Until some years ago estate planning was thought to be exclusively for the wealthy. The middle class people that just managed to make ends meet believed they didn't need to bother about it. However estate planning is necessary for all. Whatever assets you own should be distributed to those you feel deserve them. By proper estate planning you can be peaceful that your assets will be available.
What can happen in the absence of estate planning in a society like India is well known to all. We have witnessed family feuds in great business families like Ambanis and Birlas. An ill-planned succession can lead to unnecessary stress and rifts among family members. More importantly if one dies intestate their property distribution comes under the Intestate Succession of the Indian Succession Act and it varies from case to case. Your property might get inherited by someone whom you would not have wished to give to while you were alive.
Estate refers to all assets held by a person and includes real estate property, vehicle, jewelry, shares, and money in deposits and accounts. Estate planning is systematically arranging for smooth allocation of wealth and assets post death of the individual or in the event of disability. The goals of estate planning are to protect, preserve and manage your estate/assets during and post your life.
Estate planning must not end with simple division of assets or business. In order to avoid siblings warring over inheritance assets must be divided after proper valuation. The methods or tools of estate planning in vogue today are wills, trusts, gifts and power of attorney. The most commonly used one in India is to write a will.
Writing a will
A Will is a legal declaration that is executed after the death of the testator. It can be made on any document and in any language. It is not a legal requirement to involve a lawyer in drafting a Will and many people prepare it by themselves or with the help of friends, relatives. These often turn out to be unacceptable legally during implementation, after the death of the person. This defeats the purpose of a Will altogether. So it is always advisable to engage a legal professional to draft a Will so that all aspects of the law can be taken into account to avoid any adverse situation in the future. If you have substantial property you can get your will registered. Registering a will helps when there is a dispute and it is not uncommon for disputes to arise during execution of a Will.
A Will must be drafted by a legally competent person. In other words you must draft a Will when you are fit to do it and possess a healthy and sound mind. Have a clear account of all your assets and liabilities and get all assets valued correctly. Assets should be distributed in a practical manner. A single asset like a house should not be distributed among several people. Ensure that all your assets are covered in the Will and specify names of all beneficiaries for specific assets. You can even specify when you'd like the assets to be transferred, i.e. immediately after your death or at specific times for different beneficiaries.
A person must be named to execute your Will. The executor must be someone you can rely on to sincerely carry out the Will's execution. Ensure that you receive consent from the executor for undertaking responsibilities as an executor. The Will must be signed in each page and dated in order to be valid. It must also be attested by two or more witnesses apart from the witnesses and beneficiaries. The prepared Will must be kept in a safe place and if prepared by a lawyer, keep a copy with yourself.
Setting up a trust
A trust will better serve the purpose when there are substantial assets to be bequeathed. A trust is a legal relationship where the settler transfers his/her assets (called trust fund) to another individual/s (trustee/s) who manages the assets for the benefit of others (beneficiaries) named by the settler.
When you create a trust you transfer all your property, assets, bank accounts, securities, real estate to a person or persons you trust. You no longer own these assets, the trust does. You still have access to all these assets while you are alive. You instruct your trust to pay out all income to you during your lifetime, and on your death whatever is left would be given to your beneficiaries. You can put instructions in the trust as to who has access to it. The greatest benefit of forming a trust is to avoid probate after you die. Property you transfer into a living trust before your death doesn't go through probate. The successor trustee simply transfers ownership to the beneficiaries. In many cases, the whole process takes only a few weeks and there are no lawyer or court fees to pay. When all of the property has been transferred to the beneficiaries, the living trust ceases to exist.