The idea is to secure the financial needs of children caught in the divorce crossfire. A current controversial high-stakes estrangement has brought to light the mechanism of airtight trusts, increasingly being used by wealthy families to financially
protect children from either parent, and even from themselves, especially if they are minors.
While this is used during a divorce, many are creating it as a preemptive measure to secure assets. Sameer Tapia, founderpartner of ALMT Legal, who represents Jai Shroff, a global leader in the chemical and agri business in his ongoing matrimonial dispute, said, “Trusts are a wise and prudent strategy to handle a separation, especially when the stakes are high and the goal is to safeguard children from potential instability.”
“Creating a trust can shield the beneficiaries from future claims to the estate and the trustees are bound to act in consonance with the terms of the trust,” he added. While trusts are a traditional concept, and it is common to appoint friends and relatives as trustees.
Tapia recounted a case that shocked an entire family when all the trustees passed on. “We advise that at least one of the trustees appointed should be young, but regardless, the trust deed may lay out conditions for the appointment of new trustees or else one can also approach the court to assist in the appointment of new trustees.”
“Large industrial families began this trend of forming trusts, which is more prevalent in the West, but now the new generation of tech billionaires and serial entrepreneurs too have started considering forming trusts to ensure their parental responsibilities are upheld despite any disputes between parents,” Tapia said in response to a query.
Leading matrimonial lawyer Mridula Kadam agreed with Tapia and added ultra high net worth individuals are keen to talk trusts when marriages go bust. A mother in such a breakup scenario wants to ensure the children’s financial needs, security and lifestyle are not compromised. “The cleanest way then is to set up a trust with clear terms and timelines for disbursal of funds, like for college education, marriages, and also set out plans for distribution of wealth,” said Kadam.
It is often made keeping children in mind, but sometimes even the wife, she said. What can go in such a trust? Legal experts say everything from immovable assets— properties—to movable valuables such as jewellery, family heirloom jewels, even artwork and vehicles, apart from financial instruments in banks located in and out of the country, where businesses are. There is a cost to establishing and managing a trust throughout its tenure though. But it has proved beneficial to affluent families in the city with access to high quality legal services, said a diamond merchant’s family member.
Kadam added in a recent case one diamantaire family was parting ways. The wife’s concern was what if the business goes belly up in future. “It was better to secure the children’s interest through a trust and to also save her from having to go back to court to ask if maintenance orders are flouted,” she said. In another matter, in Mumbai, a man and his father did not wish to give financial control to the ex-wife, so they created a trust and made the minor daughter the beneficiary.
“A private trust created for maintenance of children can safeguard that the money is utilised for specific requirements as decided by the parents,” said Swati Chauhan, former principal judge, Mumbai Family Court. Lawyers said it is a regular feature only among the very high net worth individuals so far. The numbers may not be large when compared to divorces in the city, but then the ‘Wealth Report 2022’ by Knight Frank which placed Mumbai on the top said the ‘Maximum City’ has 1,596 ultra high net worth individuals- —with $30 million and more- —and a distant but second place holder is Hyderabad with 467.
Read More: Divorcing parents make a tryst with trust to shield kids’ funds