Believe it or not, you have an estate. In fact, nearly everyone does. Your estate consists of everything you own: your car, home, other real estate, checking and savings accounts, life insurance, furniture, investments, personal possessions. No matter how large or how modest, everyone has an estate and something in common—you cannot take it with you when you die.
What is estate planning?
Estate planning is the process of designating who will receive your assets and handle your responsibilities after your death or incapacitation. One goal is to ensure beneficiaries receive assets in a way that minimizes estate tax, gift tax, income tax, and other taxes.
Estate planning can help establish a platform you can fine-tune as your personal and financial situations change. The key question to ask yourself is: How do you want your assets distributed if you die or are incapacitated?
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 members over your estate that can devastate the peace and happiness you’ve always sought for your family.
In the 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!
Estate Planning Is for Everyone
It is not just for retirees, although people do tend to think about it more as they get older. Unfortunately, we cannot successfully predict how long we will live, and illness and accidents happen to people of all ages.
Estate planning is not just for the wealthy either, although people who have accumulated wealth may think more about how to preserve it. Good estate planning is often more impactful for families with modest assets because the loss of time and funds as a result of poor estate planning is more detrimental.
Too Many People Do Not Plan
People put off estate planning because they think they do not own enough, they are not old enough, it will be costly or confusing, they will have plenty of time to do it later, they do not know where to begin or who can help them, or they just do not want to think about it. Then when something happens to them, their families have to pick up the pieces.
How to undertake Estate Planning?
Well, broadly there are two ways – A Will and a Trust.
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 the 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.
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 your 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 cornerstone of estate planning. Hence plan and make a 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 a court of law. However, registration can serve as evidence of the genuineness of the Will.
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:
- Author of the Trust/settlor: He’s the one who settles the Trust or in other words is the author of the Trust
- Trustee: An individual / entity appointed by the Settlor to administer the Trust and accept the responsibility to act as Trustee.
- Beneficiary: The person(s) for whose benefit the Trust is created is called the Beneficiary.
- 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 may be 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
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.
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.
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
- 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 judgment when it comes to making financial decisions and legalities.
- 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 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.
The Best Time to Plan Your Estate Is Now
None of us really like to think about our own mortality or the possibility of being unable to make decisions for ourselves. This is exactly why so many families are caught off-guard and unprepared when incapacity or death does strike. Don’t wait. You can put something in place now and change it later—which is exactly the way estate planning should be done.
The Best Benefit Is Peace of Mind
Knowing you have a properly prepared plan in place—one that contains your instructions and will protect your family—will give you and your family peace of mind. Estate planning is one of the most thoughtful and considerate things you can do for your loved ones.