Jaishank Gupta

Planning is generally a part of everything we do in life, from our careers to every minute of our vacation. But we turn a blind eye to planning the distribution of our assets on our departurethe same assets that we spent our whole lives planning for.

Estate planning or succession planning is crucial if you wish to put your hard earned assets in the right hands without dispute. It becomes even more crucial when you want to distribute your assets in an unequal manner.

If you pass away without a will, it is called dying 'intestate'. In these situations, the court will order your debts paid and your assets distributed. Unfortunately, your assets will be distributed according to the law of succession governing you-The Indian Succession Act, 1925, The Hindu Succession Act, 1956, The Muslim Personal Law (Shariat) Application Act, 1937, and the Special Marriage Act, 1954 (in case of interfaith marriages). Since the state doesn't know your preferences, the probate court may not distribute your assets according to your wishes.

Because intestacy is settled in court, your heirs may have to endure a long, costly and public probate process that could take six months to a year or more. They will have to wait until the process is over to receive their inheritance after the deduction of the legal, administrative and probate fees,which could consume a significant portion of your gross estate.

To eliminate such hardships, you can plan the distribution of your estate so your heirs get their share after your death without any problems. Each way allows a different degree of control over distribution, and each poses different challenges and opportunities.

Will

A will is a written set of instructions on how you would like to distribute your estate upon death. It becomes effective only after death.

Essential points to note while making the will:

• Appointing an executor-You can name a 'personal representative' of your estate. This person or institution (for example, a bank or trust company) is known as the 'executor' who will carry out your wishes according to your testament.
• Presence of witness-A will should be signed by the testator (the person whose will is being made) in the presence of at least two witnesses. The full names and addresses of the witnesses should be clearly indicated in the will and it is very important that the witness is neither a beneficiary nor an executor of the will.
• Always mention the date-If more than one will is made, the one with the latest date nullifies all the previous ones.
• Number the pages-To prevent miscommunication, it is advisable to number the pages to allow the will to be executed in its proper flow.
• Simple and preferably unconditional-Too many pre-conditions create unnecessary problems and delays in the execution of the will. They also give added responsibilities to the executor of the will.
• Handwritten or typed-A handwritten will, also known as a Holograph will, is valid. However to prevent ambiguity, it is better to have the will typed.
• Registration not mandatory-Without any registration or the use of any stamp paper, a will is authoritative and recognised by the law.

Trusts

Another increasingly popular way to manage your assets is to create a trust.

A trust is a legal arrangement under which one person, the trustee,manages property given by another party, the trustor, for the benefit of a third person, the beneficiary. Trusts can be very effective estate planning tools.

Trusts can be established during your life or at death. They provide for management of the estate during your lifetime and also for distribution and management of your wealth after death.

Trusts give you maximum control over the distribution of your estate. Trust property will be distributed according to the terms of the trust, without the time, cost, and publicity of probate.

You can benefit from the services of professional asset managers, and you can protect your assets in the event of your incapacity. With certain types of trusts, you may also be able to reduce estate taxes. One of the advantages of trusts among wealthy families is that they help avoid family disputes that could lead to disintegration of family businesses. Confidentiality is also maintained.

Trusts have other advantages too. The trust route can be used for the distribution of assets not only for the present generation but also for future generations. The money can be held and managed by trustees for minor children until they reach maturity. While trusts offer numerous advantages, they involve up-front costs and ongoing administrative fees.

Gift your loved ones

Another innovative way to leave a legacy is through a gift deed. The gift deed must be made during the lifetime of a person. In case of immovable property, it must be registered under the Indian Registration Act. If the gift is made to a family member, a stamp duty of 2% of the value of the gift is levied at the time of registration.

Through this method, a lot of confusion is avoided and the process of transfer of estate is trouble-free. However, choosing to gift away your property should be done after much thought, as gifts, once given, cannot be taken back easily.

Start now

Young, middle-aged or retired, if you haven't taken the steps already, it's important to consider planning now for the distribution of your assets.

Here are some starting points to start off your estate planning:

• Make a list of all your assets and all your liabilities-Your liabilities will have to be paid at your death. What's left over, minus administrative and probate costs, is what your beneficiaries will get.
• Gather other important documents-Letters of last instructions, medical records, bank and brokerage statements, income and gift tax returns, insurance policies, titles and deeds.
• Beneficiaries-Decide who gets what, and in what proportion.
• Choose a guardian-Nominate a guardian for your minor children and their estates.
• Appoint an executor-Whether you prepare a will or create a trust, an executor plays a crucial role. He will manage your estate from the time of your death until the time your assets are distributed. This is a big job. So make sure the person has the time and the ability to do it.

The writer is a certified financial planner, working as a relationship manager with Mumbai-based SRE Financial Planners. The views expressed are those of the author and do not necessarily represent that of FPSB India. Feedback to the article may be mailed to myplan@fpsbindia.org

Source : DNA