A Private Trust Can Help Your Daughter,Handicapped Dependent or Wife.

We remain concerned about the family members . The question remain foremost important in ones mind what happens after one’s demise. In many unfortunate circumstances like below , one’s concern is very real……

A daughter or son in the family paralysed and completely handicapped.
Son is busy with his own family and has no time for parents, who will take care of your wife who is suffering from many problems. A daughter who is married , but son -in-law is not reliable. You fear after you he may sell the property. You have sister who is very poor and you always helped her. You are concerned about  her. You want  to help even after your demise.

Creating a private trust can solve the aforesaid concerns of yours. Why ? Because

1. The property or assets which you will  allocate to a trust , shall remain forever with the trust.
2. During your life time , you yourself can be trustee.
3. After your demise, the person you have declared in trust deed will become trustee. If you want , there can be more than one trustee.

The trustee can only do what is written in the trust deed. This means that you can actually decide before hand how the income of the trust should be spent on beneficiaries.
For example , suppose Mr X  has a house property which is given on rent . Apart from this , Mr X has 10 Lakhs cash. He has two sons , three grandson, one handicapped son, one married daughter. He wants that he should help for studies of his grandsons, handicapped son and married daughter . For this he can create trust in which he will transfer his property and Rs 10 Lakhs of cash. This will become the capital of the trust. In the trust deed , he can set forth that income earned from rent and the interest on Rs 10 Lakhs should be distributed every year in the beginning of the Financial year among his grandson , handicapped son and married daughter in following ratio.

 
                                  Grand sons @ 10 % each.
                                  Handicapped son @ 25 %
                                  Married daughter  @ 20 %
                                 Balance with the trust.

During his life time , he himself can be come trustee, but he can prescribe person or a board of person who will become trustee after his death. The trustee will have to function according to the conditions set forth in the trust deed.In this way, at least , financial  help will come to the persons Mr X wants .

How To Tax Plan Through Private Trust?

The central point of tax planning is to have more tax entities. Each entity gets basic exemption from tax which in aggregate exempts quite a substantial amount of income from tax. When you create a private trust,what you are doing is creating a separate tax entities. Following points should be kept in mind to minimise the tax on trust , thereby , resulting in tax savings.

1. Trust should be in writing , because oral trust can be charged to tax on maximum marginal rate,

2. A private trust should refrain from carrying out any business or profession , otherwise the income of such trust shall be taxed at Maximum Marginal rate.Therefore, the  trust to should plan to earn income from

                            1. Rent of house property.
                           2. Capital gains.
                           3. Income from interest or dividend.
This will make the trust taxable at normal rate of tax.

3.Create a trust for  unborn son or daughter or would be wife by allocating fund to the trust or transferring the property , rent of which shall be income of the trust.The beneficiaries like unborn son or daughter or would be husband should not be beneficiary in any other trust. This is important to save the trust from being taxed at Maximum Marginal Rate .
[Refer exception to section 164(1) of the I T Act given in first proviso ].

4. Since trust created through WILL can even carry out business income and still can be taxed at normal rate of tax, care should be taken that

1. the beneficiaries mentioned in the WILL are not beneficiaries in any other trust.
2. the beneficiaries are relatives of the person writing the WILL.
3. the beneficiaries are dependent on the writer of the WILL

This will put the trust under exception (ii) to section 164(1) , thus even though the trust is earning

5. If the private trust is for minor son or minor daughter or daughter in law or wife , the capital of the trust should not be through father or husband or father-in-law , because in that event the income is ultimately clubbed with father or husband or father-in-law as per section 64 of the the I T Act. 

Care should be taken to get the gift from persons who are relatives. In this way , the clubbing provision shall not be invoked.

6. Private trust should be 100 % specific beneficiary trust for major son or major daughter .This will save the money from misuse by son in future and even in case daughter when she is married, the money is saved from misuse by relatives of her husband.

7. A private trust can become partner in a  partnership firm , so that share of profit in firm shall be tax free in hand of trust.

In case you need more information on taxation of trust,  you can get the same here at the given link:

http://taxbymanish.blogspot.in/2012/02/understanding-taxation-of-trust-in.html