Guide on Private Trusts

Unlike companies, private trusts are not separate legal entities. A private trust is an arrangement in which a Settlor transfers property to a Trustee to hold and deal with only for designated Beneficiaries — the Trustee cannot take, use, or enjoy the property for themselves[1].

What is a Private Trust?

A private trust is best described as an arrangement between two people: a person (the Settlor) transfers some of their property to another person (the Trustee) on condition that the Trustee would hold, manage, and deal with the property only for the benefit of designated Beneficiaries[1].

According to KCM’s guide, formation of private trusts and the rights, duties, and liabilities of trustees and beneficiaries are governed by the Indian Trusts Act, 1882[1]. A trust can be set up during the wealth-owner’s lifetime through a written trust deed, or under a will by stating the trust terms in the will itself[1]. Verify controlling statute text before relying on specific duties or liabilities.

Why Private Trust?

Separation of Control & Benefits

The Trustee controls the trust property as per the trust deed, whereas the beneficiaries simply receive the benefits. This makes trusts very useful where there is a family member with special needs, a minor, or someone not accustomed to handling significant wealth[1].

Through a trust, one family member could control the business while others receive the financial benefits — the trustee holds the power to vote, hire or fire directors, and make major decisions[1].

Governing a Lasting Legacy

A trust is particularly well-suited for preserving a family legacy. The trust deed serves as a rulebook for trustees regarding asset management and decision-making, ensuring long-term governance across generations[1].

Compared to Wills

Unlike a will (which takes effect upon death), a trust is effective immediately, allowing the Settlor to monitor its implementation[1]. KCM’s guide states that, starting December 2025, wills in India no longer require mandatory probate, but obtaining voluntary probate for a significant estate remains advisable — confirm the current legal position against primary sources. Trusts do not require probate and continue according to the trust deed even after the Settlor’s demise[1].

Ring-Fencing from Personal Liabilities

KCM’s guide describes private trust assets as separate from the Settlor’s personal property, with creditors unable to claim trust assets in bankruptcy and trust assets remaining protected in matrimonial disputes, with protection extending to beneficiaries[1]. Outcomes depend on facts, timing, and applicable law — seek advice before relying on ring-fencing.

Planning for Incapacity

A private trust can address incapacity via a trustee succession clause — if the current trustee becomes incapacitated, another trustee takes over[1]. KCM’s guide states that powers of attorney and nominations are not effective in mental incapacity, making trusts a crucial planning tool[1]. Confirm incapacity-planning rules against primary Indian sources.

Cross-Border Utility

KCM’s guide notes that for global families in countries with estate or inheritance taxes (for example the USA, UK, Canada, and Germany), private trusts can help minimise tax liabilities that can sometimes reach 50% of estate value, and may help against forced heirship rules to ensure distribution according to the Settlor’s wishes[1]. Cross-border outcomes depend on residence, situs, and treaty positions — the 50% figure is not corroborated by primary tax-authority sources in this research package.

Frequently Asked Questions

Can the Settlor be a Trustee? Yes, provided they hold the property for the benefit of the beneficiaries, not for themselves[1].

Can the Settlor be a Beneficiary? Yes — the Settlor can be a trustee and one of multiple beneficiaries, but cannot be the sole trustee and sole beneficiary simultaneously[1].

What property can be settled in trust? Any movable or immovable property[1].

Do private trusts save income tax? No. There is no meaningful difference in income tax whether you have a trust or not, but the trust must be structured appropriately to avoid paying higher tax than otherwise[1].

Are trusts only for ultra-wealthy families? No. The quantum of wealth is not the relevant factor — the objective matters. Whether it is family governance, incapacity planning, ring-fencing, or cross-border succession, trusts serve diverse needs[1].

References

1. KCM Consultants, Guide on Private Trusts (Knowledge Hub, 20 June 2026).