In these challenging times of the Covid’19 pandemic, estate planning can be at the forefront of ensuring that individuals and their loved ones are protected. Certain high-risk groups, such as medical professionals, first responders, and the elderly or other compromised persons, may be more motivated to update existing plans or establish estate plans for the first time that accomplish their goals. Others who have begun their estate plans now want to get their plan over the finishing line.
In India, about 80% of the population die without creating a last will. One aspect that might be related to is lower individual assets, because the richest 1% of Indians own nearly 60% of the country’s wealth. Estate Planning, however, is a critical part of Wealth Management because intestate death can cause the distribution of assets among relatives whom the estate holder might not have liked to receive a share. It happens frequently that our intended beneficiaries get trapped in legal battles because we fail to leave behind an as simple document as a will. To avoid such situation, we need to take actions in our lifetime so that our heirs can claim what is rightfully theirs after we are gone. It’s a little effort that goes a long way.
Let us have a generic overview of the three most commonly used routes in estate planning.
| WILL | TRUST | GIFTING ASSETS | |
| What is it? | A will is a legal declaration of the intention of the testator (person making the will) with respect to his property, which he/she desires to be carried into effect after his/her death. | Trust means the right enforceable solely in equity, to the beneficial enjoyment of property to which another person holds the legal title, a property interest held by one person (the trustee), at the request of another (the settlor), for the benefit of the third. | A person voluntarily transfers certain rights in an asset to another person, without any consideration. Gifting has certain legal implications like income tax, stamp duty, etc. |
| Registration | In our country, registration of will is not compulsory, and it stands on the part of the testator if he/she wishes to register it.
Registering is highly advised to avoid legal hassles and also makes it easier to get a probate (certified copy of the will) |
Compulsory – the Trust is created with a document named Trust Deed with a stamp duty paper in the Registrar Office. A trust is seen as an individual entity altogether. | Compulsory only if you gift immovable property. |
| Professional Help | Professional help is not a must but to give your will a clear picture in terms of the law, a testator should consult a professional – he will take care of the loopholes | Not compulsory but highly advised given the complicated legal structure. | Not compulsory; but necessary to understand the tax implications. |
| Cost | The cost is very minimal because there is no stamp duty applicable to registering a will. Further, the fee of the professional depends on the terms they have to adhere to. | The cost of Trust Deed registration is quite high as it includes stamp duty charges, deed charges, and professional charges if any. | Registration cost and stamp duty may together prove to be costly. Add to that tax incident that may arise. |
| Effective from: | The will can be executed only after the death of the testator, after which the heir of the deceased testator can apply for probate. | During your life itself. | Immediately after the legal formalities (if any) are completed and ownership is transferred. |
| Challenging the instrument in court | A will although registered can be challenged in the court of law. A registered will may not be the last testament. If there are any suspicious facts, the court will scrutinize the registered will on the grounds of fraud, coercion, undue influence, lack of due execution, forgery, and several other factors. | Quite difficult since it is enacted during your lifetime. | Quite difficult since it is enacted during your lifetime. |
| Advantages | The deceased person gets to elect someone trustworthy to handle his/her hard-earned wealth.
For minors, it establishes a legal guardianship. Easy and cheap to make and execute. |
You retain control over the utilization of the asset.
Trust assets are secure from your financial losses. Can be executed privately unlike a will. |
Reduced probate and administration cost.
Can be executed privately. Can have significant tax benefits. |
| Disadvantages | Your heir is free to use his inheritance as he wants it, you will have no control over the utilization of the asset.
Record available publicly. Subject to probate by court. |
Finding a reliable trustee.
Relatively expensive. |
Gift tax applicable baring gifts made to certain family members and certain occasions only. |
| Revocability | Can be changed an unlimited number of times during our lifetime, just destroy the last will or include a codicil on the new one. | Depends upon how the trust was formed. Trust assets can be taken out only if it is a revocable trust. | Irrevocable. If you get the bright idea of asking for money in return, think again. It will be considered a sale and will come under the capital gain purview. |
Ontrust’s Outlook:
Below we have listed some very basic steps that we advise every individual undertake to ensure the financial safety of your dependents in the future and now. These are some of the steps that should be undertaken despite your age and amount of assets in your name:
- Create a will or set up a trust account for beneficiaries
- Establish a reliable guardian/trustee for living dependents
- Naming an executor of the estate to oversee the terms of the will
- Nominate beneficiaries in life insurance policies, bank accounts, and wherever possible.
- Establish annual gifting to reduce the taxes
- Execute a power of attorney (POA) to direct other assets and investments
“Creating wealth is the beginning but preserving it properly for self & future generation is the key”