Trust Issues

Here’s a story from the past:Back in 1936, Shapoorji Pallonji Mistry (grandfather of Cyrus Mistry) acquired around 12.5% of Tata Sons after the death of FE Dinshaw, from his estate. Dinshaw had been a frequent financier for the Tatas and had converted debt to equity to get his shares in Tata Sons. He wanted his shares to go into a trust after his death, but somehow Shapoorji Mistry prevailed upon his managers.And then in a master-stroke Shapoorji acquired another 6% from JRD Tata’s brother Darab, who sold, it is said, to spite his elder sibling, who was hogging the limelight at the Tatas. But Shapoorji’s adventure had to stop there, as the sons of JN Tata Ratanji and Dorabji had already arranged their own holdings, adding up to 80%, into charitable trusts before their deaths. ( JRD and Darab were descendents of Dadabhoy Tata, a partner and cousin of JN Tata’s father Nusserwanji Tata.)

The Tata Trusts are probably the most well known in India.Using trusts, either charitable ones like these or private ones with private beneficiaries, was popular in India till the ’80s to bequeath assets to progeny. Between the 80s and the ’90s, private trusts went through a period of highest taxation and lost their popularity. Today, they seem to be the flavour of the season again. Along with popularity have come services that set up trusts and help manage them. Apart from the tax pressure on trusts being eased in early 2000, some high-profile inheritance drama helped.

In early 2004, the battle between the Birlas and Lodhas broke out over the control of MP Birla’s group of companies. Priyamvada Birla’s (MP Birla’s wife) will leaving the entire Rs 5000-crore business empire to RS Lodha was contested by the entire Birla clan. Then later in 2004 the epic battle between the Ambani siblings Mukesh and Anil broke out for the control of Dhirubhai Ambani’s financial and corporate legacy. Add to that the battles of the Mafatlal family, among many other smaller scraps, and you have a stage set for the return of the trust.

There was one more trigger: a proposal in Budget 2013 for an estate duty — or inheritance tax — where inheritance is treated as an income and the inheritor needs to pay a tax on it. Such a levy exists in countries like the US.India had this tax between 1953 and 1985, when it was abolished.

Providers of estate planning services have warmed up to the increased interest. First off the blocks was IL&FS Trust Company Ltd followed by Kotak Wealth Management and ICICI Bank, which promoted Universal Trustees. Then came the foreign banks like Barclays and Merrill Lynch and others. Warmond Trustees and Executors is a joint venture between the erstwhile Centurion Bank of Punjab and legal firm SNG & Partners. Warmond operates out of the One Forbes building in south Mumbai’s Fort area,from where Ratan Tata, operates currently. Warmond has also has an equity investment from accounting professional Sailesh Haribhakti.

Then there is Nerine Advisory Services that started an Indian arm five years ago. The Guernsey-based Nerine wanted to offer Indian clients an opportunity to set up financial structures and trusts abroad. They got a lot of queries for domestic trusts and found 90% of their clients did not even have a will. So after two years, in 2011,they started offering their services for the domestic market with Nerine Trustee Company Pvt Ltd.

Banks like Kotak, ICICI and Barclays come into the play from the wealth management side and lawyers like SNG come in with experience in drafting of wills and creating legal structures like trusts for their clients. All the newly launched services try and offer a onestop shop — legal, accounting and financial advisory all under one roof.