Estate Planning Basic- Even The Riches Missing It?
Mohammad Ali was a genius in his own destiny and had much more to admire in his life. We all admire him for what he achieved. It’s not then that his death brings tears in many of his fans and admirers.
But there is another angle which has emerged after his death. Survived with four wives and nine children he has left a mammoth estate to be distributed among them. But he do not have any will which means who own what and how much will eventually be decided by the court unless of course the family comes to a settlement. But that’s looks to be a difficult proposition. So again a celebrity and a legend make a simple mistake of not penning down his estate distribution among his legal heirs. Although he was suffering from Parkinson disease the thought of Will should have come much earlier in life.
Read – Private trust in India
The life of many celebrities and legends is again and again pointing to this aspect of estate planning that each one of us forgets. Do we not understand the basics of estate planning or do we confuse it with something else.
Let’s try to answer this question in some simple words-
What’s Estate Planning All About?
Whenever Estate Planning is discussed the general perception is that it is mainly for riches and I do not have large assets to really plan for. That’s the main reason why individuals do not really plan it. In fact through numerous cases we are seeing that even the riches with big estates fail to plan wisely and leave the legal heirs in a long disputable situation.
Estate Planning is not a high school puzzle to resolve. Estate Planning is about in your lifetime laying down clear and specific processes for management and disposal of your estate in your lifetime or after death when you are no more. This means you pen down your wishes as to who get what part of your legacy and why and bring strategies and tools like nominations and Will so that there remains no confusion afterwards . There are many aspects considered when you are planning ahead such as income tax on your legal heirs, cost involved in the transfer of assets etc. Contrary to this If you die without planning distribution of your estate then in India the Indian Succession Act decides who takes what but mind you its equal for rich and not so rich. So whether you have rich assets or not does not really matter for the law. What matter is whether you have indicated anywhere how your assets should get dissolve.
Apart from this estate planning is also about building a legacy for your family. The tools like life insurance, Will, Trust etc.. are the means through which you achieve this objective.
How is it different from Succession Planning?
Estate planning is the process of managing disposal of your personal assets to your loved ones while succession planning is the process of identifying new leaders who can succeed you probably in your business when you are retiring or no more. In succession planning process you nurture these leaders and then when the time arises they succeed you to take care of your business legacy. How they will succeed, what structure will be followed, the cost etc.. is what succession planning is all about. To make you understand take example for a business of a proprietor. It has taken years to build it and now time has come where it needs to be passed on to the next generation. But proprietor businesses do not get transferred. So whether to form a partnership, create a private ltd company or move business to a trust structure with successor as trustees is what succession planning will include.
Your Estate Planning Kit
Estate planning is important not because not you but your family will suffer if not planned well. But many of us do not think beyond creating a nominee in our financial assets. It is thus necessary that you prepare an estate planning kit for yourself which you can upgrade and review periodically.
Here is what the estate planning kit should include:
- Your Legal Heirs Details: Who are the legal heirs who can claim your legacy, their addresses , their identification documents etc. should be the first part of this kit.
- Your Assets: What are the assets you own today?. The details of your assets should clearly specify the type, institution, unique number for identification like account number, ISIN number etc. and the total value.
- Nominations: That’s important. There are assets Like EPF where nominee is the final recipient of the asset as per EPF act. But there are other assets where nominee is merely a custodian. Having a nomination simplify the process of transfer of your wealth. Thus the next checklist in your kit should carry the details of nominee in your financial assets. Ideally this nomination should be the wish you would have pen down in your Will. A checklist like this comes handy for keeping a record of your financial investments
- Will– This is an important document as it lay down your wish for your legal heirs. Who gets what and how is what you would have pen down in this document.
- Others– There might be other document like power of attorney or a trust deed which will become part of your Estate Planning Kit.