Inside the secret world of private trusts: Why the rich prefer trusts over wills
The dispute at Tata Trusts puts the spotlight on the quiet machinery that protects and preserves HNI wealth in India
Last Updated: Oct 17, 2025, 13:25 IST2 min
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The ongoing rift at Tata Trusts that prompted the government to intervene earlier this month highlights just how powerful—and complex—these legal structures can be. But it’s not just the Tatas that rely on this structure. Many family businesses and high net-worth individuals (HNIs) use trusts to protect their wealth and control how it is passed on. A look at why the wealthy prefer this route.
What is a private trust?
It is a legal arrangement that is created by the rich to hold their assets. These assets are managed by a trustee until they are distributed to the beneficiaries.
Broadly, private trusts fall into two categories: Discretionary trusts and non-discretionary trusts. HNIs mostly prefer discretionary trusts. Here’s why:
Insolvency protection: If the settlor or a beneficiary becomes insolvent, in most cases creditors can’t touch the assets in a discretionary trust.
Estate and succession planning: It ensures smooth transfer of wealth without triggering family disputes or lengthy court battles. The scope for legal challenges against a trust are narrower than a will since the latter needs to be verified in court, a process known as probate.
But what’s the difference between the two types of trusts?
In a discretionary trust, the beneficiaries are identified—but not named—and their exact shares are not fixed. For instance, Rita sets up a trust and says her descendants are the beneficiaries but doesn’t specify who they are and how much each gets. The trustee decides who receives what and when—hence the term discretionary.
By contrast, a non-discretionary trust clearly defines both who the beneficiaries are and what share each will receive. A classic example is an employee welfare trust, where benefits are distributed based on predefined criteria like salary or tenure, says Amit Singhania, managing partner, Areete Law Offices.
Another big difference is tax treatment.
In discretionary trusts, the entire income is taxed at the maximum marginal rate (30 percent) if any beneficiary falls in that bracket.
In non-discretionary trusts, income is taxed individually in the hands of each beneficiary, at their applicable rate.
Also Read: How “artifacts” can help a family business define its legacy
Trust vs will: Same goal, different route
Both aim to distribute assets, but differ in timing and legal exposure.
A will comes into effect only after death and must go through probate (verified in court), which can invite legal challenges.
A trust, on the other hand, can operate during the person’s lifetime and offers more continuity and fewer court battles.
Wills also typically become public records during the probate process. Trusts offer more confidentiality.
However, there’s a trade-off: Setting up and maintaining a trust is costlier than writing a will since it requires trustees and ongoing management.
For the affluent, the trade-off is immaterial. In a country where inheritance can easily turn into litigation, the trust acts as the modern-day fortress, quietly doing what a will cannot: Preserving fortune and protecting it.
First Published: Oct 17, 2025, 13:25
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