Importance and Benefits of Estate Planning:
Most of the family disputes in India occur due to a lack of proper “Estate Planning”. People at the young age tend to postpone estate planning assuming that it’s a job for the latter part of their life. However, it’s not just estate planning but they also ignore the uncertainties of life; remember no one has any control over life and everyone has to die one day or the other. In fact, people in their old age also keep postponing the decision of making a ‘Will’; due to apprehension of being ignored by their children once the property has been named after their children.
There is also a misbelief among people that estate planning is only for the rich. However, that’s not true; estate planning is essential for every person who has assets. In fact, everyone has an estate in some form or the other which includes assets such as jewellery, cash, house, car, land, bank accounts, etc. Estate planning becomes essential if you are the only bread earner in your family. You need to ensure that in the event of your death, your survivors easily get the access to your assets without having to go through any disputes or legal issues in court. Below post will help you to understand the importance of estate planning and various terminologies used in estate planning.
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What is an Estate Planning?
Estate planning is a process for legally organising assets of a person as per his/her wish, during and after the person’s life. Estate planning includes estate preservation, management & legacy.
The aim of estate planning is to ensure that the estate is passed on to the estate owner’s intended beneficiaries and is allocated to the beneficiaries in the proportion decided by the estate owner. Estate planning also includes maximising the estate value by reducing the tax liability and other expenses and eliminating uncertainties in obtaining probate.
Importance of Estate Planning
If you do not make any ‘Will’ the estate will be distributed as per the law governed by the nation. Also, if there is no one to claim your assets after your death, the ownership of the estate will be taken up by the government. Listed below are some of the reasons for estate planning:
• It gives you the freedom to choose people among whom your assets should be distributed and in what proportion, after your death.
• It gives you a sense of relief that your assets will go to the people whom you love and there will not be a conflict between the people among whom the assets will be distributed.
• If you have children who are minor, it helps you to decide on who will take care of your children in case of unforeseen events such as permanent disability or death.
• It helps you to decide who will execute your ‘Will’ in your absence i.e. who will be the executor.
Methods of Estate Planning
There are two methods through which estate planning can be done:
1. By Writing a Will:
A ‘will and testament’ is a written document of your desire for the distribution of your wealth to the loved ones after your death. There is no prescribed format for writing a will and any person above 21 years of age can write his/her will on plain paper. However, it’s advisable that you should write a will in your own handwriting as it may be questioned in future in case of any doubts raised by the next of kin or relatives. A will help you distribute your wealth in a proportion chosen by you to your successors. After writing the will, you have to sign on it and mention the date and place in presence of two witnesses. The witnesses could be your colleagues, friends or relatives but not the direct beneficiaries of the will. Witnesses are only the proof that you have signed the will and they are not the part of the will. You can keep the will in an envelope, and the envelope should be sealed & bear your signature and the date. Witnesses need not have to sign on the envelope.
How is the ‘Will’ executed?
Post your death, the executor of the will, shall divide the wealth among the beneficiaries as stated in the will. There is no legal binding for executing a will in a court of law. However, if you wish, you can make a provision in the will itself for its execution before a judicial magistrate or a notary public. This can avoid any dispute regarding the distribution of wealth.
What is a Probate?
A probate is a duplicate copy of the will. For distributing wealth among the beneficiaries as per the will, the executor of the will has to file a probate. It often takes six months to one year for granting probate in Indian courts. Once the probate is filed, the court gives an advertisement in the newspaper to make sure that its granting is not contested. The court may later call the witnesses of the will to testify and sign requisite documents. Post submission of fees & taxes and preparation of affidavits, the probate will be issued. Once the court passes the probate order, legal heirs can get the deceased property.
Also Read: Why, When & How Of Will Writing
2. By Creating a Trust:
While ‘Will’ is an easy way to transfer your wealth to your beneficiaries post your death, the process may get complicated, when ‘Will’ have to be executed in the name of a minor child; as the child may not be competent enough to make decisions on its own. In such a situation, you can create a trust for the effective management and distribution of your assets to your beneficiaries. Apart from this, there are several other reasons for creating a trust.
Creation of a trust also depends on the amount of assets you possess and how you would like to transfer your property to your legal heirs. Trust in India are created and governed as per the Indian Trusts Act 1882.
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What is a Trust?
It is an obligation appended to the ownership of the property and arises out of a trust reposed in and accepted by the owner/ declared & accepted by him, for the benefit of another, or of another and the owner.
Key Terms on Trust:
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Author of the Trust/Settlor:
A person who sets up/creates the trust. He/she is also known as a Grantor, Trustor, Creator, Trustmaker, Transferor or Donor.
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Trustee:
The person who accepts the confidence/who is appointed by the Settlor for the administration of the trust.
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Beneficiary:
Beneficiary/Beneficiaries are the people for the benefit of whom the trust is created.
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Certificate of Trust:
It is a document that summarises your trust and outlines the requisite details pertaining to the trust. It does not contain details about the beneficiaries and distribution of assets.
•
Trust Deed:
It is an agreement between a trustor, a trustee and the beneficiary for the establishment of the trust.
However, creating a trust has some limitations as listed below:
• Wrong selection of the trustee may impact the objective of trust largely.
• Drafting a trust deed is complex than making a will and if not drafted properly, may become an obstacle to its execution.
• There is also a price associated with forming a trust which is not there in case of a Will.
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Important Terms used in Estate Planning
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Assets:
Assets are something that you own. It includes your home, car, jewellery, bank accounts, land, art, furniture, clothing, etc.
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Power of attorney:
It is a legal document in which you give legal authority to someone else for the administration of your financial assets by putting your signature on the document. It may cover your entire estate or only those specified by you. POA ends if you become incapacitated or on your death. However, in case of durable POA, authority remains throughout your lifetime and does not end in case of incapacity.
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Decedent:
A person who has died.
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Legal Heirs:
They are the person entitled to receive the benefits after the death of the person writing the “Will” or creating a “Trust”. They could be spouse or children.
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Nominee:
For the transfer of your assets such as fixed deposits, mutual funds, property, insurance policies, etc. to your beneficiaries, you need to appoint a nominee. The nominee is a trustee or the custodian under the law who shall distribute your assets to the legal heirs stated in your will. Nominees role is to make sure that the benefits are received the beneficiaries/Legal heir. The nominee is not the real owner of your wealth.
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Guardian:
A person who takes care of another person or manages a person’s property and/or their rights because of age, health status, intellect and who is incapable of managing their own affairs.
•
Intestate:
This term is used when a person dies without leaving a valid will.
Benefits of Estate Planning
• It enables you to transfer your assets to loved ones as per your wish after your death.
• Further, it eliminates the disputes between the beneficiaries after your death.
• Beneficiaries do not have to go through any legal issues in the court and will easily get the benefits.
• You can plan for medical and physical incapacity and decide in advance who will take care of you and your minor kids in such situation.
• It helps you to minimise the expenses of transferring the property to the beneficiaries and enable them to get more benefit.
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Final Words
Estate Planning is important for everyone as it gives a peace of mind and helps in ensuring that your assets go to the people you choose without any hassles and disputes.
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