Moneycontrol, May 7, 2021
If you do not have an estate plan in place, the distribution of your assets would done according to the government’s intestate succession laws
Many of us procrastinate writing a Will. But in these COVID-19 times, especially during the ferocious second wave that has unleashed a lot of casualties, it’s important to make provisions for our loved ones.
In our last column, we discussed the emotional blocks to estate planning such as fear of opening the pandora’s box of family conflicts, behavioral biases, or merely being uncomfortable taking such decisions. These are just some of the excuses that keep people away from planning the succession of their estate. And what exactly is estate planning? An estate plan is not just a blueprint to pass on wealth to your loved ones, but has greater relevance.
Avoid intestate succession
If you do not have an estate plan in place, the distribution of your assets would done according to the government’s intestate succession laws. So, your assets may not be distributed as per your wishes. For instance, if a Hindu male passes away intestate, his assets will be distributed equally among his mother, spouse, and children.
Choose your inheritor(s) and manner of distribution
Decide who in your family inherits which assets. This may depend on factors such as their financial situation, age, place of domicile, level of prudence, among others. For instance, if your children live overseas, they may find it difficult to manage your real estate portfolio than your financial assets, which can be easily remitted.
Utilize the opportunity to not only choose your inheritors wisely, but also the way they will inherit assets. For a lot of families, ‘equal is fair.’ They do not realize the fact that not all assets are divisible equally, for instance assets such as jewellery and real estate. Doing so may result in too many co-owners for one asset with perhaps divergent views on dealing with the inheritance.
Protect interests of minors
It is imperative that you safeguard the future of your child by appointing guardian(s) in your Will. These persons will be responsible for being the custodian of their inherited assets until they attain 18 years of age. They will also be responsible for taking care of the child’s requirements, comforts and most importantly on how they should be raised.
Prudent management of wealth for your loved ones
An estate plan can protect adult beneficiaries who may make bad decisions, too, in the context to their inheritance, due to factors such as outside influences, creditor claims, divorce and lack of financial savviness. You can set up structures such as a private family trust to safeguard against such concerns.
Plan ‘B’ in the case of contingent events
Your estate plan can also include provisions for taking care of situations if they do not go as planned. For instance, if you chose to pass on your wealth to ‘A,’ but if he dies earlier, then you can choose an alternative inheritor.
Further, an estate plan is not just about what happens after you pass on. What happens if you become incapacitated during your lifetime? Using tools such as ‘power of attorney’ can be useful during your lifetime during contingent events such as your incapacitation or being medically unfit, whereby you are unable to manage your financial affairs.
Safeguard wealth from unforeseen risks
You can also build safeguards to protect your wealth with a bona fide intention from business and professional risks such as creditor claims that could erode your wealth. This is especially helpful if you work in an industry with high litigation.
Simplify the administrative formalities
An often-ignored aspect of an estate plan is passing on information relating to your assets as well holding assets in a manner that ensures your loved ones enjoy a seamless and hassle-free inheritance.
Remember, an estate plan is not just about writing a Will. A good plan should be designed to consider your objectives, not only after your lifetime, but during your lifetime too. Some of the common components of an estate plan are:
Will: A legally binding document directing who will receive your wealth after your lifetime.
Power of Attorney: It authorizes a person to transact on your property matters, financial affairs, legal and judicial proceedings, tax payments etc. due to certain reasons such as your being overseas, getting old or unable to look after your financial affairs due to medical reasons etc.
Private Family Trust: A trust provides many benefits such as succession planning, especially for family businesses, avoids probate, eases management of wealth for special children etc. It enables you to manage your estate both during your life and beyond. Most estate plans include, at a minimum, two important estate planning instruments, a power of attorney and a Will.
The estate planning process will definitely involve some efforts from your end, but you can rest easy once it is done, having full confidence that your assets will provide for your loved ones exactly the way you intended.