WEALTH MANAGEMENT AND INHERITANCE PLANNING

 

When you die, what are you going to leave behind........an inheritance or a mess?

Wealth management is all about leaving behind an inheritance to whom we desire and for the purpose we desire. Wealth management has 3 parts

1. Accumulation or Wealth enhancement 

2. Conservation or Wealth preservation 

3. Distribution or Wealth transfer

 

All of us are still pursuing Wealth enhancement, without even bothering about conservation, and still not planning for distribution of our Wealth. This is being postponed indefinitely for far too long, and if we don't act today, we will surely leave behind a mess.

 

Protection planning

Reliability of income (ROI)for you and your spouse till you two are in this world is vital. This can be threatened by many ways

(i) Inflation and increased cost of living

(ii) A stock market crash

(iii) Unexpected medical expenses 

(iv) A predator or a disgruntled family member 

The last point should not be underestimated. So long as you are alive you will surely protect both your wealth and your family because the predators will lie low, but when you are not around they will raise their ugly head and drag your children to court. So, Wealth protection is a must.

 

Wealth transfer 

Inter-generational Wealth transfer requires Estate planning. This is not about real estate, anything which you own or will own after your death is your estate. We have 4 types of assets

1. Physical - land, house, jewellery 

2. Financial - shares, debentures,  mutual funds, fixed deposits, insurance 

3. Digital - Mobile phone, Credit and Debit cards, Email ID, YouTube, Instagram and Facebook account.

4. Intangible - reputation,  goodwill, practice

 

We need to make a complete list of all 4 types of assets most meticulously. In today’s day and age the usernames and passwords of your digital payment system, your emails and your social media accounts are your assets and you need to keep them safely in a file to be transferred to your desired beneficiary.  It is also important to know the present value of your future earnings and whether they will depreciate with age. Every human life has a value H.L.V or Human Life Value. With age this value rarely appreciates if you are not invested well. Your Chartered Accountant will give you a fair idea whether your savings will last your lifetime. 

 

Estate Planning

The term "estate" refers to the total net worth of an individual family leader and other members, including their assets, properties, investments, bank accounts, and personal belongings in India and globally. It encompasses all assets like immovable, movable, intellectual, business, artifacts, pets, etc.

Estate Planning involves a comprehensive approach to manage this estate during a person's lifetime and determining how it should be distributed after their death to optimize tax benefits as well as smooth transfers. It goes beyond simply creating a Will and encompasses various legal and financial strategies to protect and transfer wealth according to the individual's wishes.

This is the systematic distribution of your estate to the next generation. This requires a motive. What you like most is not your wealth but the people you love the most. So, often it is essential that your loved ones know about your entire estate. Do you have any assets about which you have not told anyone? Then how will your loved ones know about it after you have left the world?

For whom is your wealth? Who is the person you love most, and your first responsibility - your spouse. The next are your children. But in your wealth transfer plan there are many options 

1. A sequence has to be established perhaps - first to my spouse, and after her, to my children. By doing this you have ensured that in his/her lifetime your spouse cannot be forced to pass on your estate to your children. This ensures her financial independence as well as physical safety. 

2. Do all your children get equal share of your estate. This depends on both you and your religion. In Muslims, the married daughters do not have a right to their parent's estate, whereas in Hindus, they do.

You are not a Muslim and you intend to distribute your estate amongst your children, how do you do it?

1. Do you do it equally?

2. Do you give more to the one who is less successful, and perhaps needs it more? This sounds logical........but does it? Are you not encouraging inefficiency and discouraging diligence, dedication and efficiency?

3. Or do you want to give a bigger share to the child with whom you spend your senior days? This may be your way of compensating for the expenses he/she has to incur towards your health and nutrition.

Incidentally, if you are a Muslim and you want your daughters to get a share of your estate, then what can you do? If you marriage is not registered and it was performed as a Nikah by Muslim customs then you can get your marriage registered under 'Special Marriage Act', on the same date of your marriage and to the same spouse. Now your wealth can be transferred to your daughters in your will.

 

There are some cardinal rules in estate planning.

1. Have complete control on your property/ Estate when you are alive, and possibly even after your death. This ensures your physical and financial security. Love everyone but never love them more than yourself. If you are not secure and safe, you cannot ensure the security and safety of any loved ones.

2. What wealth you leave behind signifies those extra years you need not have toiled tirelessly. So, enjoy life and spend your wealth on yourself and your loved ones. Pamper them, and don’t forget to pamper yourself.

3. Your estate planning should be such that you can take care of yourself and your loved ones even when you are incapacitated, and your loved ones when you are no more.

4. Your estate planning should be such that you can give what you want, to whom you want, the way you want and when you want both before and after your death.

5. You have to ensure that the next generation gets your wealth peacefully and there are no misunderstandings or animosity among your children.

Components of Estate Planning

Will: A Will is a legal document that outlines how an individual's assets and properties should be distributed after their death. It allows individuals to name specific beneficiaries, appoint an executor to carry out their wishes, and make provisions for minor children or dependents.

Family Trusts: Family Trusts are legal structures that hold and manage assets on behalf of beneficiaries by way of single or multiple trusts. They offer benefits such as asset protection, tax planning, and controlled distribution of wealth. Trusts can be revocable or irrevocable, and individuals can specify conditions for disbursements.

Power of attorney: A power of attorney is a legal document that grants authority to another person (the agent or attorney-in-fact) to make financial or legal decisions on behalf of the individual creating the document. It can be general or limited in scope, depending on the specific needs and preferences of the individual.

Succession planning: Succession planning is particularly relevant for business owners. It involves creating a plan for the smooth transfer of ownership and management of the business to the next generation or a chosen successor. This ensures the continuity of the business and minimizes disruptions during the transition.

 

Some Family concerns

If you are a man and you die without making a will then your estate will not automatically be inherited by your wife, as you might imagine. Actually, the estate will then be equally distributer between your spouse, your living children, children of your deceased children and adopted children. Is this agreeable to you? Or do you want your wife to be the first inheritor and only on her death should it go to the next generation. Then, that needs a will expressing your desires in so many words.

The legal heirs of a woman are her husband, her living children, and the children of her deceased child but not his/her spouse. In both the cases, all children, both male and female share equal right to inheritance among Hindus, but Muslims girls are deprived of this right.

 

Do we have to notarize a will?

It is good if we do, because it becomes difficult to legally challenge a notarized will. However,  a will need not be stamped, typed or registered.  By doing so one shows his/her intention. In case you make changes in the will after it is notarized, then the changed will should ideally be notarized too, otherwise it may be challenged in court. A perfect will is a misnomer. Make the first one, and change it as many times you wish afterwards. With every revision you will be clearing ambiguity that might have crept in and persisted in your previous document. There are many ways in which you can avoid confusion 

 

Some salient points

(i) Specify the landed property by their registration number - house, flat, clinic, hospital, factory, shops, and specify who is inheriting what.

(ii) Divide a house into different floors for different children 

(iii) Have jewellery in different lockers for different children and give them their locker numbers

(iv) Ensure that different children inherit different bank accounts, FDs and Debentures, all designated by numbers

(v) Ensure who inherits your stocks held in demat accounts. Have different Demat accounts for different children

(vi) Tabulate all your mutual funds and Ensure that the inheritors know which folio numbers are they inheriting

(vii) Agricultural tools like tractors and their accessories, farm animals, orchards, ponds all will require a mention, along with the names of the children who are inheriting them.

(viii) Your motor vehicles should be mentioned by Registration numbers and their individual inheritance decided.

(ix) Your e mail id, your Facebook, WhatsApp, Instagram and Telegram accounts, your Website, your blog space are all your assets, just like your credit and debit cards and your bank accounts and UPI or Pay tm  accounts. All these need to be mentioned in your will along with who will inherit them.

(x) Lastly, your pet is your responsibility, where does your pet go after your demise should also be mentioned. 

 

The more elaborate and clear the contents of a will are, the less are the chances of dispute for inheritance. Do not forget to make provision for minor children. It is better to transfer all your offshore assets but if that is not possible then make different wills country wise. 

 

The status of nominee 

If you are under the impression that all your bank accounts, demat accounts, FDs, Mutual funds, and Debentures already have nominees, as the government has made mandatory, and now you need not bother, and they will automatically be passed on to your designated nominee, nothing can be farther from truth. A nominee is just a caretaker and not an owner. He/she will not be until you mention in your will that after your death the nominee becomes the owner. 

 

The truth about "Either of Survivor"

You have been ticking this box all your life while filling forms of bank accounts,  Demat accounts, Mutual funds and Debentures, and you think that it means that when you are not around your spouse will automatically become the owner of the financial instrument. Again you are mistaken. Either of survivor is the mode of operation and not the mode of ownership. So, after your death only 50% of the proceeds of the instrument will go to your spouse and the remaining 50% will be equally distributed among all your legal heirs.

 

Importance of a Professional Wealth manager or Estate planner

Engaging a professional estate planner is crucial. They can provide valuable guidance and expertise in navigating the complex legal and financial aspects of estate planning. A professional estate planner can assist with drafting legal documents, evaluating tax implications, identifying suitable strategies, and ensuring compliance with relevant laws and regulations.

Their role involves understanding the individual's goals and objectives, analyzing their financial situation, and recommending appropriate estate planning tools and techniques. By leveraging their knowledge and experience, estate planners help individuals create a customized estate plan that aligns with their specific needs and preferences. Making a will does not mean that you are going to die. This should not be treated as a taboo. Your estate should not be a source of conflict and spoil the relationship between your children.

 

The process of estate planning

This involves:

1.      Assessing assets and liabilities. This involves taking stock of all the properties, business ownership / investments, bank accounts, and personal belongings, intellectual properties, Email and Social media accounts that make up the individual's estate.

2.      Identifying beneficiaries and their needs. This includes immediate family members, children, spouses, and other dependents. Individuals may also choose to include charitable organizations or causes as beneficiaries in their estate plan.  if there are minor children, provisions for their care, education, and guardianship should be addressed. 

3.      Setting goals and objectives. It ensures that the plan aligns with the individual's values, priorities, and long-term aspirations.

4.      Choosing appropriate Estate Planning tools. This may involve the creation of a Will, establishing trusts, designating nominees on insurance policies and retirement accounts, and granting powers of attorney.

5.      Drafting and executing legal documents. This includes detailing the distribution of assets, specifying beneficiaries, appointing executors or trustees, and including any additional provisions or conditions. The legal documents should be clear, unambiguous, and properly executed to ensure their validity and enforceability.

6.      Periodic reviews and updates. Changes in their personal circumstances, such as marriage, divorce, birth of children, or significant changes in financial status. Simultaneously, individuals should also evaluate their liabilities, such as outstanding debts, mortgages, etc. Assessing both assets and liabilities provides a clear picture of the individual's current net worth and helps determine how these should be managed and distributed.

 

When should we make our estate planning?

Yesterday was the best day. We are already late, and are incredibly lucky to be alive, and get this opportunity.  Ideally one should make a will at the age of 18, when one inherits the first property, otherwise your loved ones will suffer. Estate planning is not for the classes, it is for the masses. We must take some time out of wealth enhancement and wealth preservation and spend it on planning our wealth transfer so that we can smoothly transfer our estate to the next generation. It is vital that we leave behind an inheritances and not a mess.

To know more about Estate Planning and Wealth transfer from a professional please click on https://www.youtube.com/watch?v=5Bkh3ZtsLxc

Mr. Deepak Jain, the wealth management professional in this video, was invited to one of our batch-meets in Agra and this blog is the result of the knowledge gained from his hour long talk.