Winning 'trust' of the rich and wealthy

FUND WATCH

Wealth is equally difficult: Both to earn, and to administer. Who better would know this than those who have gone through the grind themselves, and created a fortune. It is, therefore, obvious that wealth creators would like to save their future generations from the rat race and inherit the moolah raked in by them.

In an era, when disputes over petty sums are far too common, your hard earned money does not really need to be spent on feuds over inheritance, court cases and the like.

In an attempt to ensure succession to wealth by deserving heirs and beneficiaries, a will was conventionally an integral part of estate planning. However, a will is vulnerable to legal contests.

In addition, assets are frozen until any dispute over the will is resolved, apart from making the estate known to public. This calls for careful estate planning which would avoid disputes arising out of the distribution of wealth among successors.

Still, there is more to estate planning than just posthumous distribution of an individual's wealth. Ideally, an estate plan involves organising wealth and specifying how one's wealth should be used during and after one's lifetime.

DSP Merrill Lynch now provides a new aspect to wealth management and estate planning by introducing its trust services via its subsidiary DSP Merrill Lynch Trust Services.

The service is aimed at high networth individuals (HNIs) enabling them to make estate planning and wealth preservation an integral part of their financial planning process, thus, helping them achieve their financial objectives during their life span and provide for the heirs in their absence.

A trust is a fiduciary structure that provides such a mechanism, minus the hassles involved with a will in order to ensure that the wealth of the owner passes to the family members in absence of the owner.

"A will is a public document, contestable in a court of law, vulnerable to a lengthy and costly legal struggle to claim the ownership of assets which may lead to fragmentation of family wealth. Trusts on the other hand are private arrangements implemented during the lifetime of the settlor- the HNI client, and trust assets do not form part of the settlor's assets," says Amitava Neogi, director, DSP Merrill Lynch Trust Services.

DSPMLTS plays a role of a trustee, who assumes ownership to the settlor's assets and manages the assets and the timing of their distribution to beneficiaries, thus, acting in their best interest, as decreed by the settlor.

Creating a trust for managing wealth has a number of benefits. The foremost being the assurance that the assets are guarded only for the beneficiaries named in the trust deed, and the deed is not contestable legally by anyone.

The settlor can decree the proportion in which wealth should be distributed among beneficiaries and form the trust deed accordingly, which would then be enforced by the trustee.

In addition, the trustee also manages the assets until the heirs attain a certain age, and conditions could be imposed on the beneficiaries by the settlor to achieve certain professional competence to be able to claim their inheritance. "This saves the wealthy from worrying about spoilt kids spending their fortune just to have fun," says Neogi.

Trusts could be of different types, ranging from revocable, partially revocable, to entirely irrevocable, depending upon the needs of the clients. Add to this, the client can also appoint an independent financial planner to advice on how to make the wealth preserved by the trust, grow.

"We consider the settlor himself as a financial planner, however it is at the client's discretion, that we may take advice from an independent financial advisor," says Neogi.

"It is our duty to preserve and grow the assets in the best interest of the beneficiaries," he adds.

On commenting the nature of trusts one should opt for, Neogi claims that "as a prudent trustee, we always advise the client to create a revocable, or partly revocable trust, in which the client is also one of the beneficiaries, so that it provides for the client in unfortunate events such as permanent disability and inability to look after the business." This ensures the flexibility with which the wealth can be allocated among the beneficiaries as and when need arises in addition to providing continuity.

All this comes at a small cost to the settlor of the trust, that is, the fee charged by DSP Merrill Lynch Trust Services to perform the role of a trustee, and assume the risk of ownership of assets.

"The fee is however, insignificant as compared to the fiduciary services that the trustee provides to its client for the trust," claims Neogi, adding that "as part of the fiduciary services, we manage the assets, comply with applicable laws and the trust deed and keep books and accounts of trusteeship."

Considering the proposition, there is little reason why HNIs would not give estate planning a thought.

"The only initial stumble is when people often tend to be reluctant to consolidate assets and think of a future beyond their selves and accept the implications of their absence on their family," suggests Neogi.

Further, he adds, that "there are however a rising number of people who have made it from middle class and bad financial conditions to the pinnacles of wealth, who do not want their heirs to struggle in the same manner as they did."