Why estate planning is imperative?
Benjamin Franklin, a leading polymath, author and politician once said, "...but in this world nothing can be said to be certain, except death and taxes." Inspite of being aware about this inevitable fact, most people avoid thinking about it.
Although being optimistic is a good thing, you must anticipate the future and take necessary steps to secure it. We work all our lives to build wealth to sustain ourselves and our families. Have you ever wondered what will happen to all this wealth in case you are not around to ensure that it goes to your loved ones? This is where estate planning comes in.
Estate planning in simple terms refers to the passing down of your assets from one generation to another. Now, there exists a wrong notion among people that estate planning is meant only for the wealthy. But the fact is, it is essential for everyone, irrespective of how much wealth you have created. You see, estate planning prevents the addition of financial and legal grief to the emotional grief your loved ones will already be facing upon your absence. It is therefore important for the following reasons:
- Estate planning ensures that your assets, both physical and financial, are inherited by the people to whom you want them to be transferred to in your absence. The law might not take into account your personal relationships or preferences while distributing your assets if you die intestate (i.e. dying without a will). Without proper planning, it is possible that the law disposes your estate among relatives who might not be your immediate choice of beneficiaries.
- Many people become incapacitated in their old age or some-times even as young adults. An incapacitated person is an individual who is incapable of taking care of his own self and provide for his basic needs due to some mental or physical condition which he suffers from. Preparing for such contingencies is also a part of estate planning. You see, it is important to determine who will handle all your financial affairs, in a scenario where you become incapable of doing so yourself. You might also want that during such times all medical and health related decisions for you, are only taken by a person whom you can trust. Systematic estate planning must be undertaken if you want all your desires to be fulfilled even though you might be unable to communicate the same. You can also list down a person(s) to take care of your estate and manage your finances after your demise, for the benefit of the remaining family members.
- You can also transfer your assets to your beneficiaries by creating a trust. This might also enable you to decide how and when your beneficiaries must receive their inheritance. Creating a trust is largely useful in the case where your spouse and minor children are unable to manage their finances on their own.
- Estate Planning allows you to pass on certain belongings to specific individuals. For example, if you are a defence personnel and wish to give your war medal, which has some sentimental value to your younger daughter who has interest in war history; then this can be mentioned in your will. In the absence of doing so, it is not definite that this artifact will be granted to the person of your choice or even sold off.
- Planning and writing a will also avoids intricacies and disagreements in the family. If you die without writing a will, then your assets will be distributed according to the law of the country. For instance, in India, the Hindu Succession Act is followed among Hindus to pass on the property of an individual who has expired. If you have 2 children, the country laws might distribute your property and assets equally among them, although you might have envisioned giving more to your financially weaker child. Also, your family might be dissatisfied with the proportion they have been granted by law, especially if you have more than one legal heir. This might create bitterness among your loved ones, or even worse, lead them to fight with one another for a larger share in the property. Even if you want to transfer all of your property in your spouse's name, then you must mention this in your will, as the succession law might also include all the legal heirs for distribution of assets of the deceased.
- Another event which is inevitable in our lives is tax payment. Estate Planning might also help you to reduce the taxes the beneficiaries of your estate will land up paying from their bequests. For instance, instead of passing on assets after your death, you might gift them to your loved ones while you are alive. If left to the intestacy rules a higher amount of tax may be applicable on your property and other assets. You can also make separate arrangements for tax payments, for example you can provide for tax liabilities separately from your residuary estate, if you don't want to reduce the inheritance value of assets by way of taxes.
- Writing a will can also be beneficial for the testator (or the person writing the will). If you make a will today, it will lead you to write down all your assets and properties in black and white. This shall in turn provide you with an enhanced understanding of your current financial strength and an opportunity to improve upon it in your remaining life span.
Points to be kept in mind while writing a will:
- A Will should be Simple, Precise and Clear. It is always better to take the advice of a trusted advocate when writing your will.
- A Will can be prepared by anyone who is not a minor, of sound mind, and free from any coercion, fraud and undue influence
- A Will can be hand-written or typed out. No stamp paper is necessary. You can write a Will on a simple A4 piece of paper, sign and date it with 2 witnesses and keep it in a secure location. It is not compulsory for one to register a Will with the Registering Authority, but in order to avoid frauds and tampering; it is always preferable to register it. In case any property or asset is given to any charitable organization, then registration should be done. If you wish to register your will then it can be done with the registrar/sub-registrar with a nominal registration fee. This requires you to be personally present at the registrar's office along with the witnesses.
- A Will must always be dated. If more than one Will is made then the one having the latest date will nullify all other Wills.
- It is better to make a Will at a younger age. As and when events or changes in the family necessitate changes the Will can be changed. If there are too many changes in the Will, it is better to prepare an entirely new Will rather than making modifications to an old Will. A Will becomes operative only after the demise of the testator. There is no restriction in the way you can deal with any assets even after making a Will.
- Each page of the Will should be serially numbered and signed by the testator and the Witnesses. This is to prevent the Will being substituted, replaced, or pages being inserted by people intending to commit fraud. At the end of the Will you (the testator) should indicate the total number of pages in the Will. You must put your initials at the end of every page and corrections if any should also be countersigned.
Understand this, continuing to pretend that your life will never end will not do any good to you or to your family. If you have not yet acted upon planning for your estate, thinking that there is yet ample of time remaining to decide about all this, it's high time you considered it seriously. You don't want your procrastination to be the reason of agony for your loved ones.
PersonalFN believes that estate planning is one of the most essential aspects of our lives and should not be put off until it's too late. It is a dynamic process, which needs to be reviewed at regular intervals of time to imbibe any changes, which might happen in our lives or in the laws of our country.
PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.
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