All You Need To Know About
Estate Planning

You work hard throughout your life building assets. And you probably do this to ensure financial safety and security to your loved ones.

But what would happen to these assets on your sudden demise? Have you given a thought to it?

That’s where estate planning comes into the picture.

Estate Planning is not only for the Rich and the Old. And it is not an exercise to be looked after post retirement.

Estate Planning simply refers to passing down of your assets from one generation to another.

Let’s dig in deeper….

Mansion-House

People are under a delusion when it comes to estate planning – that's what our experience reveals. Some either wait until retirement or some completely ignore.

Before we get into the nitty gritties of estate planning, let's first look at a few common myths about estate planning….

Myths-About-Estate-Panning

Myth #1: Estate planning is meant only for the wealthy

Fact: Estate planning is essential for all. It does not matter how much you own in your accounts or the number of valuables you have. It is nothing but passing down your assets to the person of your choice.

Myth #2: Estate Planning should be thought of only after retirement

Fact: Life is quite unpredictable and hence, the earlier you plan, the better it is. Having a plan in place is the best thing you can do it for yourself and your loved ones.

Myth #3: My legal heirs will handle it maturely

Fact: It is good to hope that they do, but unfortunately many disputes often happen over money in today's world. Hence, it is better to put across your wishes explicitly on paper.

Myth # 4: I have registered my nominee(s); they will anyways be the beneficiaries of my assets

Fact: The nominee may not always be the owner of the assets. The owner of the assets will be the legal heir as per a Will and in absence of a Will, transmission of assets happens as per the country's succession laws.

Please note: A nominee is just the trustee of your assets.

Myth #5: I don't need to seek legal opinion

Fact: There is nothing wrong in seeking a legal opinion. Just like a doctor is an expert in his, a lawyer can guide you to ensure that estate planning is done legitimately considering the nitty-gritties involved.

Now that we have debunked common myths on estate planning, let’s look at estate planning in detail.

CHAPTER 2:What is Estate Planning

What-is-estate-planning

Estate planning in simple terms refers to the passing assets / investments down from one generation to another. You decide how much of your estate – be it property(s), car(s), personal accolades, financial investments, etc. – you want to pass on to whom and how, after your demise.

It is a dynamic process that needs to be reviewed at regular intervals to absorb any changes that might happen in our life or in the laws of the country.

CHAPTER 3:Importance of Estate Planning

Dying intestate (i.e. without a legal Will in place), can leave various complications for your family.

There could be serious disputes amongst family member over your estate that can devastate the peace and happiness you’ve always sought for your family.

In a ruthless and materialistic world, we live in today, people are unfortunately behaving like hounds, wanting to grab a bigger pie.

The tragic sagas, of families being disrupted over money matters is rather disturbing …and what’s alarming is that such stories are unfolding every day!

Here’s a tragic saga of Mr Suhas’s family…

Importance-of-Estate-Planning

Mr Suhas, was a flourishing businessman. As an enterprising individual he earned a healthy sum, but never planned for his family’s future financial wellbeing. He perhaps, thought that his business would suffice to all the needs of family members – his two sons Raghu and Shyam, and his wife Sunita (a housewife).

He envisioned his business to a scale where Ragu and Shyam would inherit and run it successfully and make way for his retirement. In this endeavour he (Mr Suhas) had been taking loans, but the family was not well apprised about the whereabouts.

Then came a time when a few of his ventures failed.

He began to siphon funds from his successful venture to unsuccessful ventures in an attempt to bring them around. But that didn’t help either, and as a consequence his successful business too was overthn. 

The family underwent through hardships. Mr Suhas was shaken and had lost all the confidence. With banks and other creditor knocking the door for their money, he was under constant pressure.

By that time his children Raghu and Shyam were merely in college; and they not being well apprised, there was very little they could do. In a matter of a few years succumbing to the constant pressure, Mr Suhas suffered a massive heart attack and he breathe his last – leaving his family with assets of course, but even liabilities to handle.

It was an irreparable loss to the family. Raghu and Shyam were almost in their late 20s and mid 20s respectively, a ripe age when this untoward incident happened.

As time passed, there were heated arguments, bickering between the brothers over the property and the debt to shoulder. The environment in Mr Suhas’s family started getting unsavoury by the day, and the happiness once fancied, never materialised.

It was a sorful scene for Mrs Suhas to experience and see the two brothers fighting like hounds …and even today the situation hasn’t got better between the two or the family.

“Never say you know a man until you have divided an inheritance with him.” - Johann Kaspar Lavater

Hence in such times, the aforesaid quote of Swiss poet, Mr Johann Kaspar Lavater seems apt, when even blood relations fail to act rationally. 

Therefore, although being optimistic is a good thing, it is vital to anticipate even the unexpected and take necessary steps towards estate planning while we build wealth to sustain ourselves and our families.

(You may also like: Why estate planning is imperative?)

CHAPTER 4:How to undertake Estate Planning?

undertake-Estate-Planning

Well, broadly there are two ways – A Will and a Trust.

Let us understand each of them in detail…

Wills

1. Wills

A Will is legal declaration of the intention by the one making it – the testator –with respect to property that he/she desires to be carried into effect after his death.

Who can make a Will and when?

A will can be prepared by anyone who is 18 years of age, of sound mind, and free from any coercion, fraud and undue influence.

Often, we hear: “I am too young to prepare a will” or “I don't need to prepare a will”. But amid a materialistic world, unwanted complications are common and we’re sure you don’t want to leave your family with grave inconvenience.

As you know, life is quite unpredictable and uncertain. It is always better to prepare a Will and store it safely while you are young and/or in pink of financial and physical health. You don't need to wait till you own lots of wealth to transfer or till you turn 65 to create a Will.

You can always revise it as your assets g. You see, with old-age comes several physical and mental illnesses.

People become incapacitated or even lose their ability to comprehend. A Will created at such an age, when a person might not be in his or her right senses might create misunderstandings, doubts and disputes in the family later. Hence it is advisable to prepare your Will at a relatively young age when you are fit, in order to avoid conflicts later.

So, there’s no specific age when you should make a Will as long as you’re a major (18 years of age and above). But in the following circumstances you must consider making one right away…

  • Married or in a relationship:

    You are in a bond and nurturing a relationship. As you bestow your better half with all the goodies, don’t ignore estate planning. This can pervade financial security to your partner, strengthen the bond between you two and usher peace and happiness.

  • Started a family:

    When you are married and have children along with dependents to support; the responsibility rests on your shoulders. Hence as a mature individual, along with financial planning, consider writing a Will during the accumulation phase of life and keep revisiting the Will to accommodate any changes.

    This will avoid the bickering later, what Suhas’s family experienced. Be wise and a responsible individual thinking about the long-term financial wellbeing of your family.

  • A situation of divorce or re-marriage:

    In case of a divorce, an existing Will may need to be re-written considering the aspect of alimony. Likewise, for a re-marriage, you may have to amend the existing Will, or write a new one if you haven’t made so far.

    For example, a re-married couple could have children from previous relationship …and you may want to safeguard the interest of your loved ones.

  • Terminal illness:

    God forbid, but if you are diagnosed with a terminal illness and if you haven’t written a Will, it’s high time you make one before health deteriorates. After all, besides the emotional grief you don’t want your family to grieve financially and legally; isn’t it? 

    But before you start writing a Will consider these 10 Points while creating a Will here.

What are the benefits of writing a Will?

Well, there are host of benefits of writing a Will. Some of them are highlighted below:

  • It provides you, the testator, a sense of sense of understanding current financial strength (and even an opportunity to improvise in the remaining life span, especially if you’ve made a Will in the initial accumulation phase of your economic life cycle)

  • The above also brings in clarity while passing assets amongst loved ones

  • Avoids disputes within the family, if explicit and rational distribution is done

  • Helps you make provisions for minor children and children with special needs as per your wish

  • Disinherit certain relatives who may be troublemakers

  • Help you address transfer of online assets

  • Help you address transfer of offshore assets

  • You can choose your executor

  • Specify even funeral wishes

  • Prevents financial and legal grief 

  • Brings in peace of mind and happiness

Hence, a Will can be said to be the corner stone of estate planning. Hence plan and make a Will.

Should You consider Writing A Will Online?

Today, in an online world we live in, there are host of portals who help you write Wills online in a quick, convenient and user-friendly way at a reasonable cost ensuring confidentiality.

But who should opt making a Will online?

Well, if you have a simple, small family – husband, wife, one child – and you are not controlling any business enterprise but earning a salary and wealth through the same; you can consider making a Will online if there aren’t any complexities involved.

Most online Will writing portals are backed by legal services firms that have emerged in the last few years in India, and are cost effective. They have also tied up with a few financial service providers for client access and credibility.

The concept of an online Will is slowly gaining popularity with nuclear families today. In most case the process too is very simple…

  • Make an account with on the service provider’s website;

  • Login and furnish necessary information in a prescribed form;

  • Legal experts will then scrutinise the form; and

  • A Will be drafted and delivered via email (or in some cases, even at your doorstep)

Moreover, you have a provision to revise the online Will (within a prescribed time frame) if you find it’s not drafted as per your requirement or to account for any change in circumstances. Also, your online assets as well as intellectual properties can be mentioned in an online Will.

Some Will writing portals also offer add-on services such as: registration of a Will and appointment of the executor, but it’s not binding on the customers.

In cases where complexities are involved such as you are a citizen of another country, there is ancestral wealth involved, assets are substantial, there are several legatees to handle, you are raising grandchildren or step children, you’ve re-married, you foresee that the Will might be contested, you have a business enterprise, amongst a host of other aspects; then it is wise to take the offline route with help of an expert – the estate planner/attorney.

But before you start writing your Will, read this article: Why And How To Write Your Will

Registration of Will

It is not mandatory to register a Will. However, If you wish your Will can be registered with the registrar/sub-registrar by paying a nominal registration fee.  

For registering your Will as a testator, you are required to be personally present at the registrar's office along with the witnesses. If the registrar/sub-registrar is satisfied with the documents furnished, an entry will be made in the register with the year, month and date mentioned, and you, the testator, will be issued a certified copy. If the registrar/sub-registrar refuses to register the Will, as a testator you can always file a civil suit in a court of law (with jurisdiction) and the Court will pass a decree of registration of the Will if it is satisfied with the evidence produced. But remember, a suit can be filed only within 30 days from the date of refusal. 

It is vital to note that once you Will is registered, it is in the custody of the registrar. Therefore it cannot be tampered, mutilated, stolen or destroyed. Now in case you’ve thought of amending your registered Will, it would be better to re-register the amended Will, although it is not compulsory.

A registered Will cannot provide legal sanctity to Will nor does it give any special status. A Will can always be challenged in the court of law. However, registration can serve as an evidence of genuineness of the Will.

2. Trusts

Trusts

A trust is an agreement between the settlor and the trustees to transfer the legal ownership of assets / property to the trustee with the obligation that the same should be held for the benefit of the beneficiaries as specified in the trust deed.

A Trust has four components:

  1. Author of the Trust/settlor: He’s the one who settles the Trust or in other words is the author of the Trust

  2. Trustee: An individual / entity appointed by the Settlor to administer the Trust and accept the responsibility to act as Trustee.

  3. Beneficiary: The person(s) for whose benefit the Trust is created is called the Beneficiary.

  4. Trust-property or Trust money: This the subject matter of the Trust and can comprise of both, movable and immovable property viz. cash, jewellery, land, investment instruments etc.

For creating a Trust, legally it is necessary for the Settlor i.e. the person who creates a Trust, to ensure that four conditions are complied with:

  • Make an unequivocal declaration binding on him;

  • Outline the purpose / objects of the Trust

  • Clearly specify the beneficiaries of the Trust; and

  • Transfer the identifiable property under an irrevocable arrangement to the beneficiaries

What are the different types of Trusts?

Well, there are various types classified as per the Indian law depending on the purpose they’ve been formed. So, you have…

Public Trust – Such a Trust is constituted wholly or mainly for the public at large. Thus, beneficiaries are incapable of ascertainment. Usually such trusts are in the nature of religious or charitable trust. 

Private Trust – A trust is said to be private when it is constituted for the benefit of one or more individuals who are, or within a given time maybe definitely ascertained. A Private Trust is governed by the Indian Trust Act, 1882, but if such a Trust is created by will, it shall be subject to the provisions of the Indian Succession Act, 1925.

Wills vs. Trusts

Wills vs. Trusts

By adopting a Trust route, a person can avoid the issues which arise in a Will, such as—authenticity of the Will, mental soundness of the person making the Will and alleged forgery etc. The grounds on which a Will can be challenged are numerous.

Moreover, the probable time to get a probate on a contested Will could take several years and can be expensive.

On the other hand, a Trust deed is never disclosed to anyone and is highly confidential and there is no need to obtain probate.

Creating a Private Trust resolves most of the problems and can be beneficial in the management and distribution of assets.

Although the best way to bequeath the assets to the beneficiaries seems to be creating a Private Trust, it is ideal to have a combination of both—Will and Trust. It will all boil down to the individual, the extent of his assets, his objectives and constitution of the family.

A Private Trust has its own set of limitations too:

  • Cost: The cost paid towards stamp duty in case of transfer of immovable property differs from one state to the other.

  • Trustee: The success of a Trust depends upon the right selection of the Trustees. A wrong selection can defeat the entire purpose of setting up the Trust in the first place.

  • Trust Deed: Drafting a Trust Deed is more difficult than writing a Will. If not drafted clearly, a trust deed is difficult to execute. Also, there’s less flexibility to a Trust as against writing a Will.

CHAPTER 5:Forced Heirship

Forced Heirship is a rule of law wherein an individual is not free to dictate who will inherit the estate on his death.

It automatically confers power on certain individuals to bequeath certain portion of the deceased’s estate.

These individuals are known as ‘protected heirs’ and typically include the surviving spouse, children, and/or other relatives of the deceased.

The rationale behind Forced Heirship is family protection.

There may be a possibility that the deceased, who was the primary bread-winner, had a few dependants.

The Forced Heirship rule does not permit an individual to Will away his estate without providing for his dependants.

Forced-Heirship

Let us understand the concept of forced heirship with a help of a simple snippets:

  • Mr Vivek Shah (65), a Hindu, residing in Maharashtra, has decided to pen down his Will. He plans to distribute his assets between his wife, children, and “YouWeCan”—a Cancer charity in India. His children decided to challenge the Will, as they believed it’s illegal for their father to bequeath his assets outside the family.

  • Mr Shabbir Ahmed (60), a Muslim, residing in Hyderabad, has decided to donate 100% of his estate to “HelpAge India”— a leading non-profit organisation caring for disadvantaged elderly senior citizens. His spouse and children were shocked and they believe he cannot do so!

  • Mr Jack Pinto (75), a Christian, residing in Goa, has decided to break away from family customs and traditions and bestow his estate to his close friend Mr Jason Pinto.

Is it mandatory for Vivek, Shabbir and Jack to bequeath their estate to family members? Or can it be given to charity/trust/social-global cause or to anyone else? Does the law allow them to do so?

The Indian Succession system is complex, confusing to the layman, and often, cumbersome. There isn’t a uniform civil code applicable to the whole of India, due to which religion plays an important role in deciding the right of inheritance.

Before we address the dilemmas of the Shah, Ahmed, and Pinto families, let us first understand the concept of ‘Forced Heirship’.

Forced Heirship is a rule of law wherein an individual is not free to dictate who will inherit the estate on his death. It automatically confers power on certain individuals to bequeath certain portion of the deceased’s estate.

These individuals are known as ‘protected heirs’ and typically include the surviving spouse, children, and/or other relatives of the deceased.

The rationale behind Forced Heirship is family protection. There may be a possibility that the deceased, who was the primary bread-winner, had a few dependants. The Forced Heirship rule does not permit an individual to Will away his estate without providing for his dependants.

On the other hand, these restrictive rules apply irrespective of the terms of the deceased’s Will, and there may be a situation where the stated wishes of the deceased may not be carried out by dissatisfied protected heirs.

However, one should note that, the Forced Heirship provisions typically apply only to a portion of the deceased’s estate and the balance may be distributed at the discretion of the testator.

So, is Forced Heirship applicable in India?

Hindus follow the Hindu Succession Act, 1956. Muslims follow Islamic Law on Succession—Sharia Law. There is a Parsi Law, a Christian Law, and a Special Marriage Act for spouses following different religious faiths, etc. Regardless, all Wills, except Wills written by Muslims are governed under the Indian Succession Act, 1925 for the purpose of execution, probate, etc. of Wills.

The exception to the above rule is the state of Goa, where the Portuguese Uniform Civil Code applies, making it mandatory for all religions to follow a common law regarding marriages, divorces, and adoptions.

So, if you are a Hindu, Parsi, or a Christian, who aren’t residing in Goa, you have the freedom to Will away your estate as per your wish, even against family wishes and social customs and traditions, which means, the rules of Forced Heirship don’t apply to these individuals.

However, if you are a Muslim, the Islamic Law on Succession—Sharia Law, permits you to Will away only 1/3rd of your property while 2/3rd is retained by the family, irrespective of a Will to the contrary. This restriction can be waived by all members of the family, in favour of the testator, permitting him to Will away his property as per his desire.

So, coming back to our snippets, the Hindu Succession Act permits Mr Vivek Shah to Will away his property to anyone or any charity that he pleases. It is the Executors job to obtain the probate to avoid any complications. (A probate is obtained from a court with the necessary jurisdiction proving that it is the last and final Will of the deceased written on a particular date)

On the other hand, Mr Shabbir Ahmed and Mr Jack Pinto cannot give away their entire estate to charity or to a friend as the rules of Forced Heirship becomes applicable.

“How do I distribute my assets?” is a question that every head of household has to answer. Succession planning is never easy. And in a country like India, where archaic social customs and traditions are still prevalent, discussing succession planning is still considered taboo, yet it is important that the first step needs to be taken to have a peaceful hand over of one’s estate to the next generation.

Learn these 7 Ways to Ensure That Inheritance Is A Hassle-free Process here.

CHAPTER 6:Selecting the Right Estate Planner

Right-Estate-Planner

The role of an estate planner in estate planning

An estate planner plays a very important role in estate planning.

It doesn’t really matter how old your estate planner is, where his office is, the gender, his/her provenance; if he/she meets the desirable qualities. The qualities of an estate planner cannot be judged in a single meeting, but spread over several initial meetings. During these meetings, you ought to deeply engage with the estate planner, asking pertinent questions such as:

  • Principal area of practice

  • Apart from Will writing, do they help instituting a Trust

  • The years of experience and how has the journey been thus far

  • The fees involved – fixed or on time basis

  • Which services do the fees include

  • Do they provide a review and maintenance (to account for any changes in law or your personal circumstances, as the testator)

  • …and many more!

Also, study a few testimonials and get a sense of the service. Do enough research and reference checks; talk to people who’ve hired his/her services, but beware of one size fits all approach.

Amid the conversation, it’s equally your responsibility as the testator, to disclose material information to the estate attorney. If you keep secrets, there are chances that your family will face problems later. You also got to assess if the estate planner is showing keen interest in having you as a client. It’s important that you discover the comfort factor with your estate planner, because after all, it is a long-term relationship.

Qualities to look out for in an estate planner

Qualities-to-Estate-planner

You may have recognised by now that an estate planner carries substantial responsibilities. Hence here are the qualities to lookout for in an estate planner…

  • Righteous:An estate planner should be a person with absolute integrity and ethics. He ought to be morally upright and never ever compromise safeguarding and serving your interest as client. This can help you evince trust and build a long-term relationship

  • Highly proficient:He should display an advance degree of competence in estate planning laws and practice diligently, without even the slightest ambiguity during the documentation.

  • Personality:Yes, apart from being righteous and highly proficient, an estate planner with a pleasant personality can conceivably bring the needed comfort factor.

    After all, you would be discussing personal issues, and thus a pleasant personality can abet you to ask relevant questions and share details without hesitation, as against a person who is standoffish (where chances of communication being impeded are high). 

  • Ability to comprehend the needs of the testator: A good estate planner will always give you a patient hearing. He would display sensitivity and the ability to comprehend wisely to render a prudent advice.

Hence, you too as a testator should speak up to get the right service for the fees you pay.

CHAPTER 7:Benefits of Estate Planning

Estate planning is an important and everlasting gift you can give your family. And setting up a smooth inheritance isn't as hard as you might think. - Suze Orman

Indeed, effective estate planning can be an everlasting gift for your family.

Almost everyone can benefit from effective estate planning irrespective of the wealth created.

Here are a few vital benefits of estate planning…

Benefits-of-Estate-Planning

  • Prevents financial and legal grief to your loved ones

    In times when your family may be run down emotionally, financial and legal grief is the last thing you want them to undergo. With prudent estate planning long-term financial interest of your loved ones can be ensured, and legal rigmarole can be minimised.

    Death is certain, yet uncertain as far as the time is concerned. Nonetheless prudent financial and estate planning can protect the long-term financial well-being of our family.

  • Avoids complications, disagreement, bitterness and drift in the family

    Your legal heirs may be inexperienced in managing the bequest. This can complicate relationships and lead to squabbling and bickering within the family. But drawing an estate plan prudently can help you manage these atrocities.

    For example, you may leave your assets under a Trust if you have children or young children who have a poor sense of judgement when it comes to making financial decisions and legalities. 

    Benefits-of-Estate-Planning
  • Ensures that all assets are passed on to your loved ones

    Estate planning ensures that all your assets – physical, financial and online – are inherited by the people to whom you want them to be transferred after your demise. The law might not take into account your personal relationships or preferences while distributing your assets if you die intestate.

    It is possible that law disposes your estate even among distant relatives who might not be your first choice of beneficiaries. 

  • Can provide for, or address to a family member or a loved with special needs

    Through an estate plan, besides leaving behind a corpus for an individual with special needs, one can further go on to designate a guardian for them.

  • Estate planning can also help pass accolades bestowed on you to a specific individual

    Say, you are defence personnel and wish to give your war medal, which has some sentimental value to your younger daughter who has interest in war history; this is possible through prudent estate planning. But in the absence of proper estate planning, it may or may not be granted to the person of your choice. 

  • Helps to prepare for contingencies

    With systematic estate planning, you can even determine who will handle all your financial affairs, in case you were to become incapacitated tomor.

    Similarly, you can also specify a person (whom you trust) who would take all medical and health related decisions for you.

    You can also list down a person(s) to take care of your estate and manage your finances after your demise, for the benefit of the remaining family members.  

  • Estate planning helps the beneficiary reduce tax outgo on account of inheritance

    Yes, this is possible, but one ought to do it prudently.

    For instance, instead of passing on assets after demise, you may gift them to your loved ones while you are alive; because if left to the prevailing intestacy rules, there is a chance that a higher amount of tax would be applicable on your property and other assets.

    You can also make separate arrangements for tax payments.

    For example, you can provide for tax liabilities separately from your residuary estate, if you don't want to reduce the inheritance value of assets by way of taxes. 

(Must Read: Watch Out! The Government Is Considering Levying Inheritance Tax)

You can also get a free copy of Estate Planning Guide here.

Now It’s Your Responsibility

Continuing to pretend that your life will never end will not do any good to you or to your family.

Let not procrastination be the reason of agony for your loved ones. The aforementioned benefits are some valid reasons for you to engage in estate planning.

Please remember, estate planning is an on-going dynamic process.

Seek the legal opinion of a trusted lawyer to ensure that estate planning is done legitimately

We hope this Guide has been a useful read for you.

If you have any queries, please feel free to write to us at info@personalfn.com or simply contact us at 022 6136 1200.

Your-Responsibility