People in India have the misconception that estate planning is reserved for the wealthy and powerful who have large estates or established family businesses. Well, that's not the case!
Every single person who possesses an asset (including a liability) and wishes to distribute it according to his or her wishes must engage in estate planning. It makes no difference how many assets there are.
Others feel that because they have already designated beneficiaries for all of their assets, they do not require estate planning. After all, in the absence of the candidates, the nominees would be the beneficiaries of the assets. Well, that's once again untrue!
The assets do not belong to the nominees. They are merely your assets' trustees, tasked with distributing them to your legal heirs in accordance with your will or, in the absence of a will, in accordance with the succession laws. Most people put off or overlook estate planning because they believe it to be a difficult task or something they should save for later in life.
What is Estate Planning?
Estate planning is the process by which a person or family sets for the transfer of assets before passing away. An estate plan tries to retain the most wealth and flexibility for the individual before death for the chosen beneficiaries. The smooth transfer of assets to the next generation without any disagreements is a primary consideration while drafting the estate plan.
The whole real and personal property that a person has before it is distributed through a trust or will is known as their estate. Real estate is real estate, whereas everything else is referred to as personal property, such as automobiles, furniture, and bank accounts. Real and personal property are distributed to a person's heirs through estate planning.
Importance of Estate Planning: -
Estate planning makes sure that the individuals you want to receive your assets, both material and financial, after your passing do so. If you pass away intestate, the law may not consider your interpersonal connections or preferences while distributing your possessions (i.e., dying without a Will). If you don't have a good plan, it's possible that the law will distribute your inheritance among relatives who may not be the ones you would have chosen as beneficiaries right away.
Many people lose their ability as they age, and occasionally even as young adults. A person who is incapable of caring for himself or meeting his fundamental requirements due to a mental or physical ailment they are suffering from is said to be incapacitated. Estate planning also includes making preparations for these potential occurrences. In the event that you are unable to handle your financial matters on your own, it is crucial to decide who will. You could also prefer that only a person you can trust makes all medical and health-related decisions for you during these trying times.
If you want all of your desires to be satisfied, even if you might not be able to express them, systematic estate planning must be done. For the benefit of the surviving family members, you can also name a person or people to administer your estate and money following your passing.
By establishing a trust, you can also pass your assets to your beneficiaries. You might be able to decide how and when your beneficiaries should get their inheritance if you do this as well. When your spouse and minor children are unable to handle their finances on their own, setting up a trust can be quite helpful.
Another benefit of creating a will is preventing conflicts and issues within the family. Your possessions will be allocated according to local law if you pass away without making a will.
Tax payment is another occurrence that is unavoidable in our lives. Through estate planning, you may also be able to lower the amount of taxes that your heirs will ultimately have to pay out of their bequests.
Purpose of Estate Planning: -
Creating a strategy that will improve and sustain the financial stability of clients and their families is the overarching goal of succession planning. Finding a strategy to amicably and fairly settle estate issues after a parent or loved one passes away is crucial. Unfortunately, there are many difficulties involved in dividing up an estate, and these difficulties can lead to resentment or ongoing issues between siblings.
There are efforts to prevent these issues before death happens and steps the beneficiaries can take after death to address them more swiftly for families who wish to avoid this type of situation in an already difficult time. Families can avoid unneeded arguments if the property division is spelled out in a Will that is duly witnessed and certified.
Some disputes can persist after death. Changing the estate planning documents now won't assist because they have already been finalised. Hiring a mediator should be the first course of action in cases when siblings and other beneficiaries disagree. A mediator may be all that is required to resolve the conflict and will be less expensive than going to court.
Taxes are a problem that very few individuals will ever face. However, you can avoid paying as much in taxes if you inherit millions of dollars and are concerned about how to handle them. Planning your estate can help you manage and safeguard your assets from potential creditors for both you and your beneficiaries as well as reduce your tax burden.
Estate planning will aid in protecting the assets if you work a job where there is a high danger of being sued or dealing with claims from creditors. The ideal candidate for this kind of planning is a doctor.
How do you plan an estate in India?
In India, estate planning is often done in one of two ways:
Writing a Will: A will is a legal document that expresses the testator's (the person who is writing the will) intention to divide his or her property according to his or her wishes after passing away.
In India, a Will may be written by any adult over the age of 18. Your will doesn't need to follow any particular format and can be written on simple paper. To avoid any misunderstanding, it is crucial to remember that it should be expressed in clear, straightforward, and simple language. The Will's goal should be made very clear.
The testator must sign the will when it has been properly written, indicating the time and location of the drafting. In addition, two witnesses who can attest to the signatures in their presence must also sign the will. Other than the beneficiaries of the will, anyone could be these. A will would be meaningless in legal terms without witnesses. It shall be deemed VOID.
It's also possible to videotape the testator reading his or her own Will on video. It will act as further evidence of the accuracy of the Will's provisions.
When the testator passes away, the executor—the person designated by the testator to carry out his or her Will—will distribute the assets to the beneficiaries in accordance with the terms of the Will.
By Establishing a Trust: Making a Will is unquestionably a useful estate planning instrument in India. However, numerous instances of the Will being contested in court surfaced. Establishing a trust can help you avoid such a scenario.
In this case, the settlor or author transfers the assets into the trust, which is then administered by the trustees on behalf of the beneficiaries. A trust deed is the legal instrument that establishes the trust.
A private trust is one established for the benefit of close family or friends, whereas a public trust is one established for the benefit of the entire public.
The trust's creator should make it very clear what the trust's goals are, who the beneficiaries are, and how the assets will be administered.
The author can maintain control of the assets and ensure that they are not only carefully managed but also distributed to the beneficiaries in accordance with his or her wishes by establishing a living trust during their lifetime.
Building trust will aid in both asset management and distribution as well as asset protection. Private or family trust assets are protected against claims by the fact that creditors cannot seize them in order to pay off debts or loans.
A trust does not involve getting probate, unlike a will. By avoiding the trouble of going to court, it would also save money and time.
Another way to create a trust is through a will, which takes effect after the settlor's passing (testamentary trust). From a tax planning standpoint, this can be done by setting up various tax files in the names of family members.
Checklist of essentials:
Make sure you've completed everything on the estate planning checklist below before creating a will.
Determining who is in charge of carrying out the Will (executor). He or she may be a beneficiary or a third party. Name the guardian if the child is a minor (s).
List the two witnesses who are willing to certify the Will. They ought to be people different from the beneficiaries.
List each beneficiary and each legal heir, together with their age and birthdate.
List all of the tangible and intangible, or physical and financial, assets with all of the information that is known about them.
List the loans and advances you have taken, along with the assets they are secured by and the bank account where the EMI is taken out.
You should be certain in your mind how you want to distribute each asset and how you want to dispose of the liabilities.