Trust or Will? A Structural Guide to Succession Planning for High-Net-Worth Individuals in India

Executive Summary

Succession planning for high-net-worth individuals (HNIs) in India has become more complex than ever. While drafting a will may seem sufficient, many families now hold Portfolio Management Services (PMS) in India, Alternative Investment Funds (AIF) in India, Private equity, real estate, and cross-border assets. Because of this complexity, choosing between a trust and a will is no longer just a legal decision. It is a structural one.

Importantly, India does not currently levy inheritance or estate tax. However, income tax, capital gains tax, asset continuity, privacy, and governance control still matter. Therefore, HNIs must evaluate both instruments carefully.

In this guide, we examine:

• The legal position of wills and trusts
• Tax implications under Indian law
• PMS and AIF succession challenges
• NRI considerations
• Governance and asset protection factors

Rather than promoting one solution, this paper offers a structured framework to help families decide.

I. Legal Framework

Wills in India

The Indian Succession Act, 1925 governs wills in India.

A will:

• Takes effect only after death
• Can be changed anytime during life
• Does not require stamp duty
• May be registered, though registration is optional

In some situations, heirs may need probate or court validation, especially if disputes arise. Therefore, while a will is simple, its implementation may involve procedural steps depending on jurisdiction and family circumstances.

Most importantly, a will transfers ownership. However, it does not create a governance structure for managing wealth after death.

Private Trusts in India

The Indian Trusts Act, 1882 governs private trusts.

A trust includes:

• A settlor (creator)
• A trustee (manager)
• Beneficiaries (recipients)

Unlike a will, a trust operates during the settlor’s lifetime. As a result, assets held inside a trust do not require probate after death.

Trusts may be:

• Revocable (can be altered)
• Irrevocable (cannot easily be altered)
• Determinate (fixed beneficiary shares)
• Discretionary (trustee decides distribution)

Because of this flexibility, trusts often provide stronger structural continuity.

II. Tax Considerations

No Inheritance Tax in India

India does not impose estate duty or inheritance tax as of 2026. Therefore, heirs do not pay tax simply because they inherit assets.

However, this does not eliminate taxation entirely.

Capital Gains After Inheritance

When heirs sell inherited assets, capital gains tax applies. In such cases:

• The original purchase cost of the deceased becomes the cost base
• The holding period includes the deceased’s holding period

Therefore, inheritance delays taxation until sale. It does not remove capital gains exposure.

Taxation of Trust Income

Trust taxation depends on structure under Sections 161 to 164 of the Income-tax Act.

If the trust is determinate:

• Beneficiaries’ shares are fixed
• Income may be taxed in beneficiaries’ hands

If the trust is discretionary:

• The trustee decides distribution
• Income is generally taxed at the Maximum Marginal Rate (MMR), unless exceptions apply

Therefore, a trust does not automatically reduce tax. Proper drafting and compliance determine tax efficiency.

Transfer of Assets to a Trust

Section 47(iii) of the Income-tax Act states that transferring assets to a trust may not count as a taxable transfer if:

• The transfer occurs without consideration
• The trust benefits relatives

However, this exemption applies only when structured correctly. Incorrect drafting may trigger capital gains tax.

In addition, transferring immovable property into a trust attracts stamp duty. Since stamp duty varies by state, families must evaluate local rates carefully.

III. Structural Comparison

Therefore, the real distinction lies in governance and continuity rather than tax avoidance.

IV. PMS Succession Planning

Portfolio Management Services require:

• Minimum capital thresholds
• Discretionary management
• Consistent strategy execution

If heirs inherit PMS investments directly through a will, fragmentation may occur. Consequently:

• Capital may fall below minimum thresholds
• Strategy discipline may weaken
• Allocation philosophy may change

By contrast, when a trust holds the PMS account:

• The trust remains the single investor
• The trustee maintains continuity
• Beneficiaries receive economic benefits without splitting assets

Thus, trusts often preserve investment discipline more effectively.

V. AIF Succession Considerations

Category I and II AIFs

These operate under pass-through taxation principles. Accordingly, trust structuring may align efficiently when beneficiaries are clearly defined.

Category III AIFs

Here, income classification matters. Because taxation may differ between business income and capital gains, families must evaluate structuring carefully.

IFSC / GIFT City AIFs

Certain incentives apply under regulatory frameworks. However, trusts must comply fully with SEBI and IFSC rules to access such benefits.

Therefore, professional structuring becomes essential.

VI. Asset Protection and Governance

Irrevocable trusts may provide:

• Separation of ownership
• Structured beneficiary allocation
• Stability in blended families
• Controlled wealth transfer

However, courts can challenge transfers made with intent to defraud creditors. Therefore, families must establish trusts well in advance of potential disputes.

Unlike trusts, wills do not provide lifetime asset protection.

VII. NRI and Cross-Border Planning

For NRIs, planning becomes more complex. Specifically:

• FEMA regulations apply to asset transfers
• DTAA provisions affect taxation
• Tax residency influences reporting
• Immovable property in India follows Indian law

Because of these factors, NRIs should seek coordinated advice in both jurisdictions.

VIII. Cost and Administration

Trusts require accounting, tax returns, and trustee governance. Therefore, families must prepare for ongoing administration.

IX. Decision Framework

Choose a will if:

• Estate size is moderate
• Assets are simple
• Governance needs are limited

Choose a trust if:

• Estate exceeds ₹5 crore
• Active PMS or AIF investments exist
• Multi-generational planning is important
• Privacy is a priority
• Cross-border complexity exists

In many cases, combining a trust with a supporting will provides balance.

Conclusion

Succession planning in India involves more than document drafting. It requires structural thinking.

While India does not levy inheritance tax, families still face income taxation, capital gains exposure, and governance challenges. Therefore, the right structure depends on asset complexity, family goals, and long-term planning priorities.

A will offers simplicity.
A trust offers governance and continuity.

Ultimately, structure determines legacy.