The HUF wasn't enough.
So we built a trust too.

One structure solved the tax on our income today. The other solved what happens to the money we are building for our son. Here is what each did, and the arithmetic behind ₹74 lakh.

In one line

An HUF fixed the tax on our income today. It could not hold a corpus meant for one child - so we added a private family trust. Together the two structures are worth about ₹74L to our family, on the same salary and the same funds.

The problem

We had moved the money. The tax hadn't moved anywhere.

We are both salaried and both in the top bracket - 34.3% once surcharge and cess are counted. Every rupee of FD interest, every dividend, taxed at that rate.

Then our son was born and we started investing for him. That is where we hit something we had not expected: anything invested in a minor child's name is clubbed straight back to the higher-earning parent under Section 64. The account had changed. The tax bill had not.

Why investing in his name changed nothing
Money invested in a child's name is clubbed back to the parent under Section 64 You Top bracket · 34.3% Your child's name The investment sits here you invest Section 64 — the tax comes back The money moves. The tax does not.
Section 64 attributes a minor's investment income to the parent who earns more.

What the HUF fixed

The first structure solved today's income

We lent our ₹30L emergency fund to our own HUF - a loan, not a gift. That distinction is the whole thing: a gift from a member is clubbed back under the same Section 64, while a loan carries an obligation to repay, so nothing was given away and there is nothing to club.

Same bank, same deposit, same rate, same access to the cash. The ₹2.1L of annual interest now falls inside the HUF's own ₹4L exemption instead of our 34.3% slab.

₹52L
₹72,000 saved every year, reinvested at 12% for twenty years. The saving is annual; this is what it becomes.
Where it stopped

The HUF could not hold a corpus meant for one child. Any coparcener can demand partition as that corpus grows - so the money we were building for our son could be split in ways we never intended. We needed a structure we stayed in control of.

What we did

So we added a private family trust

Three decisions made it work. His grandparent is the settlor, not us - Section 64 reaches a parent, not a grandparent. We are the trustees, so we decide how and when anything reaches him. And the deed states the funds accumulate rather than distribute, which is what gives the trust its own tax identity.

Because he has no other income, the trust gets his ₹4L basic exemption plus ₹1.25L of long-term capital gains relief - ₹5.25L of gains booked tax-free, every year.

How the trust is put together
Trust structure: grandparent settles the trust, parents are trustees, the child is beneficiary Grandparent Settlor The Trust Its own taxpayer You Trustees Your son Beneficiary settles the corpus decide how and when nothing is paid out yet Income accumulates inside the trust rather than being distributed to him
Settlor, trustee and beneficiary are three separate roles. Keeping the settlor outside the parent relationship is what stops the income being attributed back to us.

The mechanism

A free harvest, every single year

In our own names that ₹1.25L capital gains allowance is already used, and our ₹4L basic exemption is long since covered by salary. Any gain we book personally costs 14.3% on the spot - so when a fund underperforms and we should switch, we hesitate.

Inside the trust we simply switch. Booking ₹5.25L of gains costs nothing, and each harvest resets the cost base to today's price. Over thirteen years that is ₹68L crystallised at zero tax, lifting the cost base from ₹54L to ₹1.22Cr while the same holding in our names sits at ₹54L.

₹54L invested either way - only the owner differs
Corpus in our own names versus inside the trust 0.0 0.5 1.0 1.5 2.0 ₹ CRORE In our names In the trust ₹1.60Cr ₹1.60Cr Year 13 - at the switch ₹1.45Cr ₹1.55Cr Straight after it ₹1.65Cr ₹1.88Cr Year 16 - he turns 18
₹15L upfront plus ₹25,000 a month, thirteen years in equity then three in debt. Identical contributions and returns; the stepped-up cost base changes what tax is owed.

The numbers

Where the gap comes from

 
In our names
In the trust
Gains harvested tax-free over 13 years
nil
₹68L
Cost base at year 13
₹54L
₹1.22Cr
Tax on the equity-to-debt switch
₹15.1L
₹4.9L
Tax across 3 years of debt
₹10.9L
₹1.8L
Corpus when he turns 18
₹1.65Cr
₹1.88Cr
₹74L
₹22L more reaches our son from the trust, plus the HUF's ₹52L. Same salary, same funds, same returns - only the ownership changed.
Figures come from a real case and describe that situation only. Projections assume the stated return and are not a promise of one. This is not financial, legal or tax advice - please take qualified advice before acting.