Why Estate Planning is Important?
By InCred July 26, 2021
The pandemic has exacerbated the need to have a plan for wealth transfer.
Abraham Lincoln once said “The most reliable way to predict the future is to create it” and this beautiful aphorism perfectly applies to your hard-earned wealth too. Through Estate Planning you are able to not just predict but cast in stone the future of how your wealth gets distributed to meet the needs of your family and your life goals.
With the ongoing pandemic situation, the uncertainty of life has hit home and will-drafting & estate planning has picked up pace tremendously. In fact, leading legal firms and lawyers are seeing a sharp rise in consultation on writing/revisiting Wills and Estate Planning. They share that at least 70-75% of families they work with are opting for Succession Planning to protect their legacy. To sum it up, as per a detailed report, the number of queries for Will-making has registered a steep increase from 7800 in FY 2019 to 58,000 in FY 2021. (Source: The Economic Times)
Succession & Estate Planning is a systematic process that can be initiated any time in life to secure the future of your wealth, your family and your business. It is about anticipating and arranging for the distribution of your assets during or after your lifetime.
While anyone can write a will easily today, to create a well-planned and fool-proof structure for wealth transfer, you definitely need the help of experts. An Estate Plan includes Estate Management, Estate preservation and Estate legacy and is designed to cater to High & Ultra High Net Worth Individuals (HNWIs) seeking to establish a succession plan, which may also provide compliant tax optimization or tax deferral.
A well-developed estate plan can avoid family feuds, protect the wealth from getting eroded due to litigation or divorce, appoint a guardian for minor children in your absence, provide for any special need for dependents, consolidate and demarcate between personal and business income, etc. It would also aid in a medical emergency where you are incapacitated and not in a position to take a decision for yourself or in your old age when you need to rest and enjoy your retired life peacefully. It would also add value in fulfilling your philanthropic aspirations.
A Succession Plan can be created for anyone and for all situations:
- Business Houses, Entrepreneurs & Professionals
- Nuclear or Joint Family
- Family with no legal heir or with a special child
- Family with beneficiaries across globe with different residential status
- NRI Family with assets in India
- Multiple Marriages
- Inheritance Tax planning
- Protection from any unforeseen events
- Any person who would like to distribute assets as per her/his wishes and not as per the governed law
Wills & Trusts
There are 2 main instruments for Estate Planning – Will & Trust.
‘Will’ is the most practical first step in Estate Planning and is a legal declaration of the intention of a person regarding assets that the individual desires to take effect after his or her death. It carries all your wishes as to how your wealth would get distributed and in what percentage. This does not leave your family members in ambiguity as to what one would get.
If you don’t have a Will, which means you die intestate, your estate will be distributed according to the succession laws of the country based on your religion and your property could be distributed differently than what you would like it to be. A Will made by a Hindu, Buddhist, Sikh or Jain is governed by the provisions of the Indian Succession Act, 1925.
However, Muslims can dispose their property according to the Sharia Law. The laws of succession certainly do not cater to the specific needs of your family. For example, as per the Hindu Succession Act, assets will be distributed equally among the children but you might have a differently abled child or a widowed daughter and you want to make sure they are looked after well and might want to provide that extra provision, which can be made available through a well-drafted bill.
‘Trust’ on the other hand another method of estate transfer—a fiduciary relationship in which you give another party authority to handle your assets for the benefit of a third party – whereby assets, movable or immovable, are transferred by one party (settlor) to be held by another party (trustee) for the benefit of a third party (beneficiary).
When should one consider creating a Private Trust?
- Control over the Assets :A trust gives you control over how the beneficiary receives the assets. For example, if you leave a large sum of money to your child in a trust, the trust can set forth how and when the child will receive the money after you are gone.
- Estate Duty Protection : The trust may provide protection from any estate duty laws if re-introduced in India.
- Asset Protection :In some situations, it is possible to protect your assets by settling them under a trust. In this manner, the assets are safe from claims made by the creditors of the Settlor.
- Consolidated Holding :It works as a single platform and holds all the investments of the family.
Why a Trust may be preferred over Will?
- Wills take effect only at death, thus making it necessary to create other documents to handle situations requiring care during a person’s lifetime.
- Assets that pass by way of a Will are potentially subject to probate proceedings, which can be time-consuming and expensive and are open to the public.
- Wills may be easily contestable on various grounds and may lead to family disputes after the death of the individual.
- No protection from possible Estate duty in India.
Finally, think deeply and imagine how gratifying it would be if your wealth and assets adopt your desired design in the future without any room for misinterpretation. This is where the proficiency of InCred Wealth comes into the picture where we will be able to provide expert comprehensive support through partners of global repute to design your Estate & Succession Plan.
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