Planning Your Legacy: Why Estate Planning Matters More Than Ever

But unlike the tide, we have the power to leave a lasting legacy, not just through memories but through careful planning. This is where the crucial role of estate planning comes in.

Death remains one of life's inevitabilities, yet preparing for it is often treated as a morbid and distant prospect. The consequences of inaction, however, can be far-reaching. Failing to plan your legacy through estate planning can leave loved ones navigating complex legal processes, financial burdens, and emotional turmoil during a time of grief.

[Read: How to Go About Transmission of Mutual Fund Units In the Event of Death]

Today, estate planning has become critical for people from all walks of life. Usually, one possesses movable financial assets in the form of cash lying in savings accounts or fixed deposits or permitted amounts in foreign bank accounts; securities held in portfolio management services, mutual fund investments, bonds, and other debt instruments, shares, etc.

In addition, one may have immovable assets in the form of commercial, agricultural or industrial land and residential units such as houses, apartments, etc.

What is Estate Planning?

Estate Planning and will writing might sound like something only the ultra-rich need to worry about, but that's not true at all! Whether you're just starting your career or are an experienced professional, you have assets and possessions that need to be taken care of.

By learning the ins and outs of estate planning and will writing, you are not only ensuring your family's well-being but also taking a massive step towards comprehensive financial planning.

Estate planning isn't just about amassing wealth or ticking a box on a to-do list. It's an act of love, a proactive measure to ensure the well-being of those we hold dear when we're gone. It's about building a bridge across the inevitable, safeguarding our loved ones from emotional turmoil and financial hardship.

Think of it as a map, guiding them through the often-confusing terrain of legalities and logistics, all while protecting their inheritance from the eroding currents of taxes and potential family disputes.

In today's ever-changing world, estate planning is more important than ever. Blended families, digital assets, and evolving tax laws add layers of complexity that can easily overwhelm unprepared families.

Without a clear roadmap, disputes can arise, assets can be lost, and the people we are meant to protect can be left adrift in a sea of uncertainty. But with a well-crafted estate plan, we can provide a life raft, a beacon of clarity and security in the midst of emotional turmoil.

So, let's ditch the image of fading footprints and embrace the power of legacy. Let's write a new story, one where love transcends the boundaries of time, where our wishes are etched not in the shifting sands but in the enduring ink of an estate plan.

Simply put, estate planning involves organising and managing your assets, property, and finances to make sure your loved ones are well-cared for after your demise.

[Read: Expectations from Nirmala Sitharaman's Interim Budget 2024]

Why is Estate Planning Important for an Individual?

In the current landscape, the importance of estate planning has grown even more significant due to several converging factors.

• Shifting Demographics: Life expectancy continues to rise, leading to more complex familial structures with blended families, multigenerational households, and increased potential for disability.

  Estate planning can address these complexities, ensuring assets reach the intended beneficiaries and providing necessary medical and financial support for disabled dependents.

• Evolving Wealth Landscape: The rise of digital assets like cryptocurrency and the increasing value of intellectual property presents new challenges for traditional estate planning mechanisms. Updating documents to account for these assets ensures they are managed and distributed according to your wishes.

• Taxation Complexities: Navigating the ever-changing world of inheritance and estate taxes requires careful planning. A well-constructed estate plan can minimise the tax burden on your beneficiaries, leaving them with a significant share of your legacy.

• Increased Family Discord: Unfortunately, intestacy and the lack of a 'will', can be a recipe for family conflict. Without clear instructions, disputes over asset distribution can arise, causing emotional distress and straining relationships. Estate planning allows you to express your wishes definitively, minimising the potential for such disputes.

• Security for Loved Ones: Beyond financial assets, estate planning can involve designating guardians for minor children, establishing power of attorney, and outlining end-of-life healthcare decisions. This provides invaluable peace of mind, knowing your loved ones will be cared for according to your wishes in your absence.

Despite the undeniable benefits, many individuals put off estate planning due to fear, procrastination, or simply not knowing where to begin. This hesitation can have significant consequences.

Starting the process early allows you to make informed decisions with a clear mind, ensuring your wishes are accurately reflected in your legal documents.

Life's unpredictable, your wishes shouldn't be. Discover how 'Planning Your Legacy' empowers you to control what you can. Click to watch now!

What are the Factors Involved in Prudent Estate Planning Process?

Estate planning doesn't need to be a daunting or expensive endeavour. There are several tools at one's disposal, such as legal templates, online instructions, and knowledgeable financial consultants and lawyers who may offer customised advice. No matter how wealthy or how your family is now, the first step is essential to secure your legacy.

Let's explore its fundamental building blocks:

Inventorise all of your possessions (houses, bank accounts, investments, and digital assets) and obligations (mortgages, debts). This influences how assets are distributed and helps calculate your net worth.

Make sure the people you have designated as your beneficiaries won't have to deal with unanticipated debt after you pass away. Examine your retirement funds, and if required, name beneficiaries.

1. Creating a Will

According to Section 2(h) of the Indian Succession Act, 1925, a "Will" is a formal declaration of a person's intentions regarding their property that they wish to come into force after their death. A Will created by a Hindu, Buddhist, Sikh, or Jain is governed by the terms of the Indian Succession Act 1925. Keep in mind that only people who had their primary residence in India (domiciled in India) at the time of their death are covered by this Act.

This is your opportunity to express your desires and make sure the people you care about are taken care of. Drafting a will with a lawyer is essential to specify your asset distribution and appoint an executor to carry out your wishes. Any person who has attained 18 years or above, is of sound mind and is free from any coercion, fraud, or undue influence can execute a Will.

One must use 'Last Will And Testament Of (state your name here)' to make it clear that the document is your Will and is legal. Moreover, state your full name, current address, and the fact that you are of sound mental health and under no duress from anyone to make the Will.

The Will must be executed appropriately with two attesting witnesses; it could be hand-written or typed out. The witnesses could be family members, friends or third parties, but the beneficiaries should not be the witnesses.

A significant advantage of a Will is that it supersedes intestate succession laws, which means you have control over who inherits your assets and in what proportions. Do note your liabilities cannot be a part of a Will.

Additionally, you can modify your Will as needed throughout your life, provided you remain mentally competent. Ensure each page of the Will is serially numbered and duly signed by the Testator (the person writing the Will).

In today's online world, there are a host of portals that help you write Wills online in a quick, convenient and user-friendly way at a reasonable cost, ensuring confidentiality. It is not mandatory to register a Will. If you wish, your Will can be registered with the registrar/sub-registrar by paying a nominal registration fee.

2. Trusts

A formal agreement wherein your assets are held and managed by a third entity, the trustee, on behalf of your designated beneficiaries. Trusts can shield your assets from future claims and provide tax benefits. Another effective estate planning tool is a trust, which can be established during your lifetime.

Trusts are versatile and can serve various purposes. It has a number of benefits, including making succession planning easier, shielding assets against unjustified claims, conserving assets for minors or others who would not manage their money properly, and managing wealth for beneficiaries who might not be well-versed in finance.

A trust can manage and distribute assets both during and after your lifetime, in contrast to a will, which distributes assets sequentially at a single event. There are several types of trusts, such as irrevocable, revocable, discretionary, and determinate trusts. Which type you choose will depend on your unique goals and situation.

3. Power of Attorney

A legal instrument that enables you to designate a representative to handle financial and legal matters in the event of your incapacitation. If you want to give someone the ability to handle your finances or make medical choices on your behalf in the event of incapacity, think about drafting financial and medical powers of attorney.

However, it's important to pick someone trustworthy and accountable for this role as the POA could be misused if it ends up in the wrong hands. A non-durable POA expires if the signatory becomes mentally incompetent, whereas a durable POA is still in effect in the event of an incapacitation.

A POA may be revoked at any moment and for any cause by submitting it to the appropriate authorities or by alerting your agent. Consulting a lawyer can assist ensure that the POA is drafted correctly and complies with all legal requirements.

4. Nomination

The process of appointing a person to receive the proceeds of your investments, insurance policies, and bank accounts after your death.

Nomination helps the nominee to receive the assets in a hassle-free manner without going to the court to obtain the succession certificate or the probate of the Will. It is imperative that the Will specifically name the nominee as a beneficiary.

In a life insurance policy, a Nominee is a person whom the policyholder nominates as to whom the insurer must pay the policy proceeds in the event of his/her demise. Although it is not mandatory to register a nominee but its importance cannot be overlooked. It helps in a hassle-free process for the family members to receive the proceeds after the death of the policyholder.

[Read: Don't Miss the Deadline: Update Your Mutual Fund Nominees Soon]

In the event that the owner of the bank account passes away, a nominee serves as the account's custodian. They, however, do not become the owner of the bank account upon the demise of the bank account holder.

The nominee can be anyone you deem to be your first relative - your parents, spouse, kids, siblings, etc. Some investments even let you designate multiple nominees and allocate different amounts of your funds to each of them. It is divided evenly if no percentages are stated.

To conclude...

Don't let the complexities of life - or the fear of difficult conversations stop you from securing your loved ones' future. Embrace the empowering act of estate planning today. Start the conversation, seek professional guidance, and ensure your wishes are heard. The peace of mind it brings is beyond measure.

In a world of uncertainties, is your legacy one of them? Will you choose clarity or confusion? The choice is yours.

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MITALI DHOKE is a Research Analyst at PersonalFN. She is an MBA (Finance) and a post-graduate in commerce (M. Com). She focuses primarily on covering articles around mutual funds including NFOs, financial planning and fixed-income products. Mitali holds an overall experience of 4 years in the financial services industry.
She also actively contributes towards content creation for PersonalFN’s social media platforms in the endeavour to educate investors and enhance their financial knowledge.
 

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.