India is home to 19,877 UHNIs as of early 20261. A UHNI family typically spans across multiple countries, with NRI family members, cross-border assets, and multi-jurisdictional businesses. Many of these families have cross-border lives, assets in multiple countries, children with different citizenships, and businesses operating across jurisdictions. A traditional Will cannot suffice to the succession of concerns of a complex family landscape. Succession through a Will often results in prolonged court proceedings, family feuds, and legal delays. To address these challenges, many ultra-rich Indians are adopting alter ego trusts. An alter ego trust is a relatively modern succession planning tool that promises efficiency, privacy, and reduced litigation. An alter ego trust is a strategic alternative to Will. It is more flexible, confidential, and globally compatible as compared to a Will.

What is an Alter Ego Trust?

An alter Ego Trust is an inter vivos trust structure settled by an individual during their lifetime while retaining control over the assets. It is a specific private family trust structure that helps the settlor retain control over their assets during their lifetime.

While the phrase ‘alter ego trust’ is widely recognized in Canadian tax law, in India it is not a separately defined trust form under the Indian Trusts Act, 1882. In practice, the structure is generally built using the framework of a private inter vivos trust.

Under the arrangement of an alter ego trust, the settlor of the trust also serves as the trustee. An alter ego trust is settled by the settlor for the benefit of themselves and may also include their spouse as a primary beneficiary. The next generation is named as remaindermen (secondary beneficiaries), who shall inherit the trust assets upon the death of the primary beneficiaries.

Unlike a conventional trust, where the settlor typically relinquishes control over the assets, an alter ego trust mirrors a revocable trust that allows the settlor to retain control while managing and benefiting the trust property. The trust deed of an alter ego trust clearly defines the settlor’s right to enjoy the trust assets during their lifetime and sets out detailed instructions for the eventual distribution of assets after the death.

For example, a business owner may settle investment assets and family wealth into an alter ego trust. He continues enjoying the income during his lifetime. The alter ego trust ensures that after his death the assets pass to his spouse. After the spouse’s death, the assets pass in pre-defined shares to his kids without reopening family negotiations.

Private and Confidential

In India, a Will goes through legal proceedings like probate and are public records. The beneficiaries, assets and distribution pattern may be disclosed to the public eye. For prominent families, such disclosure may create risk of family disputes, third party claims, and unnecessary media attention.

Unlike Wills, an alter ego trust is a private and confidential structure that generally does not require court proceedings to take effect. This helps maintain the privacy and confidentiality of a family’s succession.

Suitable for Complex Structures

A Will is a simple document that suffices the succession needs of a simple family structure with straightforward asset classes. However, it does not solve the concerns of modern families with complex requirements involving multiple generations, business interests, overseas assets, or dependent beneficiaries. An alter ego trust structure addresses such complexities better than a simple will.

The Costly Affair

A Will may involve costs of probate and potential litigation expenses after death. An alter ego trust, on the other hand, incurs cost of ongoing compliance, administration, and professional fees during its existence.

Therefore, the choice often depends on whether a family prefers upfront governance and administration costs or the possibility of future probate or dispute related expenses.

Legal Character of an Alter Ego Trust

Whether an alter ego trust is revocable or irrevocable depends upon the structuring of the trust. The trust deed provides for control and governance objectives of the trust.

When the income and/or corpus of the trust is applied solely for the benefit of the settlor, the trust takes the character of a revocable trust for tax purposes. However, where the settlor is not the sole primary beneficiary of the alter ego trust, the revocability depends on the objectives set out in the trust deed.

The legal nature of an alter ego trust structure depends on strategic and careful drafting around factors like intention of the settlor, objectives of the trust, etc. It also depends on practical operations of the trust. If the settlor continues to retain control and manage trust assets like his/her personal property, the structure may be challenged on the grounds of substance over form from a taxation perspective.

Alter Ego Trust Across Countries

  1. Canada: An alter ego trusts are formally recognized in Canada under its Income Tax Act. Such a trust is available only to individuals aged 65 years or older. The law requires both the trust and its trustee (or majority of trustees) to be Canadian residents.
  2. US: Unlike Canada, the US does not legally recognize ‘alter ego trust’. However, US residents generally use revocable grantor or non-grantor trusts to achieve similar benefits, though these offer different tax and reporting obligations.
  3. Other countries like the UK, Singapore, etc. do not recognize the ‘alter ego trust’ structure as a separate legal identity. Every country has its own version of a specific private family trust that gives similar benefits to an alter ego trust.

Conclusion

For individuals and families looking for concrete solutions for succession planning, alter ego trusts are the strategic alternative to Will. However, an alter ego trust structure is not a one-size-fits-all solution. Every individual or family settling such alter ego trust must account for tax implications, compliance requirements, and implementation costs before implementing such trust.

Why Choose Ascentium India? 

At Ascentium India, our dedicated team of succession planners understand the roots of a family and the values that drive the legacy forward. We plan succession for families holistically to avoid any legal loopholes and secure wealth for future generations. Our dedicated team of succession planning experts includes legal professionals, tax and financial advisors. To learn more about our services, please email us at in-info@ascentium.com or reach out to us via WhatsApp at (+91) 77380 66622.

Authored by:
Megha Gala | Private Clients 

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