Life after Death

What happens to what you leave behind depends on how you leave them behind. Planning your legacy can be a complex affair. Shalini Amarnani tells you all that you need to know about Wills, nominations, trusts and the rest of succession planning

Isn’t it the eternal complaint of all parents that their children don’t listen to them? Well, here is your chance to make sure that your children follow your wishes at least when you’re no longer around. Estate planning or succession planning is essential, if you wish to avoid disputes over your assets when you are no more. It acquires special importance when you want to distribute the assets in an unequal manner. It could be that you wish to leave the controls of the assets with your wife instead of your children or you may also want to make a bequest to your friend or a trusted old-age companion.

All this can be done only by means of a clearly written Will. Though a Will is considered the best method of leaving your legacy according to your wishes, it is not the only way. You can also nominate the property or gift it before death. Each method has its pros and cons; so let’s examine them.

Nomination Is Not Enough
Whenever one opens a bank account or buys an asset, one fills up a nomination form along with it. Most of us believe a nomination means that the asset will be transferred to the nominee after the death of the asset owner. Nomination, however, simply means a right to receive the asset and not own it. For instance, if you nominate your daughter for your flat, then your other children or wife can contest it in a court of law and, if they win, the asset will be divided according to law. Says Gautami Gavankar of Kotak Mahindra Trusteeship Services Limited, “Nomination, as per a Supreme Court decision, only indicates the hand which is authorised to receive the amount/property on payment of which the person paying gets a valid discharge of his liability. Nomination only provides for the convenience of transferring the property in question from the name of the deceased to the nominee. The asset, however, can only be claimed by the heirs/ legatees of the deceased in accordance with the law of succession governing them”. 

A nomination can, however, be useful when there is no possibility of contest - if there is only one beneficiary or if all the beneficiaries are in agreement about the nominations.

A Loving Gift
Another interesting way to leave a legacy is through a gift deed. The gift deed must be made during the lifetime of a person. It is required to be registered under the Indian Registration Act, in case of immoveable property. You have to pay stamp duty of 2% on the value of the gift, i.e., the property in question, at the time of registration, if the gift is made to a family member. This too can avoid any confusion and smoothen the process of transfer property.

Choose to gift away your property after much thought. Gifts, once given, cannot be taken back easily. It has to be done with the consent of both the parties. This leaves a grey area where the person making the bequest may not feel comfortable losing control over the asset during his lifetime.

The Way of Wills
One should make a Will soon after one has acquired some assets. Wills are not necessarily for old people. In fact, it is better to make a Will at a younger age. One advantage is that it avoids the possibility of the legality of the Will being contested on grounds of unsoundness of mind at the time the Will was made. A Will becomes operative only after death. There is no restriction on the way a person can deal with his or her property even after writing the Will.

To make a Will actually work, there should be an executor, who would be entrusted with the responsibility of ensuring that the assets are distributed according to the provisions of the Will. Do make sure s/he is willing to take up the responsibility. A Will should be signed by the testator (the person whose Will is being made) in the presence of at least two witnesses. The full names and addresses of the witnesses should be clearly indicated in the Will. Though not essential, it is better if one of the witnesses is a medical practitioner, who should certify that the testator is of sound mind, especially if the testator is at an advanced age. A witness should neither be a beneficiary nor an executor of the Will.   {break}

A Will must always be dated. If more than one Will is made, the one of the latest date will nullify all the previous ones. In fact, it would be better to make a statement nullifying all other Wills. The pages should be numbered to avoid fraud. A Will should be simple and, as far as possible, unconditional. Says Gaurav Mashruwala, Financial Advisor, “The Will should be uncomplicated. Too many pre-conditions, before the beneficiary receives the property, create unnecessary problems and delays in the execution of the Will and gives added responsibilities to the executor of the Will”. A Will can be hand-written or typed. No stamp paper is necessary. It need not be registered.

The value of assets often fluctuates, so it is better to expressly mention the value that each beneficiary will receive in percentage terms rather than absolute numbers, unless it is pure cash. Whenever changes in the family circumstances or other reasons necessitate a change in the Will, the structure of the Will can be amended. Even if there are changes in the nature of the property or assets, an amendment may be needed. So take it out at regular intervals and read it.

Creating a Trust
A Will carries several disadvantageous in its execution. Obtaining a probate and distribution of assets is a time consuming and expensive process. Another increasingly popular way to manage your assets is to create a trust. A trust involves transferring of one’s estate to a trustee for certain beneficiaries. A trust provides for management of the estate during one’s lifetime and also provides for distribution and management of one’s wealth after death.

The trust route can be used for distribution of assets not only for the present generation but also for future generations. The money can be held and managed by trustees for minor children until they reach maturity. The trust, as a route, is just about catching up in India, although it is a very popular concept in the West. There are some companies which provide professional services for creation and management of trusts. “The trust avoids family disputes leading to disintegration of family businesses. It retains confidentiality, as one is not required to obtain a probate,” says Gavankar of Kotak. A trust is usually created with a small amount, say Rs10,000/-, since the trust deed needs to be stamped depending on this amount. Assets can be added later into the trust. But the trust laws are more than a century old and very cumbersome; sweeping powers are vested with the Charity Commissioner to regulate trusts.

What Successors Must Know
As per the Indian law, the assets received by the successors are not taxable at the time of receipt, as there are no estate duties. In case of nominations, the nominee will have to apply for the transfer of asset along with the nomination papers and the death certificate. After the claim is verified, the asset will be transferred to the nominee.

In case of a Will, the executor has to file a probate petition in the court of law. If all goes well, the probate takes six months to a year. A probate is identified as the copy of the Will certified under the seal of the court of competent jurisdiction. No right as executor or legatee can be established unless a court has granted the probate of the Will. Probate can be granted only to the executor appointed by the Will. The cost of getting a probate includes legal fees as well as stamp duty on the value of the property being willed. The stamp duty varies from state to state.{break}

6 Factors to Keep in mind while Planning Your Estate
1. Assets:
The nature of the estate. Are there any assets which are family assets which should always remain with the family and never sold to third parties?

Who would be the beneficiaries of your estate? Whether the beneficiaries would only be the first generation or one wants to provide for future generations also? Are there any mentally or physically disabled beneficiaries or old or dependant people or minor children in the family who need to be taken care of financially over a period of time and, if so, who will take care of these beneficiaries?

3.Distribution Vs Growth:
How is the distribution of the estate to be done amongst the beneficiaries, i.e., is it to be disposed off immediately or it is to be kept for the beneficiaries to be distributed over a period of time? Do you want your estate to be managed by a professional to effectively grow it over a period of time?

4. Chance of Disputes:
Is there even a remote possibility of disputes in the family and, if so, which mode of estate planning would mitigate the disputes? By what mode can you achieve a harmonious and planned succession?

5. Risks:
What mode of estate planning would take care of unforeseen eventualities, the smooth management of your business affairs thereafter and transfer of your assets to your future generations.

Is your business risky when the planning is being done and may run into huge losses? If this happens, are your family assets protected?

4 Myths about Estate Planning
Myth 1: “My assets are so small that a Will is not necessary.”
Fact: Think again. Few people are worth so little any more that a Will is not necessary. Add together the value of your home, car, furniture, jewellery, savings account and investment portfolio. Subtract your personal debts from this total. The bottom line is that you are generally worth far more than you think, especially since the resale value of a flat is anywhere between Rs50 lakh-Rs1 crore in many urban areas. Even if some items do not hold great monetary value, they could hold an enormous amount of sentimental value. Failing to indicate who receives these treasures can cause friction between family members that lasts for decades. Few families recover.

Myth 2: “When I die, my spouse will get all of my assets.”
Fact: If you and your spouse own assets jointly, on your death. your share of the assets will automatically go to the surviving spouse. But, what happens when your surviving spouse dies? What will your children receive? Does your spouse have the financial know-how to manage the family wealth?

Myth 3: “I can create a Will on my own and save the legal costs.”
Fact: ‘Do-it-yourself’ Wills often do not contain all the necessary components as required by law and are frequently ruled as invalid by courts. A vaguely-worded clause can result in lengthy legal battles. Anyone who might benefit from the invalidation of your Will can contest it, and if the courts decide in his/her favour, your estate may be required to cover all legal costs. 

Myth 4: “I am too young to create a Will.  I’ll create a Will later in my life.”
Fact: A Will is an extremely flexible document whose terms can be changed as often as needed. In fact, any legal expert will tell you that a Will should be re-examined periodically to make sure it is up-to-date. A Will should be reexamined whenever there is a substantial change in your life. Remember, the terms of a Will become effective only at death.



Florida Estate Planning Lawyer

7 years ago

I found this very interesting, In the United states what you call a nomination, is actually a beneficiary designation and would not require a will to transfer the account on death.

I always enjoy learning about estate planning in other countrys

What Mukesh Ambani did not say at the RIL AGM

Here is our interpretation of what Mukesh Ambani said and did not say the annual general meeting today

For starters, Mukesh Ambani talked of all the key business areas that Reliance Industries (RIL) is into. But a year ago, RIL and hedge fund company DE Shaw had entered into a joint venture (JV), to form a financial powerhouse. It talked about entering the retail finance business-to our great surprise-because DE Shaw is a hedge fund relying on quantitative techniques. It has nothing to do with retail financial services. The JV seems to have stalled and there is no concrete news on what final form or structure the JV would take. The JV was supposed to mesh DE Shaw group's investment and technology expertise with RIL operational knowledge and extensive presence across India to offer a comprehensive array of financial services. At the time of the announcement, Anil Chawla, managing director and head of the DE Shaw group's private equity activities in India said that the joint venture will draw upon the core competencies of both firms to develop a platform that can serve the growing needs of Indian companies and individuals. Has the project been shelved for good?
Broadband: Reliance Industries, through another company called Infotel Broadband, had planned to roll out broadband wireless access (BWA) services. It had aggressively bid for all 22 circles during the BWA spectrum auction, for which it will have to pay up to a whopping Rs12,847.71 crore. Its grand ambition was to displace the current internet infrastructure entirely. BWA is a new technology with bandwidths greater than 1 mega hertz and supporting data rates greater than about 1.5 Mega bit per second. However, there is no mention of how the rollout will take shape or the estimate timeframe when it would be rolled out.

Buyback backfired: According to Mukesh Ambani, the share buyback program "represents highly accretive use of cash by the company." Reliance Industries, to date, bought back 2.7 crore shares at a cost of Rs1,929 crore. This is nothing compared to the ambitious buyback program it announced where it would acquire Rs10,440 crore worth of shares till January 2013. Hardly one-fifth of the target amount has been spent so far. And this isn't the first time it has announced a buyback. Moneylife had written about it previously and the same can be accessed here: Reliance share buyback: What the market remembers

Unfortunately, the buyback has not been able to change the severe under-performance of RIL over the last three years.

When will the gas really flow? One of the most important questions regarding our energy security is gas availability, especially from the Krishna-Godavari Basin. Mukesh Ambani said, "We have experienced some disappointment with the reserves and consequently seen production drop below the originally estimated quantities." However, he hasn't said anything about when the gas will finally be produced in adequate volumes from this fertile block. He further added, "We are well on the way to creating a pipeline of projects for our next wave of oil and gas development projects which would include R series discoveries and all the satellite discoveries. Subject to receiving the requisite approvals, we hope to add around 30 (million metric standard cubic metres per day (mmscmd) of additional production through the new wave of planned developments."

When will Reliance Retail be profitable? The retail sector is a highly capital-intensive industry and Reliance has splurged a lot of money in trying to make this vertical work. Mukesh Ambani mentioned a lot of statistics to please shareholders but made no mention of the most important metric to investors-profitability. He said, "Reliance Retail has achieved revenues of over Rs7,600 crore. We wish to position Reliance Retail as India's favourite retailer and undisputed market leader with focused business interests. We are investing aggressively in this business to consolidate and strengthen our leadership position in this sector. We are targeting a growth of five to six times in existing revenues and achieve Rs40,000 to Rs50,000 crore over the next three to four years." This sounds extremely ambitious. More importantly, what would be the figure of loss in order to achieve this kind of topline?


What has caused a 900-point rally in the Sensex?

And how long will the gains last under the influence of these four short-term factors?

From a level of 15,749 the Sensex has rallied to 16,681 over the last few four days. Just last week, the markets were in a crash mode. Has anything changed suddenly in fundamental terms? If yes, what is it? If not, what is the likely path the market will take?

There have been several developments over the last two days that has caused this massive rally. The first is speculative burst caused by risk-on mood of global investors. In a risk-on situation—emerging markets, precious metals (risk assets)—suddenly see a gush of speculative money from the large pool of global capital. What signifies that the risk-on trade is getting switched on? This signal is something rarely talked about in India—the strength of Australian dollar. If the Australian dollar strengthens, risk assets rise. If the Aussie falls, risk assets fall in tandem. That at least has been the correlation so far. The Aussie has just completed a long decline that started in mid-April and has turned up sharply. Simultaneously, Australia has cut interest rates and its GDP growth has grown at a scorching pace, adding fuel to fire. This is first and real reason for the lift the Indian equities got on Wednesday. Of course, it is not necessary that this correlation will continue. Indeed inter-market correlations like these have a habit of breaking down just when you think it is axiomatic.

What powered the bulls further was at last some action from the government on the ‘reforms’. There are talks again that foreign investment in multi-brand retail and aviation would be allowed (Vijay Mallya needs a new source of money) and the PM himself called a meeting to clear stalled infrastructure projects. All this has emboldened the bulls (like it has many times in the past) that it can only get better from now on.

Finally, the switch has been flipped all over the world that the US Federal Reserve and Erocrats will do “all that is possible” to prevent a breakup of Euro and supply the world with enough of liquidity to keep the asset prices up. Today, Ben Bernanke, the US Fed chief is supposed to be addressing the Congressional Joint Economic Committee where he is supposed to hint at more “monetary accommodation.”

In short, a short-term virtuous cycle has kicked in: Risk-on mood, lower dollar, promise of reforms and global liquidity. All this has combined to electrify the equity markets. Notice that the commodity markets are rather subdued and that is an important indicator. Neither more monetary accommodation nor talk of reforms will mean much to the course of corporate earnings. Also, it is unlikely that the PM can do much to boost infrastructure investment. He simply is not the man to cut across ministries and states to get things done. Put it another way, at around 17,000+ the Sensex would start to look overvalued. It would need more of the same hopes to stay up, or a significant new set of hopes.


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