Family trusts, often used to ring-fence wealth and enable smoother succession planning by ageing patriarchs of Indian households, will not have the freedom to add cousins, nephews, niece, or other `non-relatives’ as ‘beneficiaries’ in future.

If a trust deed gives trustees the liberty to include such persons even years later, the trust could be taxed today on all properties, securities and funds that have been transferred to it, according to a judicial pronouncement this week.

A discretionary trust is formed by the settlor (often the head of the family who transfers the assets). Immediate family members are named as beneficiaries, and independent professionals or a trusteeship company serve as trustees responsible for distributing a trust's earnings from like interest, rent, and capital gains to the beneficiaries in proportions that are not predetermined.