• Family Trust Fund taxation and planning

Dear Experts, 

My family is planning to create a specific irrevocable private trust fund. Settlor is my father and beneficiaries all his children. Trustees will be mostly my father & mother. After reading a lot about it and before approaching wealth managers, I wanted to ask a few basic queries,

1) The assets that will be purchased from the money gifted by the settlor to the trust fund -> Will these assets be registered in the name of the trust or the trustees? I want to avoid all possible current and future legal and financial obligations from the side of trustees and beneficiaries coming from outside the trust itself. My father has a few financial obligations in his current business and we want to ring fence our personal assets from these financial obligations.

2) Will the income of the trust fund (rental income, interest income and dividends) be taxed at individual level for each beneficiary or the trustees will be assessed for the income taxation?

3) Who would be the most appropriate guy to help with the trust formation and registration - CA, Lawyer or Wealth Manager?
Asked 2 months ago in Business Law from Hyderabad, Telangana
drafting of trust deed get it done from a lawyer 

2) for tax issues consult  CA . A trust is created by a settlor, who transfers title to some or all of his or her property to a trustee, who then holds title that property in trust for the benefit of the beneficiaries.

3)Trustees are liable to income tax on any income arising from  trust property in their capacity as Trustees.

4) when trust income does not include business income then income will be assessed to the trustees in their capacity as representative assesses under section 161

5) in this case rate applicable to each beneficiary will be determined and applied to income from trust 

6) separate assessment will be made for each beneficiary 

7) alternatively department has option to determine assessment for each beneficiary directly as per section 166 

8) where trust income includes business income trust would be taxed at 30%plus education cess
Ajay Sethi
Advocate, Mumbai
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The assets that will be purchased from the money gifted by the settlor to the trust fund -> Will these assets be registered in the name of the trust or the trustees? 

It shall be registered on the name of the trust.





I want to avoid all possible current and future legal and financial obligations from the side of trustees and beneficiaries coming from outside the trust itself. My father has a few financial obligations in his current business and we want to ring fence our personal assets from these financial obligations.

You may not club your personal assets with the trust properties to which yo are also a beneficiary, this will help you sort out the litigation that you apprehend in the future.




 Will the income of the trust fund (rental income, interest income and dividends) be taxed at individual level for each beneficiary or the trustees will be assessed for the income taxation?

The income will be taxed on the trust, the trustees are mere administrators of the trust. 





3) Who would be the most appropriate guy to help with the trust formation and registration - CA, Lawyer or Wealth Manager?

For formation of trust, a prudent lawyer's guidance shall be more helpful.  


T Kalaiselvan
Advocate, Vellore
14122 Answers
127 Consultations
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1. The assets should be in the name of the trust according to the trust deed, whereas the personal assets of your father which have not been pooled into the trust properties cannot be considered as trust properties.

2. Trusts are independent entities, so they are taxed separately. Since the income of a private trust is available only to the beneficiaries, they are taxed according to the structure in which the income is received. From taxation perspective there are two structures on which income of a private trust is taxed- Specific Trust and Discretionary Trust. In a specific trust the income is specifically received by the representative assesses on behalf of a single beneficiary, whereas in a Discretionary Trust where the beneficiaries are more than one and the individual shares of the beneficiary is not known the income of the trust is not received by a representative but determined by the trustees.

3. Get the flawless trust deed drafted by a lawyer. CA or Wealth Manager has no role in this.
Ashish Davessar
Advocate, Jaipur
18167 Answers
449 Consultations
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