settlor is also the trustee, document the declaration and asset records. A trust created by will is a separate testamentary route. Properly transferred trust assets are generally administered under the trust rather than as the settlor’s personal estate; incomplete transfers can change the result.
| Issue | Lifetime private trust | Will |
|---|---|---|
| Timing | Operates when validly constituted and assets are settled. | Takes effect at death. |
| Ownership and voting | Trustees can keep share ownership and voting coordinated under the deed, articles and other applicable rules. | An executor can manage succession and a will can allocate shares or establish a testamentary trust. Ownership need not fragment. |
| Continuity | Specify trustee replacement, incapacity triggers, signing powers and temporary vacancies. | Use separate governance and signing arrangements for incapacity during life. |
| Privacy and disputes | A deed, public registration or statutory disclosure may reveal information; transfers and administration can be challenged. | Court proceedings, if needed, may involve notices and disclosure; capacity, execution and undue influence can be disputed. |
| Creditor risk | Trust assets can be legally distinct, subject to valid transfer, existing charges, avoidance rules and the nature of beneficial rights. | Inheritance does not cancel existing security or obligations. Whether an asset is available to a creditor depends on the facts and applicable law. |
| Transfer costs and tax | Check the instrument, asset, state stamp and registration law, and both sides of the tax treatment. | Check costs of proof and transmission and the tax treatment of inheritance and later disposal. |
| Listed shares | Check threshold, control and any specified exemption or SEBI order before transfer. | Transmission, succession or inheritance can qualify under regulation 10(1)(g), subject to the applicable framework. |
Separate transfer tax from annual trust income tax
For periods governed by the 1961 Act, section 47(iii) excludes qualifying transfers from capital gains. The substituted clause, effective 1 April 2025, specifies a transfer of a capital asset by an individual or Hindu undivided family under a gift, will or irrevocable trust. Test the receipt separately under section 56(2)(x). Its exceptions include receipt under a will or by inheritance and receipt from an individual by a trust created solely for that individual’s relatives as defined. The latter is a test of the trust’s beneficiaries and donor, not a general exemption for transfers involving a family. Check carryover cost and holding period for later disposals. For periods governed by the 2025 Act, check sections 70(1)(b) and 92(3) and the transition rules.
- A revocable transfer can bring the income back into the transferor’s tax computation. Examine reserved powers and the statutory exceptions under legacy sections 61–63 or sections 97–98 of the 2025 Act.
- Where beneficiary shares are determinate, a trustee may be assessed as representative assessee in the like manner and to the same extent as the beneficiary; business income can change the rate treatment. Check section 304 of the 2025 Act or the applicable legacy rules rather than assuming one rate for every receipt.
- Where beneficiary shares are indeterminate or unknown, the maximum marginal rate generally applies, subject to the statutory exceptions and applicable year, including section 307 of the 2025 Act where applicable. Under legacy section 164, the low-other-income exception also requires that no relevant beneficiary is a beneficiary under another trust; a separate exception concerns a qualifying sole trust declared by will. Additional restrictions apply where the trust income includes business profits. Family relationship alone does not qualify.
Corporate and takeover filings
Where shares are held through a trust, the Companies (Significant Beneficial Owners) Rules identify the relevant individual through the prescribed indirect-interest tests: beneficiary for a specific trust, trustee for a discretionary or charitable trust, or author or settlor for a revocable trust. Apply the reporting company’s 10% rights tests or the significant influence or control test as relevant. Do not assume each named person crosses the threshold. An individual who qualifies gives BEN-1 as applicable; the company files BEN-2 within 30 days of receiving the declaration. Use BEN-4 where the rules require inquiry, and check any separate declarations under section 89.
For listed shares, regulation 3 generally triggers an open offer at 25% voting rights or under the applicable further-acquisition rules, and regulation 4 separately addresses acquisition of control. The ordinary minimum offer size under regulation 7 is 26% of the total shares, computed as prescribed. Regulation 10 has specified exemptions, including transmission, succession or inheritance in clause (1)(g); a lifetime settlement into a promoter trust does not automatically qualify as an inter se promoter transfer. If no general exemption applies, assess a formal application under regulation 11. SEBI’s family-trust orders are fact-specific and may impose conditions on ownership, control, trustees, beneficiaries, disclosure and future changes.
Seven practical illustrations
1. Settling a listed 58% shareholding
A family proposes to settle its 58% holding in a listed chemical company into a discretionary trust. At a value of ₹1,400 crore for the stake, the implied value of 26% of the company at the same per-share price is approximately ₹627.59 crore, which exceeds an illustrative ₹620 crore budget by ₹7.59 crore. That is a scenario calculation, not the statutory offer price or consideration; determine the applicable pricing, size and funding rules separately. If no regulation 10 exemption applies, document the governance and seek a regulation 11 order before assuming relief. No SEBI order is assumed for this example.
2. A Mumbai estate and a personal guarantee
Assume a promoter who died in 2021 held 70% of an unlisted company and was its sole personal guarantor on a ₹45 crore cash credit facility. The family faced a contested probate process lasting 3 years and 4 months, or 40 months, in this historical illustration. The former section 213 could be relevant to proving rights under the will, but did not by itself freeze a company’s credit facility. The facility terms, guarantee and signing authorities govern the operational response. A funded trust could help maintain the shareholding structure, while the lender might still require substitute guarantees or approvals.
3. Beneficial ownership in a discretionary trust holding 60%
An irrevocable discretionary trust holds 60% of a logistics company through two individual trustees, with five minor grandchildren as discretionary beneficiaries. Start the indirect holding analysis with the trustees, not fixed share allocations to the children. Verify each individual’s qualifying rights and any control arrangement, the declarations required, and the company’s BEN-2 deadline measured from receipt.
4. A ₹20 crore corpus is not ₹20 crore of annual income
Assume a trust holds ₹20 crore of shares and property, and has ₹1 crore of taxable annual income for illustration after computing the relevant income heads. If a specific trust fixes two beneficiaries’ income interests at 50% each, the allocation is ₹50 lakh each; a 100% interest for one daughter would allocate ₹1 crore to her share. The final representative assessment depends on the statutory rules and applicable facts. For a discretionary structure, 39% of ₹1 crore would be ₹39 lakh if that combined rate actually applied; 39% of ₹20 crore is ₹7.80 crore only if ₹20 crore were taxable income. Neither 39% nor a 22% effective rate follows from the deed or corpus value. Model the applicable tax year, heads of income, reliefs, surcharge and cess; assess matrimonial claims separately.
5. A trust created before a personal guarantee
A promoter settles property in 2017, gives a personal guarantee in 2020 and the company enters insolvency after default in 2021. The settlement precedes the guarantee by three years by calendar-year subtraction and the default by four; exact elapsed time requires the dates. Corporate insolvency does not automatically bring in properly held third-party property. Review title, existing encumbrances, the creditor and debtor identities, the guarantee, and any avoidance or fraudulent-transfer claim, including section 53 of the Transfer of Property Act where applicable. Irrevocability and chronology alone do not establish immunity.
6. A US citizen beneficiary and an Indian trustee
An Indian promoter proposes income distributions to a daughter who is a US citizen, while the Indian son acts as trustee. Determine her FEMA residence, citizenship and OCI status, the nature of the proposed rights and the sector and asset restrictions before settlement. Classify each payment as current income or an asset remittance under the applicable rules and give the authorised dealer supporting documents and Indian tax evidence. The USD 1 million per financial year asset-remittance route applies only in specified cases; it is not the Liberalised Remittance Scheme and is not a universal cap or permission for trust distributions. Also check US foreign-trust reporting, such as Form 3520 where applicable.
7. Governance for a ₹300 crore turnover family business
Three brothers consider placing 100% of company shares in a trust and recording employment, investment and dispute policies in a family charter. Coordinate the deed with the company’s articles and shareholder agreements, and document trustee appointment, reserved matters and deadlock procedures. A family council or advisory board can mediate; any formal voting power must have a valid legal basis and respect directors’ duties and the company’s governing documents.
Frequently asked questions
1. Is every settlement into an irrevocable trust tax neutral?
No. Check the transferor and type of asset, the transfer and receipt provisions for the relevant period, and state stamp and registration rules. Later income and disposal are separate events.
2. Can the settlor also be a trustee or beneficiary?
A settlor can act as trustee and can have a beneficial interest where the arrangement is valid. Document distinct roles and review any reserved control, revocation or sole-trustee and sole-beneficiary problem.
3. Is probate still mandatory in the former presidency jurisdictions?
Section 213 was omitted on 20 December 2025. Probate remains available; assess the facts, including pending proceedings, disputes and proof of title or transmission.
4. Is the discretionary trust rate always 39%?
No. Use the applicable year’s maximum marginal rate where required, and check exceptions, surcharge and cess and any applicable rate provisions.
5. Are trust assets safe from every creditor?
No. Verify title and security, review the transfer’s purpose and timing, and assess avoidance or recovery rules applicable to the particular debtor and claim.
6. What records should a family office maintain?
Keep signed instruments, share and voting records, asset registers, beneficiary ledgers, distribution decisions, tax schedules and evidence of filings in a form that can be reconciled.
Sources
- Indian Trusts Act, 1882, sections 4–6 and 77–78
- Indian Succession Act, 1925, including sections 57, 63 and 276
- Repealing and Amending Act, 2025: section 213 omission and savings
- Finance (No. 2) Act, 2024, amendment to section 47
- Income-tax Act, 1961, section 56
- Income-tax Act, 1961, section 164
- Income-tax Act, 2025, as amended by Finance Act, 2026
- MCA Companies (Significant Beneficial Owners) Amendment Rules, 2019
- SEBI Takeover Regulations, 2011, as amended
- SEBI example of a regulation 11 family-trust exemption order
- Insolvency and Bankruptcy Code, 2016
- Transfer of Property Act, 1882, section 53
- RBI Master Direction: Remittance of Assets
- IRS foreign trust reporting guidance