Succession Planning

“Individuals and families are putting a lot of effort to save and invest, but they are not preparing a solid plan when it comes to transferring the wealth to the next of kin. After the death of an individual, his/her closest people realize that they have been unaware of the financial picture, investments etc. It is important to hand over the legacy in a planned way. In this blog, we will understand how you can accomplish this task.”

Succession Planning

• These are exciting times for Indians and their families. Promising opportunities and wealth creation offer plenty of prospects for sustained growth and asset diversification. Most families are witnessing better times. Indian families are built on a strong foundation of values, culture and tradition. It is ensured that good values are passed on through generations.
• Like each individual, each family has a vision for the future and is fully committed to the success. However, the demise of the main person in the family can lead to disputes. It is very likely that family members belonging to the current and next generations have conflicting ideas. Hence, it is important to understand the needs of the next generation and how these can be satisfied. Such nuanced understanding will avoid disputes.
• Succession planning is the biggest threat facing all families. The threat is your investments and assets will not be properly handed over to the desired persons due to lack of preparation. The transfer of ownership and planning the succession process is important. But this is the most difficult challenge that families encounter. If succession change and generational change are not properly addressed, this could easily result in the fragmentation of family.
• There are multiple questions that need to be answered while planning for succession. It is not a one-time event but an evolutionary process. Indian families are deeply emotional. Given the fabric of Indian families, conflicts are inevitable. However, managing conflict is the key here.

Succession Planning

Do’s and Don’ts of Succession Planning

Unfortunately, many people put off their succession planning. Death and poor health do not come with a warning. If you own movable or immovable assets, you must realize the need to have a succession plan. It is not about your age; it is about the assets.

• Despite intelligence and practical experiences, most people refuse to believe that their family members will not fight over their assets. This is especially true when you ask them what happens after they are gone. Being optimistic is great, but do not be blind about the realities of life.
• Many hold assets in joint names with a spouse. Most erroneously assume that if the husband dies then the wife on an automatic basis will become the owner. This is not right. If the husband dies without writing a will then his share will first go to his surviving class-1 legal heirs i.e. his wife, children and mother. They will have equal rights on his share in that asset.
• Many people have acquired precious assets over time. But, do you have a list of what you own? Very few people have ever listed their dealings and updating the assets they own. Not even their closest people in the family or outside know the assets. Make a list and consider who should receive what share.
• Succession planning should involve legal professionals. If you go to a doctor when you are unwell and seek the help of an electrician when the fuse burns, why not consult and use the services of a lawyer when you need to plan your succession? Do not attempt to do your own estate planning. You can make serious errors. Such follies will leave long-lasting negative effects on your family’s life after you are gone.

What is Estate Planning

It refers to the passing assets and investments down from one generation to another, or from one person to another. As the owner, you decide how much of your estate you will pass on to whom and how, after your demise. It is accepted by the laws of the country. What happens if death happens without a legal heir? It is easy to understand that such a situation can leave various complications for your family. Firstly, there could be serious disputes amongst family members over the estate. This can harm the peace and happiness in the family. Opportunistic people may create more rifts and divide family members.

Busting Myths

Words like ‘estate planning’ are often less understood. This is also a reason why there are so many myths associated with them. Let us have a look at a few of them and bust the myth with the truth.

Myth — Estate planning is for the wealthy.

Fact — Estate planning is essential for all. The process of estate planning is not dependent on your monetary assets.

Myth — Estate Planning is a job after retirement.

Fact- Life is unpredictable. The earlier you plan, the better it is.

Myth — My legal heirs are mature and they can handle any problem easily.

Fact — Disputes happen over money. By doing proper estate planning, you remove all chances of a dispute by putting across your wishes explicitly.

Myth — Nominee will be the beneficiaries of assets.

Fact — The nominee is not always the owner of the assets. The owner of the assets will be the legal heir. A nominee is merely the trustee of assets.

What is a Will?

One of the proper ways to do estate planning is writing a will. A will is a legal declaration of the intention. The one who makes the will is called the testator. The will tells people what the testator wishes to do with respect to his/her property after death. So, a will basically tells people what will happen to their assets after they die.

• Who can make a will and when — Surprisingly, many do not know that a will can be prepared by anyone who is 18 years of age. You need to be of sound mind, and free from any coercion, fraud and undue influence when you wrote the will. You are never too young to prepare a will. A will bypasses unwanted complications. It ensures that your family will have a peaceful life.
• Can you revise a will — Yes, you can always revise a will. It can be done an unlimited number of times but the process needs to be legally binding.
• When to make a will — The truth is that people become incapacitated with old age. Some even lose their mind. The ability to comprehend greatly reduces. A will cannot be made at that stage. That is why it is advisable to prepare your will at a relatively young age when you are physically and mentally fit
• Who should make a will — There are 3 types of situations where a person should definitely make a will. If you are married or in a relationship, a will can give financial security to your partner, and give him/her a better future since you have planned it well. When you are married and have children along with dependents, writing a will is a good idea so that everybody gets their due. This will avoid disputes among dependents. If you are diagnosed with a terminal illness and if you haven’t written a will, this is the best time to do it.
• What assets covered by will — All movable as well as immovable assets can be included. This means real estate, fixed deposits, money in bank account, stocks/securities, bonds, proceeds of insurance policies, retirement benefits, art, precious metals, goodwill, digital assets like photographs, blogs, websites, email accounts and social website profiles can be covered under a will. Simply put, any asset that the testator has ownership over, at the time of death, can be included and distributed as per the desire of the person.

What is a Will

Important Terms

• Intestate — A person who dies without leaving a ‘will’ is said to have died intestate. Without a will, all legal heirs are entitled to the assets of the deceased.
• Testator — A person who makes and executes a will.
• Testatrix — A female who has made a will.
• Beneficiary — A person who is entitled to the asset under a will. Even a charitable organization or a public or a private trust can be beneficiary.
• Executor — A person who is appointed to look after, administer and distribute the assets of the testator upon testator’s demise.
• Probate — The process to establish that a will is valid. The court certifies the will is valid or not.

The Best Written Will

• Badly written wills are a problem. Hence, it is important to write a will properly. Let us have a look. A proper will contains all the necessary identifiers of the testator. Identifiers can go beyond just name, age, religion, address. A proper will must have a declaration made by testator to the effect that the present will is his/her last will. They must say all other earlier wills and codicils are revoked. A codicil is an addition or supplement that explains, modifies, or revokes a will or part of one. Clear information about who are the beneficiaries and what is their relationship with the testator must be mentioned in the will. It should be clearly written what assets will be given to which beneficiary and in what proportion. Say, land admeasuring 100 sq yard will be distributed equally i.e. 50% each to two sons.
• A well-written will must mention that it will take effect after the death of the testator. Also, do mention who will be responsible for the execution of the will (i.e executor’s name). Do note that a will must be attested by a minimum of two persons as witnesses. They have to put their signatures in the presence of the testator. The testator should sign the will in the presence of the witnesses. Beneficiaries cannot be the witness!
• The process of writing, executing and witnessing the will should ideally be video graphed. A video recording of the will is admissible by way of evidence. It is also important to ensure that the will is registered with the sub-registrar of assurances.

Benefits of Will

• A proper and fair will avoids disputes within the family
• A will can make provisions for minor children and children with special needs
• A will can bypass relatives who may be troublemakers in the future
• A will enables smooth transfer of assets
• A will helps you choose your executor
• A will helps specify funeral wishes
• A will prevents legal grief
• A will brings in peace of mind and happiness for your relatives after your death

NSDL Will Service

• NSDL e-Governance Infrastructure Limited & Warmond Trustees and Executors Private Limited (Warmond) have partnered to offer services pertaining to succession planning such as Personalised Will (Will writing service), Executorship and Trust Services, through a web-based portal ‘EzeeWill’.
• A panel of experts has been deployed for preparation of the Will document based on the interaction with the client. EzeeWill Service objective is to provide a friendly, affordable and trustworthy option for assisting its clients in succession planning and drafting their Will in a manner, that their hard-earned wealth is passed on to their family easily.

Advantages of availing EzeeWill services for preparation of Will

• Easy Process for creating a Will through your mode of choice.
• Will drafted by Legal experts having adequate experience and specialization of the subject matter.
• Respects the confidentiality of your Personal Data.
• Simple and Convenient way to ensure wealth distribution as per your wish

Trusts For Estate/Succession Planning

Instead of wills, many today are considering setting up trusts to handle the tricky situation of estate/succession planning. One can bequeath all the assets upon his/her demise to a private or a charitable trust under the will. In this example, a trust swings into action and commissions its activities upon the demise of a person. A trust can be set up for the benefit of family members or such persons who will testator desires to include as his/her beneficiaries.

A trust is considered as a good route to address succession-related issues on a long term basis for the next generation. Simply put, a trust is an agreement between the settlor and the trustees to transfer the legal ownership of assets/property to the trustee. There is an obligation that the transfer of legal ownership is only held for the benefit of the beneficiaries as specified in the trust deed.

A trust has four main components.

1. Settlor: This is the person who settles the trust or is the author of the trust.

2. Trustee: An individual or an entity appointed by the settlor to administer the trust. The trustee accepts the responsibility to act as trustee.

3. Beneficiary: The person or persons for whose benefit the trust is created.

4. Trust-property or trust money: This can comprise movable and immovable property viz. cash, jewellery, land, investment instruments etc.

A trust should have the following things to ensure justice is done.

I) At the outline, the purpose and objects of the trust should be properly written

II) The beneficiaries of the trust must be clearly specified

III) The identifiable property should be properly transferred under an irrevocable arrangement to the beneficiaries

Different types of trusts

There are various types of trusts classified as per the Indian laws. The type of trust usually depends on the purpose they have been formed.

• Public Trust — Such a trust is constituted wholly or mainly for the public. Such trusts are in the nature of religious or charitable.
• Private Trust — Such a trust is constituted for the benefit of one or more individuals. A private trust is governed by the Indian Trust Act, 1882. However, if such a trust is created by a will, it is usually subjected to the provisions of the Indian Succession Act, 1925.

Wills vs. Trusts

We have told you a lot about why, how and when about wills. So, you may ask why are we talking about trusts. There are some clear reasons why trusts are often better than wills in certain situations.

1. By adopting a trust route, a person can avoid the issues which may arise in a will. In a will, questions are always raised about the authenticity of the will, mental soundness of the person when they made will. Allegations of forgery also take place when it comes to considering wills. Many family members tell courts that the will is not proper or signature is wrong etc. Clearly, the grounds on which a will can be challenged are many in number.

2. Wills can take a lot of time to be executed. Yes, the probate on a contested will could take several years. The entire process is expensive and goes on for a long time. Both the cost and time involved make such a route disadvantageous. On the other hand, a trust deed is never disclosed to anyone. It is highly confidential. Also, in most cases, there is no need to obtain probate even.

Select the right estate planner

The role of an estate planner in estate planning is very vital. They form the important spoke in the wheel of estate/succession planning. The qualities of an estate planner cannot be judged in a single meeting. Meet them for a few times and deeply engage with them. Find out the following about the estate planner to know more about them. It is important to know more about them before, than leaving the job to people about whom you know very little.

1. Principal area of their practice.

2. Apart from will writing, assess their level of expertise in instituting a trust.

3. The total years of experience of the individual and the firm.

4. The fees involved — fixed or on time/effort basis.

5. List of all services and separate fee chart.

6. Try to get customer testimonials. This will help you get a sense of the service.

7. Do your own research and reference checks.

Qualities which a good estate planner must have

I) Righteous individual — A good estate planner should be a person with solid integrity and impeccable ethics. They have to be morally upright. They will never ever compromise safeguarding and serving your interest as a client.

II) Proficient — Estate planning requires knowledge, skill, and experience. They should display an advanced degree of competence in estate planning laws and practice. A small mistake or ambiguity during the documentation can cause big problems later.

III) Listener — The ability to listen and comprehend the needs of the testator is very important. A good estate planner will always hear more and speak less. They will display sensitivity and the ability to comprehend. It is important to listen to the client to give proper advice.

Important Points to remember:

• Plan your estate when you have time.
• Discuss and share your thoughts on transfer of wealth.
• Do not assume family members will not fight.
• Disclose your assets to a few selected near and dear ones.
• Make a will and revise it once in a few years.
• Follow the due process and seek legal help with will.
• A trust can be a good alternative, but do know its pros and cons.
• Life is unpredictable and so do not leave estate/succession planning for post-retirement days.

Thanks for reading the Article

Originally published at https://www.yourcaguide.com on June 18, 2022.