How to pass on your assets to successors?

Can I set up a company to hold all my assets (shares, mutual fund units, home, etc), and will the passing on those assets to heirs be easy in comparison to the simple 'will'? - Abhishek Dhumal

From a compliance standpoint, creating a company to handle your assets and their transfer to your legal heirs can be extremely laborious.

You can create a will or set up a private trust instead.

While both have their own benefits, let's look at what they are and under what circumstances are they best suited.

What is a will?
Law defines will as "the legal declaration of intention of a testor with respect to his property which he desires to be carried into effect after his death".

Creating a will is straightforward. A lawyer can help you in drafting your will and getting it notarised. You have to specify the persons to whom you wish to transfer your property and in what proportion. The only drawback is that wills can be contested in a court of law and can lead to long drawn legal battles especially when there is bad blood between the legal heirs. However, if the will is not contested, then the executor can execute it at any time after the death of the testor.

What are private trusts?
Private trusts are more efficient from various perspectives. A family trust set up for the benefit of the family members is the most common purpose of a private trust. The purpose is to progressively transfer the assets so that you don't own any assets legally but through the trust, and the beneficiaries get the benefits from the assets. You will have to appoint trustees, who will manage the assets held under the trust. There are various types of trusts depending upon the rights of the settlor and benefits enjoyed by the beneficiaries.

Tax implications

• In case of a will, the transfer of assets is not subject to capital gains. Gains are taxed only when the assets are subsequently sold. Moreover, there is no inheritance tax or estate tax in India at the moment.
• In case of a trust, the transfer will be treated as a gift in the hands of the beneficiaries. As long as the settlor/beneficiaries fall under the definition of relative as per Income Tax Act, the transfer is exempt from tax. As for the settlor/transferor of assets, any capital gains from transfer of assets under an irrevocable trust is exempt from tax.
  As far as the income from the assets are concerned, the taxability depends on the type of trust. In case of a revocable trust, the income will be taxable in the hands of the transferor. In case of irrevocable trust, the trustee becomes responsible for paying the tax on behalf of the beneficiaries.

Conclusion
Setting up a company to manage your assets and their transfer to your legal heirs can be quite cumbersome from a compliance perspective. You would be better off using a will or a trust or even a combination of both. It is possible to set up a trust through a will where the assets would be transferred to a trust created based on your instructions in the will. If there is a substantial amount of assets and it is likely that the will might be contested then you would be better off setting up a family trust and registering it.

Suggested read: Passing the baton