Guide to Family Succession Planning and Tax Implications

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Table of Contents

1. Case Study on Family Business

2. Taxability of Trust

3. Effects of Will

1. Case Study on Family Business

Family Business go for unrelated diversification to cope up рооr communication, structure
Family Business with several member go for majority poll or if not then delay decision or take low risk
Trusteeship role builds Perpetuate business, In process younger generation may not get opportunity to cultivate fresh ideas
Yongsters are ambitious, look modern in short time and existing busines manage by outside professional, so greater possibility of entrepreneurship among young generation

1.1 Solutions

Family businesses with greater level of professionalisation practiced both in business and family are likely to perform and perpetuate better over a long period of time.
Large business families are likely to approve new investments in diversified areas in small amounts to test the idea first before considering significant investments.
Shirt sleeve to shirt sleeve in three generations’ is a myth in growing economies
Entrepreneurship reflected in terms of starting green field ventures is likely to below in families where family members get groomed into managerial roles in existing firms soon after their studies.
New ventures are likely to be encouraged in business families when existing businesses are managed by outside professionals, leaving limited openings at senior levels for the family members.
In family businesses where family members are competent managers, professionals find the environment very conducive to work, and draw synergies.
Higher the level of mutual respect between family members and outside professionals, greater is likely to be the performance.

1.2 Case Study

2. Taxability of Trust

Determinate

Discretionary

Foreign

Status of trust
Beneficiary to extent of share
Beneficiary to extent of share
Beneficiary to extent of share

If different then status of trustee

Residential Status
Beneficiary to extent of share
Beneficiary to extent of share

If different then status of trustee

Beneficiary to extent of share

Taxability in hands of
Trustee or beneficiary
Income distributed – Beneficial/trustee

Income not distributed – Trustee

Refer – Table B

Rate of Tax
Normal rate of beneficiary [B&P @ MMR] Or AOP rate
MMR or AOP [exception cases]

2.1 Table B

Revocable
Indian settlor
Taxable in his hand

Revocable
Foreign settlor
Based on status of beneficiary

Irrevocable
POEM
World income is taxable

Irrevocable
Foreign & Indian beneficiaries
Indian beneficiary taxed on distribution

2.2 Case Study

2.3 Case Study – Reconstitution of Firms

2.4 Case Study for Wills & FA

2.5 Objective – What Mr A Wants?

To distribute assets in ratio of 40:40:20 between wife, brother & mother and to give control of business
No emotional disputes within family
Initially shares of A Pvt Ltd. to be distributed equally between brother & wife
Condition transfer at the time of execution of will

3. Effects of Will

Wife

Brother

A Pvt Ltd. 99 %

C LLP 75%

B Pvt ltd. 60% [ Effective]

E & F

D Pvt Ltd. 40%

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