Succession Planning with a Family Trust: Will vs Trust in India
Succession planning in India with a will, a family trust or both: probate, the nomination trap, business shares, NRI heirs and how to choose the right mix.
India has no estate duty or inheritance tax today; estate duty was abolished in 1985. So succession planning is not mainly about a death tax. It is about control, continuity and avoiding disputes and delay: who runs the business, who gets what, how fast the family can act and whether the plan holds up when someone challenges it.
The two main tools are a will and a private family trust. They do different jobs, and most families with a business or significant assets end up using both. This guide explains what each does well, the traps that catch families and how to fit the pieces together.
What a will does, and where it falls short
A will is governed by the Indian Succession Act, 1925. It must be signed by the person making it and attested by two witnesses, who should not be beneficiaries; registration is optional and a will carries no stamp duty. It is the cheapest and highest-leverage estate step, and many family disputes start where there was no will or a careless one.
Its limits show at death. A will speaks only when the person dies, and an executor must then carry it out. For wills made by Hindus and some others in or about immovable property in Mumbai, Kolkata and Chennai, court probate is mandatory before the will can be acted on, and a contested probate can take years. A will can also be challenged on capacity, execution or undue influence.
What a family trust adds
Assets placed in a private trust during the settlor's life are no longer part of the settlor's estate, so they do not pass through the will or probate. The trustees keep managing them without a break on the settlor's death, under rules the family wrote in advance.
That makes a trust the natural home for assets that must not freeze or fragment: shares in the family company, a portfolio that needs active management, property shared by several heirs, or provision for a minor or a family member with special needs. The deed can also set conditions such as ages, education or business roles, which a will cannot supervise over time.
Nomination is not succession
Many families rely on nominations on bank accounts, demat accounts, mutual funds and company shares. The Supreme Court has held that a nominee is a custodian, not the owner: the asset still forms part of the estate and passes under the will or the succession law. A nomination speeds up release of the asset; it does not decide who owns it.
Recent changes help the process but not the principle. SEBI now requires investors to nominate or expressly opt out, and RBI rules for deceased customers let banks settle smaller balances with heirs without a succession certificate, within set limits. Align nominations with the will and the trust so that the nominee and the owner are, where possible, the same person.
If there is no will
Without a will, personal law decides. For Hindus, Buddhists, Jains and Sikhs the Hindu Succession Act, 1956 applies, and since the 2005 amendment daughters are coparceners by birth with the same rights as sons in coparcenary property. Christians and Parsis follow the Indian Succession Act, 1925, and Muslims follow personal law, which also limits how much can be left by will.
Intestate succession often splits a shareholding among several heirs with equal rights and no one in charge. For a family business that can mean deadlock at the board, forced sales or years of litigation.
Business succession: the promoter layer
For a promoter, succession is a corporate exercise as much as a family one. The pieces that usually need to fit together are set out below.
None of these works alone. A trust without a shareholders' agreement can still leave the board deadlocked, and a will without aligned nominations can still send assets to the wrong hands first.
- A will covering personal assets and anything left outside the trust, with a capable executor.
- A family trust holding the promoter shares, so control passes without fragmenting the cap table.
- A shareholders' agreement and family constitution covering transfers, valuation, rights of first refusal and the next generation's roles.
- Key-person insurance and liquidity planning, so the estate is not forced to sell shares to meet obligations.
- Checks against lender covenants, IPO lock-ins and takeover rules for listed companies, where transfers to family trusts can have conditional exemptions.
- FEMA planning where any heir is non-resident, since NRIs hold Indian assets under different rules.
Tax points to keep in view
There is no tax on the estate and no tax on inheriting. Assets received under a will or by inheritance are outside the gift tax rule, and a settlement on a trust for relatives is generally outside it too. The heir takes over the previous owner's cost and holding period for capital gains.
The ongoing tax sits with the trust. A specific trust is taxed broadly at the beneficiaries' rates, while a discretionary trust faces the maximum marginal rate unless an exception applies; one exception covers a trust declared by will that is the testator's only such trust. These rules sit in the Income-tax Act, 1961; the Income-tax Act, 2025, in force from 1 April 2026, renumbers the sections.
Putting it together
A sound plan for most business families has three layers: a registered will as the base, a family trust for the business and core assets, and nominations aligned to both. Review it after every major event: a marriage, a birth, a death, a sale, a listing or a move abroad.
Counsel drafts the will and the trust deed, and the family signs them before witnesses. The CA work is mapping the assets, the tax position of each structure, the share transfer mechanics and the trust's annual accounts and returns.
Frequently asked questions
Is there inheritance tax in India?
No. Estate duty was abolished in 1985 and no inheritance tax has replaced it, though the idea is raised from time to time.
Is a trust better than a will?
They do different jobs. A trust keeps assets managed without probate or a break at death; a will covers everything left outside the trust. Most families with a business need both.
Does a nominee become the owner?
No. A nominee holds the asset for the legal heirs or the beneficiaries under the will; the Supreme Court has treated nomination as a convenience, not a mode of succession.
Is probate required for every will?
No. It is mandatory in defined cases, notably wills by Hindus and some others in or about immovable property in Mumbai, Kolkata and Chennai; elsewhere a succession certificate or probate may still be needed for particular assets.
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Chartered Accountant and Managing Partner at DRSPV & Associates (est. 2023), an ICAI-registered firm that has advised 500+ businesses across India, UAE, the US and UK. IBBI Registered Valuer and DISA (ICAI) certified. Writes on SME & mainboard IPO, fundraising and cross-border structuring.