Moneylife Events
“A will should be a simple document, not in legalese”

Moneylife Foundation invited Advocate Bapoo Malcolm explain to a packed house of over 80 attendants the practical aspects of preparing a will. Over the course of the interactive two-hour session, which mostly consisted of participants asking a string of questions, Mr Malcolm covered privileged, holographic and joint wills, registration, litigation possibilities, executors and intestate problems



It is common to postpone the making of a will. Perhaps you have some personal reasons for doing so, but if you’re doing so because you’re under the impression that the procedure is complicated, you couldn't be further from the truth. At Moneylife Foundation’s 160th seminar, Bapoo Malcolm, a very well experienced lawyer in both civil and criminal matters, said, “A Will should be a simple document. Preferably, it should be in simple language, not legalese, and give specific instructions about what is to be done with the movable and immovable properties you own and the property you will perhaps acquire in future after your death. It would be best if it read like a balance sheet. Just specify the property and the person. Be as specific as possible.”
 
Mr Malcolm said that grammar is what most of us forget about when we write our Will and that could be a disaster. He said, “If I were to write my Will in Marathi or Hindi, it would be a disaster. But if I did so, I would get it checked. Grammar is very important when you write your Will. A comma here and a plural there could change the meaning significantly. Remember that a Will is basically you speaking from the grave. Obviously you cannot answer any further questions when the Will has to be interpreted. So it will all be interpreted according to the word of the law, which may not assign the same meaning as you intended.” Immediately after this, one participant read out from a Will he had drafted. Mr Malcolm instantly pointed out grammatical errors and spotted ambiguous language.
 
The basic requirements of a Will are easy to even commit to memory. Mr Malcolm said, “A Will can be made by any person who is not a minor and who is of sound mind. You need two witnesses, preferably independent of each other. The Will must list all the immovable and movable properties you own and who you wish to will them to after your death.” Remember, however, that you can only bequeath what belongs to you and what is self-earned; otherwise the distribution is governed by various Succession Acts.
 
There appeared to be several misconceptions about the making of a Will. One was that a Will needs to be registered. Mr Malcolm cleared the doubt. He said, “The government does want to encourage people to make Wills, so they haven’t made it compulsory to register a Will. You can even make a Will on a serviette. So long as the basic requirements are fulfilled, the Will is legal. Registration is a grey area, mainly because if you then wish to make a second Will, you may not have the time to register it. If you realise the day you die that a relative is useless, you may not be able register this second Will. Then does the unregistered Will have more value than the registered one. Registration, however, takes care of the safety issue. An unregistered Will could easily be lost. At least if it is registered you know that it is always in some government ward.”
 
Participants were also unclear about whom to appoint as an executor. One participant, for example, asked whether it was necessary to have an executor in the first place. Mr Malcolm answered, “Of course you need an executor. Without the executor, who will execute the Will? If you expect your children to do this, why not just name your children as the executors? If this is not done, the court will appoint someone and there is no need for this.”
 
Mr Malcolm also delved into the differences in the laws that apply to Sunni Muslims. He said, “I think the law that applies to Sunni Muslims is a fantastic one. They can gift away a third of their property to anybody they want, but the rest must be given to the family. In my opinion, this is good.” A Sunni Muslim man in the crowd then asked a few questions on how to share the property equally between his two children, a son and a daughter.
 
Nominations are areas of confusion. Mr Malcolm advised participants to have joint accounts with those who they have, in fact, nominated. He said, “If there is a nominee, the transfer becomes complicated. If there is a joint account holder, there are no questions asked. The joint holder has full access to the account, so nothing can stop him from withdrawing money from the account.”
 
It was only at the very end of the seminar that Mr Malcolm found the time to discuss the presentation he had prepared. He gave participants the proper definitions of terms, such as codicil and testamentary guardian, and explained in detail what a probate is.

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How best to tackle the property tax issue

Mumbai’s housing societies are up in arms against the hefty property tax bills, with arrears for the past three years, they have recently received and the even fatter bills they are expected to receive in the coming years. Rajendra Thacker, president, Society for Fast Justice, explained why there was absolutely no need to raise the tax and suggested specific remedies to various problems

Due to great public interest in the matter, Moneylife Foundation held a seminar on the property tax burden by Rajendra Thacker, president, Society for Fast Justice, just two months after Ashok Ravat and Advocate Godfrey Pimenta helped people understand the problems with the capital value method used by the BMC to arrive at the new property taxes.
 

Mr Thacker, a veteran of many public interest litigations, most of them successful, first discussed BMC’s (BrihanMumbai Municipal Corporation) official reasons for changing its method of valuation. He said, “Officially, the BMC said it wished to move away from the rateable value method because it wanted to rationalise the system, as the old one did not factor in all that was necessary. The new one is, however, no more rational than the old one and has increased taxes substantially.”
 

The main reason the capital value method is flawed is that it uses the Ready Reckoner value, which is not supposed to indicate real value. The Ready Reckoner value is only supposed to be used to calculate stamp duty, not to assess capital value. By using this rate, the BMC has ensured that flats over 500 sq ft pay high taxes, of up to three times what they were earlier paying, and has given itself permission to raise taxes on smaller flats by 40% from 2015. Mr Thacker said, “The BMC collects taxes from us for certain facilities, such as water, maintenance, among other things. If you see what we’re paying and compare it with what is spent, you’ll notice that there has always been a surplus. If there is a surplus, why do they need more of our money? I filed an RTI to find out what exactly is the figure and how the new method was decided, but I received no answer. This is why I filed a PIL. This is because if there is something wrong with my bill, there is something wrong with everyone’s bill in Mumbai.”
 

Recently, the last date for payment of the bill sent with arrears was postponed to 30th June from 31st March and it was said that the guidelines will be changed. Mr Thacker said, “If there is something wrong with the guidelines, which is the only reason why they will propose to change it, why should we be paying it? Furthermore, I don’t see why there is such difference in the bills we are receiving. The BMC is charging us for the services it provides us, as under Section 61 and 62. There shouldn’t be such a grave difference in the price for these services in Borivali and Colaba.”
 

The BMC’s new property tax rules, Mr Thacker said, make it seem as if it is a crime to be rich. He said, “Those who earn more money are already paying higher taxes and were always paying for living in larger homes. But now the BMC wants us to pay extra if the builder used certain expensive materials to build our homes or if we live on higher floors. Why should property taxes be based on the floor I live on? Does the BMC provide better services to those on higher floors?”
 

BMC’s rules cannot be arbitrary, but this is exactly what is happening with its current property rules. Mr Thacker said, “I own two shops in Borivali, one of which is 451 sq ft, while the other is 300 sq ft. For the larger shop, I pay Rs300 as tax on now. I’m paying Rs1,300 on the smaller one, though. Now how this is happening is unclear. This is why we need to go to court.”
 

Mr Thacker advised property owners who have found errors in their bills to send their objections to the BMC. For example, a tenant in a 49-year-old building received a bill of Rs934, but this was based on calculations for an 18-year-old building. Mr Thacker advised him to prove to the BMC that his building was 49 years old, by sending proof, such as a ration card or occupation certificate.
 

Another participant asked what the difference between rateable system and capital value system was. Mr Thacker said, “The old system was according to the rent you could fetch and various other complicated factors. It was an incomprehensible method, but the BMC was doing it. The capital value system factors in the flat value, the materials used to construct the building, the floor you live on and many other things.”
 

Finally, Mr Thacker asked participants to send their bills (both old and new) to him or Moneylife Foundation, in English, Gujarati or Hindi, so that he and his team could go further their investigation into the matter.

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COMMENTS

Roy D

5 years ago

Why should property tax be linked to the value / age / type / usage of the property (new system) or even to the amount of rent receivable (old system)? As Property tax collected is used to provide citizens with certain civic services, it must be linked to the cost of providing these civic services. Property tax should only be linked to the size of the property. There should be incremental slab rates for residences, and a flat rate for commercial properties.

Retirement Planning: Investing for an unpredictable future

How do you plan for retirement when so many relevant questions are unanswered? You don’t know how long you will live for, but can you calculate what your expenses will be, how inflation will affect expenditure, and much else. Debashis Basu, trustee of Moneylife Foundation, presented a clear picture to the participants in a session on retirement, explaining of the various factors to be considered and the dangers of insufficient planning

 

Moneylife Foundation hosted the first of its two-part seminar on retirement planning on 23 March 2013. Addressing a packed audience at the Moneylife Knowledge Centre, Debashis Basu, trustee of Moneylife Foundation, discussed how to arrive at a figure that will be sufficient to last a retired life. Mr Basu began by discussing how and why it is neglected. He said, “We rarely ever bother to make the calculation, even though it is not difficult at all. One reason why it is not done is because there are competing objectives. When retirement planning is supposed to be ongoing, there are EMIs (equated monthly instalments) to pay off and the high cost of college education. Another reason is that there is much that is simply not known. Many assumptions are to be made when making a retirement plan.” Assumptions, he argued, may prove to be right or wrong, but this is no reason not to make them at all.

Mr Basu then moved on to a fictional scenario, which spanned over 40 years, to help participants understand how to formulate a plan. He said, “In this example, I have assumed everything. I have assumed that a 45-year-old man named Mr Kumar is earning Rs60,000 a month, saves Rs15,000, spends Rs20,000, has Rs20 lakh in savings and an EMI to pay off. At the same time, he is worried about his children’s higher education and wishes to travel abroad when he’s retired, two objectives competing with a much-needed retirement plan for his finances.”

If your income grows as inflation rages on, it may be possible to ignore the adverse effects of inflation. But when your income is static, it becomes a major problem. Mr Basu said, “If Mr Kumar spends Rs20,000 a month now, in 15 years, when he’s 60 and retired, he’ll be spending Rs72,000 a month. But let’s agree that his expenses drop to 80% in retirement. This means that, at 60 years, he’ll be spending Rs60,000. Have you any idea what his monthly expenses will be when he’s 85 years old? Rs480,000 a month. It’s certainly not unlikely that he will live till age of 85. In urban India, it is common. At the same time, inflation is always higher than the national figure for urban India.”

Indians do save their money, but often don’t look beyond fixed-income schemes, such as bank FDs or investment-oriented insurance products. Mr Basu said, “I have assumed that Mr Kumar has invested in recurring deposit and money-back plans. FDs give very poor post-tax returns and we’ve examined traditional insurance plans at Moneylife and found that they don’t give anything more than 6% to 7%. This is not a good rate of return. What Mr Kumar is then left with is his largest asset, which is his house. But this is an illiquid asset, which means it isn’t income-generating.”

With poor returns from investment and high inflation, how long does Mr Kumar’s retirement corpus last? Mr Basu calculated that, if Mr Kumar’s Rs20 lakh grew at 7% and he put aside Rs15,000 each month until he was 60 years, which also grew at 7%, the corpus would work out to Rs1.03 crore. If inflation then continued each year at 9%, which is likely to happen in India, Mr Kumar would run out of funds by the time he turned 77. This led to the second part of the session, when Mr Basu discussed what went wrong.

The reason why Mr Kumar’s retirement corpus was insufficient was that he did not account for the six unknowns—underinvestment risk, the risk of longevity, failure to account for sudden spikes in monthly expenses, the dominance of a non-income-generating asset real estate in the portfolios, low growth of assets and post-retirement support.

Mr Basu said, “Underinvestment risk is the danger of not having saved or invested enough for retirement, if not both. The second risk, longevity, is a big concern. The longer you live, the more likely it becomes that you will run out of money.”

The third factor, failure to account for sudden spikes in monthly expenses, is one that is completely unknowable. You cannot, for example, predict when you’ll need surgery in your later years. Mr Basu said, “We have assumed that your retirement expenses will be 80% of current expenses. But what about the month when you need surgery or are under costly medication? At this time, it could be 135% of current expenses.

The problem of overreliance on property is another problem. “Real estate works just like stock. It can go up, it can go down. In a good economic scenario, real estate appreciates, at other times it can be static. At the same time, we must remember that it many areas even in Mumbai, rental income is just 2% per annum of the property value. Your largest asset should generate a return of more than just 2%.” Mr Basu advised equity exposure as a means to achieving a sizeable corpus. Mr Basu said, “It’s difficult if you’re not the type to take risk, but you have to convince yourself. It’s the only asset class that is able to give higher returns. Of course you may have invested in mutual funds or stocks in 2008 and decided never to do so again. But you must realise its potential. Healthcare costs are rising at 20% compounded every year. A fixed deposit cannot meet this rising expense. Equity can at least try.”

Lastly, Mr Basu discussed one unknown that even he did not take into account. He said, “I haven’t included support, both monetary and non-monetary, from a son, daughter or any other family member. Indian children do support their parents, so perhaps you won’t need to bother about that big healthcare cost. I haven’t taken this into account because it’s different for different people.”

The session was followed by an engaging Q&A session, which addressed topics such as property rates, rentals and reverse mortgage. The second part of the session, the date for which will soon be announced, will focus on how best to generate this retirement corpus.
 

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COMMENTS

Nem Chandra Singhal

5 years ago

Whatever is said by Mr. Basu was right. But the problem of avoidance of equity of Indian population is much bigger problem. Many people enter in equity market and exit it with losses and never return. They had loss of faith in equity. Something is to be done to strengthen the equity culture, which is regarded as a cashino in our country. Even the 24 X 7 news channels projects the equity market as a short term money making market. How can then long term investors believe the occasional saying to invest in equity. Thanks.
Nem Chandra Singhal

Nilesh KAMERKAR

5 years ago

The retirement planning problem is larger than it looks. Superb article Mr.Basu!




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