In recent years, India has seen a significant increase in the number of high-net-worth individuals (HNWIs), with a growth of 4.5% in 2022 and is projected to rise from almost 800,000 in 2022 to 1.65 million by 2027. The financial assets of HNWIs in India are expected to nearly double by 2028, driven by an annual growth rate of 13%-14%.
This rapid growth in wealth highlights the increasing economic opportunities and the rising affluence among Indian families. It also underscores the importance of effective wealth management and succession planning to ensure that this wealth is preserved and passed on to future generations.
Trust structures have long been heralded as a robust and versatile tool to assist with this process. Trusts offer a myriad of benefits that can help families preserve their wealth, ensure smooth transitions across generations, and provide financial security for future heirs. Here’s an in-depth look at why trust structures are advantageous for family wealth and generational succession planning.
1. Asset Protection
One of the primary benefits of a trust is asset protection. By placing assets into a trust, families can shield their wealth from potential creditors, lawsuits, and other claims. This is particularly important for families with significant assets who want to ensure that their wealth is safeguarded against unforeseen financial challenges. Trusts can also protect assets from being divided in the event of a divorce, ensuring that family wealth remains intact.
2. Tax Efficiency
Trusts can be highly effective in minimising tax liabilities. They offer various tax planning opportunities, such as reducing estate taxes and deferring capital gains taxes. For instance, assets transferred into a trust are generally not subject to estate taxes upon the death of the settlor, provided certain conditions are met. This can result in substantial tax savings and ensure that more wealth is passed on to future generations.
3. Control and Flexibility
Trusts provide a high degree of control over how and when assets are distributed to beneficiaries. The terms of the trust can be tailored to meet the specific needs and goals of the family. For example, a trust can stipulate that beneficiaries receive their inheritance at certain ages or upon achieving specific milestones, such as graduating from college. This flexibility ensures that the wealth is used responsibly and in accordance with the family’s wishes.
4. Continuity and Stability
A well-structured trust can provide continuity and stability in the management of family wealth. Trusts are managed by trustees, who are responsible for overseeing the assets and ensuring that they are managed in the best interests of the beneficiaries. This professional management can help maintain the value of the assets and ensure that they are passed on smoothly to future generations.
5. Privacy
Unlike wills, which become public record upon death, trusts offer a higher level of privacy. The details of the trust, including the assets it holds and the beneficiaries, remain confidential. This can be particularly important for families who wish to keep their financial affairs private and avoid public scrutiny.
7. Generational Preparedness
By using trusts, families can prepare future generations to manage wealth responsibly. Trusts can include provisions for financial education and stipulate that beneficiaries receive guidance from financial advisors. This helps ensure that heirs are well-prepared to handle their inheritance and continue the family’s legacy of wealth management.
How It Works
BTG offers a comprehensive wealth management solution through a discretionary family trust administered in Switzerland and a family investment company incorporated in Mauritius. This structure is supported by a licensed Swiss Trustee, Swiss banking, and custody services.
It is crucial for Indian families to adopt robust wealth management strategies. This structure allows families to manage their wealth efficiently, ensuring better returns, diversified risk, and professional management, while also providing financial support for various family needs. By leveraging BTG’s expertise, trust and investment company structure, Indian families can effectively preserve and grow their wealth, ensuring a secure financial future for generations to come.