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Estate Planning

What is Estate Planning?

In order to provide financial security for loved ones, an individual works hard to build assets during his/her lifetime – be it investments, house property, plot of land, etc. What is then equally important is to protect these assets in the event of death of the owner and planning their transfer to the intended beneficiaries in a hassle free manner. Estate planning is exactly that – putting the plan on paper and mentioning 'who should get what and how much portion of the wealth'.

Why the need for Estate Planning?

While people are getting increasingly aware about financial planning and the various aspects of personal finance, estate planning is something that do not cross their minds. Here are some common reasons, even misconceptions due to which people do not go for estate planning:

  • Young couples – newlyweds, first-time parents, with grown-up children, caught up with responsibilities do not feel the need for estate planning.
  • There is usually this wrong notion amongst people that estate planning is for the wealthy.
  • People think that since nominations of all their assets are in place, they do not require estate planning.

In the absence of estate planning, succession laws of the country come into force based on religion and assets get distributed in a manner an owner might have not wished for. There could be gender biases involved too in the distribution of assets. An individual having a disabled child or a widowed daughter would want to make sure they are looked after well in his absence. In such situations, estate planning helps in securing their financial future in the long term. It is also necessary for an individual who has children from previous marriages but would want to bequeath a portion of assets to them after his death.

It is thus important to have estate planning in place to deal with uncertainty in life. Any person, not just the rich, who has or is in the process of accumulating assets can have an estate plan in place. It is important to note that having nominations of all assets done is not akin to Estate Planning. Nominees are simply trustees in the case of some assets like house, bank account, mutual funds, insurance and retiral benefits, etc. This implies that in the absence of estate planning, assets of the owner will get distributed as per the Indian Succession Act and not to the nominee. Estate Planning can thus secure the financial future of dependants in a family. They can be spared the pain of family disputes and lengthy court battles. One can bequeath assets as per personal wishes and in the process take stock of the assets and liabilities accumulated.

Popular tools of Estate Planning

Traditionally, Wills have been the primary tool being used by people for the distribution of assets. A Will is a legal declaration of an individual’s intention which mentions the name of one or many persons to whom the property would be transferred after his death. A Will can be prepared on a piece of paper by a person of sound mind. The Will needs to be signed by two witnesses who are not beneficiaries of the Will. A Will can be revoked or altered by the person making the Will at any time during his life. Just like insurance, a Will needs to be reviewed and upgraded at periodic intervals. For e.g, events like child birth or purchase of a new property, etc.)

A Trust involves transferring of one’s financial assets to a Trustee for the benefit of certain beneficiaries which may include the person creating the Trust who is called the Settlor. A Trust is helpful when direct transfer of assets is not possible to the beneficiaries, for e.g., in the case of minor children. A Trust not only provides for management of the estate during one’s life time but also distribution of their assets post demise in a planned manner over a period of time

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