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Estate Planning: Why It Should Be A Priority In The Indian Society
In absence of estate planning, if one dies intestate (in absence of will), assets are than distributed amongst the family members (legal heirs) as per succession laws of the religion that the person belongs to
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One of the most integral part of financial planning is estate planning. Let's first understand what exactly is Estate Planning.
Estate is everything that one owns viz. assets & owes viz. liabilities and responsibilities. Estate Planning essentially means to decide how your estate will devolve upon your loved ones post your demise. There is never a specific age or defined affluence level to engage in estate planning. An estate plan is for everyone like you and me who wishes to execute a smooth transfer of assets due to his/ her incapacitation or demise, irrespective of current age or size of portfolio.
Most of us believe that nomination and joint ownership is a way of estate planning. However, both these means are usually ineffective and legally disputable. It is important to know that nomination and joint ownership are both superseded by succession laws. Most family disputes have arisen owning to nomination / joint ownership being different individuals compared with legal heirs.
As individuals, while we place lot of importance is placed on asset creation, it is equally important to ensure protection, preservation and succession of wealth. We plan for our day-to-day household expenses, purchasing a property, child's education/marriage , retirement needs etc. One area which gets low focus is estate planning, may be due to limited awareness or lack of urgency and expertise. Also, over the last few decades the social landscape of our country has undergone a change, seeing gradual disintegration of the joint family system and advent of nuclear family. In such a scenario, sudden deaths, incapacitations, separations or legal issues cannot be foreseen and may lead to serious challenge for kids.
In India, family businesses have always been an integral part of our economy. But in today's era, family businesses are facing challenges due to disputes among family members, which could lead to disruption in business. Disruption could be due to partition include mismatch of ideology, the death of a partner, etc. One of the most important challenges faced by family business is ensuring the successful transition of the enterprise to the next generation.
Important vehicles for effective estate planning are Wills and Trusts Will is the simplest form of estate planning. It is a legal document that comes into effect on the demise of an individual. It is the most convenient way for you to ensure smooth transmission of your wealth to the beneficiaries as per your desired distribution. Drafting of Will is also an opportunity to nominate the guardians for minor children. Will can be made only by individuals and has no legal validity until your demise. Will does not help manage individual's assets when he/she is incapacitated, owing to old age, illness or injury. Will can be modified or revoked during the life time of an individual any number of times. Writing a will is simple and requires minimal efforts and money.
Trusts can be created anytime, provides different structures and lives alongside an individual. There are 2 types of Trusts: Private and Public. Private trust is legal agreement whereby movable or immovable property is transferred by an individual (Settlor) to be held by another party (Trustee) for the benefit of beneficiaries. Settlor can also appoint Protector, a person who maintains vigil on functioning of the trustee. Private Trusts are governed by Indian Trust Act, 1882. Globally, private trusts are widely used as an effective tool for estate planning.
To address all these concerns, estate planning provides the right solution. It has multiple advantages : a) Avoids any disputes within or outside the family b)
Avoids any transmission loss c) Ring fence personal assets to avoid claims / litigations in the future d) Ensure smooth distribution of wealth as per your desires rather than any statutory disposition e) Safeguard interests of dependents and an opportunity to assign guardians for minors and incapacitate beneficiaries f) Inheritance tax planning and g) Philanthropy.
In absence of estate planning, if one dies intestate (in absence of will), assets are than distributed amongst the family members (legal heirs) as per succession laws of the religion that the person belongs to. Example of succession laws applicable as per religion are Hindu Succession Act, Muslim Shariat Laws, Parsi Succession Act amongst others.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.