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Who will inherit your money?
Shalini Amarnani, MoneyLife | May 10, 2007
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:
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:
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.
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:
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:
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.
6 factors to keep in mind while planning your estate
Distribution vs growth:
Chance of disputes:
4 myths about estate planning
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."
Myth 3: "I can create a Will on my own and save the legal costs."
Myth 4: "I am too young to create a Will. I'll create a Will later in my life."
Remember, the terms of a Will become effective only at death.