Creating assets is on top of your mind – good. But have you thought what will happen to your assets (or liabilities) after you? Well, no one likes to think for “that day”. But friend – laws do not understand your fear of death. You need to define & document your thoughts on how your assets will be redistributed after you. This is called estate planning. Let’s know the details of estate planning & important considerations in India.
Estate planning in India is confused with will or “vasiyat”. Estate planning is more comprehensive. Will making is just one part of it.
It is a fact that Indians hate estate planning because – They fear death, they fear lawyers & they feel it is a costly affair. These are myths. Ignoring estate planning may lead to huge cost of litigations, loss of assets & loss of relationships. Let us see in details the meaning, benefits & important things to take care in estate planning.
What is Estate Planning?
Wikipedia definition of estate planning – “Estate planning is the act of preparing for the transfer of a person’s wealth and assets after his or her death. Assets, life insurance, pensions, real estate, jewelry, cars, personal belongings, and debts are all part of one’s estate.”
You have dealt with these sometime. Think about it every time you make investments in joint names or add a nominee in bank deposits and mutual fund holdings. This is a bit of estate planning.
Estate planning is broad in scope – It encompasses all the assets as well as liabilities, on the basis of a broad understanding of the legal framework covering transmission of wealth.
Myth no 1 – Estate planning is for super rich families
There is a myth that estate planning means setting up complex trust structures and therefore, this is a service that is meant only for rich class.
Regardless of where an individual falls on the financial spectrum, it is a wise idea to consider some form of estate planning.
Why?
Just open the newspapers or visit any of the overcrowded courtrooms. There is not just rich or one starta of society fighting long legal battles over property disputes.
Why do you need Estate Planning?
Even when there are no ugly family disputes, it would be easy for grieving spouse and family members to miss claiming benefits because they were unaware that they were entitled to receive.
An estate plan ensures the family can easily ascertain what assets the individual has left for them. It is also important to know that without an estate plan, the assets will be divided according to the law.
With complicated family structures, it could mean that some members are not provided for if they don’t fall into the rules for the Hindu succession act for example.
If individuals have an intention to donate some part of their estate to charitable causes after their lifetime, then an estate plan will ensure that this is executed.
With the care of a disabled family member or a minor child, having an estate plan creates some peace of mind that there are contingency measures in case of unforeseen events.
Some may have most of their wealth in a family business which needs to be carefully thought through in terms of finding solutions that enable the business to continue to be run by the best people yet owned by beneficiaries who may or may not be the same.
Some may need complex solutions, others may need simple ones. But, almost all families need sound estate planning to avoid disputes at a later stage that often arise among beneficiaries.
Common Solutions in Estate Planning
While a will is the first option that many think of when it comes to estate planning, there are also several others.
Transferring wealth to family members during the lifetime is another method.
Joint ownership where spouses own equally ensures that the surviving spouse automatically inherits.
A revocable trust is where a living trust is created and assets are transferred to trust.
So there are several options for an estate plan. It is up to the individual to consider their family dynamics to see what is suitable.
Common Considerations in estate planning
Many families make significant blunders due to lack of familiarity with succession laws in the country. Many don’t understand what the role of a nominee is and is not. There are restrictions on rights for a nominee when compared to legal heir.
While many investors now understand the importance of creating a will, not many are aware of how to avoid simple blunders that can negate the entire effort.
Trusts and wills: These are the two most commonly used forms of estate planning. A professional advisor, can help you know and decide know when to use trusts and when not to, and the role of wills and trusts in estate planning.
Business succession planning: When a lot of the family’s wealth is in a family business, you need to go much beyond wills you need to think through and implement a sensible business succession plan that ensures business continuity as well as the transfer of beneficial interest in the manner desired.
NRI issues: Estate planning for NRIs adds a different dimension of complexity altogether. There are exchange control regulations to be familiar with, in addition to the laws of the land. Also, an expert is required which understands NRI taxation.
Estate duty: India does not have estate duty but many countries have. If the estate belongs or is present in that country or any of the parties involved is form an estate duty implying country, one must take care the law of lands.
Each of these terms has details in them but here I just wanted you to be introduced. I shall come back with details on these soon.
For the moment hope you appreciate-What is Estate Planning?
Let me know what is estate planning for you? Have you started thinking about it?
