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Given the dynamics of wealth creation in the past two decades, Asian and Indian households have not only witnessed some of the largest absolute gains in wealth in the world, they are also poised to witness one of the largest wealth transfers in history. This takes the focus beyond wealth creation and brings attention to the questions of protection, preservation and transmission of this wealth. It is important to consider a few factors to make this process effective:
Clear Objectives
Would you like a one-time transfer of all assets or milestone-driven objectives for the next generation? Are there special situations in the family that need to be taken care of ?
Your Personal Balance Sheet
Take some time out and make a complete checklist of all your assets and liabilities, including how they are currently held and where they are located.
Identify All Beneficiaries And Omissions
Your intention should be to allocate assets to friends, families or other causes. You may also want to specify omissions with an explanation to prevent any challenges to the validity of your final plan.
Identify People To Help You In Executing Your Plan
Identifying those who can help execute your succession plan, whether as an executor or trustee, whether a close family member or a professional, is an important part of the process
Having taken a look at some of the key considerations when creating an estate plan, let us understand some of the commonly used tools in estate planning.
Joint Tenancy And Nominations
An estate can have joint ownership, ie, there can be more than one owner, allowing one owner to have access to the estate in the absence of the other(s). The limitation in this approach is that all asset classes cannot be covered and that it should also take into account different treatment for different asset types. For example, the bond/equity share nomination has an overriding effect over the Will. Hence, nominees of a share have a clear title to the share irrespective of the intentions of the deceased recorded in a Will. On the other hand, nominee of a bank account is supposed to hold the money in a trust for the legal heirs and such legal heirs can claim the money. Similarly, in the case of property, in the event of the death of a member of a society, the shares of the deceased will be transferred to the nominee, who is merely a trustee for the deceased's estate.
Writing A Will
A 'will' or testament is another relatively simple way of passing on wealth, but depending on individual circumstances, it can have its disadvantages. On the plus side, it is relatively easy to write and can be written on a piece of paper signed by its author (testator) along with two or more witnesses and it can be revoked with a new Will or amended through a Codicil as many times as one wants. On the flip side, a Will has to undergo probate in a court of law, which is a public and time-consuming court procedure, and can be significantly prolonged if the Will is legally challenged. Apart from the loss of privacy, the costs involved in such a scenario can be significant. Drafting an articulate and specific Will can mitigate some of the risks related to an ambiguous Will. Getting professional help for the purpose can make the process much more effective.
The 'Trust' Factor
Contemporary ways of achieving intergenerational wealth transfer include the setting up of pass-through vehicles such as trusts. In simple terms, a trust is a legally binding arrangement, usually evidenced in writing in a deed, under which reliable persons, 'the trustees', hold and manage the estate entrusted on them for the benefit of the 'beneficiaries'. In the case of a trust, there is no question of probate as the ownership of the assets is passed on to the trustees. It is then no more a part of the settlor's estate, and, therefore, the process is continuous and there are no delays.
Traditional Route: Gifting
Gifting is another way to affect a transfer of property if the control and possession of such a property can be given away during one's lifetime. Gifting to certain relatives is tax-free. Gifting to persons other than relatives is tax-free if gifted during marriage. However, if it involves immoveable property, stamp duty implications need to be taken into account.
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