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In an interview with

 

Quantum Information Services Pvt Ltd (PersonalFN)

 

In this interview Mr. Dileep Choksi shares his views on estate planning and its importance today

 

Mr. Choksi highlights the importance of having a succession plan in place - irrespective of the wealth accumulated - through various estate planning tools like Wills, Trusts, Gifts etc. He spoke at length about the role of the courts, witnesses, division of estate among children and much more!

Here is the transcript of the interview.

 

1. PersonalFN : Sir thank you for joining us. You have been into practice for decades - 3 decades in fact and you must have come across several individuals seeking advice on personal finance. In general what has been your experience on awareness of estate planning in India? How aware are people in India?
   
   Mr. Dileep Choksi : I’ll divide the answer into two parts. It has gone through a substantial transformation and the transformation is gathering momentum. In the past we had context laws like the MRTP law and the earlier Companies Act where legal ownership of assets was an important criteria and the income that was generated from the ownership of assets laid emphasis on financial planning to maximise returns on retained earnings. Except for some families there was not much emphasis given on planning for the estate after death. It was taken for two reasons. One there was the acceptance of the mentor or the father figure and whatever he said went and the family stayed together. Second, was that it was a joint family system where the families were not as splintered as they are today. So, the wealth remained in the family as per the wishes of the elders.
   
   Slowly things have now changed. There is lot of information available on the net. Both boys and girls are independent in thought; they are informed and aware of their rights. There is greater option to do what one likes. It may not be the family business. At the same time they would like to maintain the same social status – probably rightly so. There is a realisation that much has to be done for estate planning moving forward. As that realisation has come, action has already started being taken for planning.to put things into place.
    
2. PersonalFN : But is there a misconception that estate planning is only for the rich or it is only after the prime phase of life. Is that a misconception amongst people you come across… and how do you address this misconception?
   
   Mr. Dileep Choksi : There are two aspects to this. However small or big the family may be, there are commonalities of issues. … Let’s assume you have two children and may want to make an equal distribution. . It doesn’t matter what the size of the cake is. . The intention may be to leave it in control with the male line but you want the female line to also enjoy the benefits. This desire is common and so estate planning is a common need. A Will well written will help in the long run in avoiding endure family disruptions and promote family peace. So while end objectives might be more diverse for the wealthy the need for executing a will or trust is common. .
    
3. PersonalFN : So when they look at estate planning, do they focus only on Wills or is it more than wills as far as division of assets etc. are concerned?
   
   Mr. Dileep Choksi : Where estate is concerned, an individual normally has to ask himself two questions – What do I want to do with my estate and once you answer that question, you have to answer the question – how do I achieve those objectives. The question of writing a will answers the second part of the how but there are various other tools of doing it too. One can plan during a lifetime, e.g. by constituting it by trust. One can also prepare a will or a combination of both. This is apart from other options which are many. These can be done confidentially or after deliberation in consultation with the next generation or in conversation with others. Normally such matters require deliberation and quiet consultation. . I would say wills play a significant role but not a determinative role on how the estate must devolve.
    
4. PersonalFN : Through the information technology, as you said, the younger generation are far more aware, even the daughters are aware, all the siblings are well aware about their assets and what the family has. But unfortunately there is a lot of squabbling and bickering which happens in the family when it comes to property matters. Often it so happens that Wills are challenged due to these reasons. So, usually what facet does the court consider to pronounce the Will as a valid will and how does it go about?
   
   Mr. Dileep Choksi : The role of the courts in a probate proceeding is limited to providing authenticity of the Will. . However the contents of a will can be independently challenged. Where the contents of the Will are concerned, if the contention is that something was done under coercion or the testator did not have a right of disposal are matters the courts would look into. Many people are not aware, even the HNIs or even enjoying income from the larger families are not aware that the assets owned does not necessarily vest power over the assets for disposal. e.g... You have what is known as forced heirship and then you have the concept of what is disposable wealth. So the courts will play a dominant role in deciding, depending upon the country in which you are, how the devolution should take place and to what extent the will is in keeping with the law. . Laws for this purpose mean personal laws with which the individual is concerned and will include the state laws of where the property is situated. That’s where the courts can interfere.
    
5. PersonalFN : Does religion plays an important role when it comes to estate planning or making Wills?
   
   Mr. Dileep Choksi : Yes, very important role because…we just spoke about forced heirship – in religions for example and in certain cases the assets cannot be disposed of entirely. Certain family members are entitled to certain portion of their assets and if you haven’t done that, then that portion of disposition will not be held to be valid. Similarly as a result of the 2005 amendment of the HSA (where the female members have been given a right) the extent of rights of females in a HUF remains ambiguous. As Hindu Law is not codified, the amendment which has been made is made is to the succession law which assumes that the personal law remains intact. But the nature of the amendment is such that it even impacts the personal law. That gives right to large number of disputes. So it is best to have it resolved and a Will or a trust is an option of how it should be resolved.
    
6. PersonalFN : Ideally what plays a better role to go about when it comes to estate planning, a Will or a trust, usually for a person who is ultra HNI?
   
   Mr. Dileep Choksi : I would say it is a combination of both. It all depends upon on the individual and the extent of assets.. Some individuals may want to keep things very confidential till their death some individuals may want to talk it over and also depends upon the constitution of the family and circumstances. So, if you are writing a Will at a younger age, you can always change your Will; so there is a great amount of flexibility in writing a Will. In the case of trust, there is not that much of flexibility. I am not saying there is no flexibility, but there is not as much as in case of a Will..
    
7. PersonalFN : And would children from previous marriage receive any share in the assets of the deceased if the testator dies intestate?
   
   Mr. Dileep Choksi : My answer is yes. It is the children of the deceased who are entitled to a share under the schedule to the succession Act. It does not say that it should be from a subsisting marriage or an earlier marriage as long as you prove that it is a child born to the deceased.
    
8. PersonalFN : biological...?
   
   Mr. Dileep Choksi : No, as a matter of fact, I am going to the extent of saying just children. But there are have been case laws which say that adopted children are also entitled to a share and as social norms change even if you have a child that is born out of wedlock, that child may also be able to claim a right. Every case has to be viewed at separately.
    
9. PersonalFN : So anything can be challengeable in the court?
   
   Mr. Dileep Choksi : Virtually yes. These are not challengeable. Today as I said that the courts have evolved the Hindu Law. is evolving itself. As it is not a codified law like the Indian Penal Code which has stood the test of time. Traditionally, a female never had a right in the HUF. Whether you call it as ‘Stridhan’ or you call it any other property, the courts recognised the power of the woman to be able to own her individual assets -- that has now been to an extent extended by the amendment which has been made to the law. So to answer your question about children and their rights – as long as you are a child Matters can be contested in court.
    
10. PersonalFN : Now taking plain heed of the history of joint families in India, there are many who own ancestral properties. Now, for such individuals, do joint Will make sense? And if yes, then what care should be taken while drafting such Wills?
    
    Mr. Dileep Choksi : At the outset, what is ancestral property remains a question. It has been defined to a certain extent under Hindu Law, but many a personal law do not have a clear cut definition of what is ancestral property. So you first ascertain what is ancestral property and what is non-ancestral property as the legatees have different rights in the property which they inherit. That is one part of the question. The second part of the question is – should you have joint wills? By and large, you should not. Again it depends upon the facts of the case because a joint will is in a nature of a contract. And if you have contracted with a person who is no longer alive, then the survivor of the joint will has a very limited power to be able to modify any part of that Will. It is better to have independent wills but achieve the same purpose – what is often referred to as reciprocal Wills but not joint Wills .
     
11. PersonalFN : So how do you really define reciprocal Wills…if you could just elaborate a little more on that?
    
    Mr. Dileep Choksi : So, let’s take for example you have a family comprising of husband, wife and two children. Normally the wife would say or the husband would say: on my death I give my right on this property to my spouse and if the spouse predeceases me, I give everything to the children. The wife then has a similar will. These are reciprocal and you achieve the same purpose. So, in most cases it is good to have a reciprocal Will. It is good to understand the nuances in the family to understand what type of Will you should have.
     
12. PersonalFN : Sir, a lot of non-resident Indians have invested their money in India. Any special care they should take in estate planning while making Wills here?
    
    Mr. Dileep Choksi : Oh yes, you see many people are not aware of the fact that there are different statuses that apply to an individual. One is your citizenship, second is your residence and third is your domicile. Now, all these three have a bearing on the nature of the will you can write and this has to be linked along with your personal law and independent of countries like Dubai or Singapore where there is need to get a residence permit. So, what you can dispose of where is governed by all this. So if you are writing about a non-resident who has properties here but is not a resident or is not even domiciled in India, it might be a good idea to have an independent Will for India.
     
13. PersonalFN : A witness also has a vital role and usually people pick up any one as a witness. What is the quality, ideally you should look at in a witness when you are making a will; because it so happens that the witness turns around and there are problems. So, what is the care you should take while having someone as a witness for the Will
    
    Mr. Dileep Choksi : We need to understand the role of a witness. A witness need not know the contents of the Will. All that the person has to do is say that the will was signed in his presence. So, the best practice would be to have a doctor and a lawyer to be the witness to sign the Will. If there is vagueness in the Will, one may have to go back to the intention of the Will that the court will look at. So apart from the legal capacity of the individual to execute the Will, in such cases you have to know what was the intention behind a particular clause. For such eventualities it may be best to have a confidant of the testator to be witness. So, you should have that individual also attest the Will. You should have minimum two then you can always have three, there is nothing hard and fast.
     
14. PersonalFN : It is also said that estate planning should marry your tax planning. Now how does one do that optimally and can you elaborate a little more taking into account the prevalent tax laws if you have to marry your estate planning with tax planning
    
    Mr. Dileep Choksi : The question today is that where Wills and estates are concerned, it is the income of the individual who is no longer alive that goes to somebody else, that same income should not be taxed twice. But, only for tax benefit you don’t really play around with your estate. So, you should ensure that, depending upon the family a bequeathal is made to an entity which pays the least tax. Second, is to ensure that the estate is planned in a manner depending upon which jurisdiction you are which takes us back to the place of residence, domicile and things like that, which will avoid or minimise estate duty should it be levied – that’s the tax planning you should have. It should be remembered that no one solution fits all
     
15. PersonalFN : Gift deeds unfortunately have been misused in the past. A lot of people tried to give gifts and that’s how they tried to avoid taxes. What would be your advice to such people and is it right to follow such practices?
    
    Mr. Dileep Choksi : Anything which is artificial is dangerous. The underlying tenet of a gift is mutual love and affection. So if I give it to a total stranger outside for no rhyme or reason, it is suspect and the court has a right to strike it down. So such planning should be done carefully.
     
16. PersonalFN : Sir, there are many legal advisors, financial planners out there offering estate planning as part of their services. Any point to be borne in mind when you select a legal advisor or a financial planner for estate planning?
    
    Mr. Dileep Choksi : The person who is advising should be practical, should understand the family and help the family first to answer the ‘what question’. When I say what and how and then decide the ‘what questions’ and then when you decide the ‘what questions’ you have various options that have to be given to the person who is writing the will on how things can be achieved. It’s a misconception that property can be transferred only through a Will and a trust. It can be done through a variety of ways and you must have the ability to say that you don’t have to write a Will, you don’t even have to write a trust. I would see three qualities in an estate planner. One is absolute integrity, second is comprehensive knowledge of the law and the third is comprehensive knowledge of the testator. It’s a combination of these three which you should look at.
     
17. PersonalFN : And today in the online world there are companies who offer online Wills as well. You have to feed in the data and a Will is generated for you. Is it okay for someone who is absolutely naïve to go in for such Wills?
    
    Mr. Dileep Choksi : It is advisable to see the page. It helps bring in awareness and answer a few questions too. I would encourage people to do that. If today you have a very simple family and you have very simple wealth and you don’t control any business enterprise say you are an employed person and you have your salary, you have a good wealth advisor and you make a judicious division of your wealth. You have simple families – husband, wife, two children. The girl is married. The father may have said, look my dear girl, this is what I can afford to give you, so please don’t expect to get anything from my estate in future. I am going to leave everything to my son and he wants to afford security to his wife. So have a simple will which says I give my income to my wife and after my wife to my son. End of the story; not about the complexities involved. But if in the same family, if you think that the children are going to fight, then is it ancestral wealth, non-ancestral wealth but in most families today they are harmonious, they understand what they are doing. Going back to your very first question, a will is desirable for passage of property – look at it, the portals which are there today, will alert you on some questions, which you need to carefully look at. Seek advice on that, if at all a question or two is necessary. But otherwise go ahead and execute it.
     
18. PersonalFN : Sir last question to you, what question would you give to financial planners who also engage in estate planning. They may not have the knowledge as far as the law is concerned in a very detailed way but their clients approach them for estate planning as part of their financial planning. So any suggestions you have for them, like for us, we are also into financial planning…
    
    Mr. Dileep Choksi : You see the objectives in financial planning basically are two or I would say, only one – what is your appetite for risk? That’s the only question you have to answer. The greater the appetite, greater the risk, so greater the reward, lesser the risk lesser the reward – that’s what all financial planners would advise you. And that will be in keeping with the laws -- whether you are allowed to invest abroad, whether you are allowed to invest in gold, whether you are allowed to invest in other assets, that’s the goal of the financial planner. Whereas the role of an estate planner is quite different, it requires as I told you, a combination of three factors, out of which, I would say, financial planning would be comparatively a smaller part. Now you find that, there are two objectives which are not similar, I would perceive that as a conflict and then you don’t want a client to tell you that you maximised returns but created a family dispute or if it is a normal family who envisaged that there is no family dispute, who will say that oh you have not maximised the return. And actually if you were to see what really happened in Lehman Brothers that was the conflict. You know, you look at a property and you look at the investments and if you have to sort of justify your own investments, there has to be somebody to question you: why did you do this? Maximise returns is not always the end objective. There could be variety of objectives which you want to look at. So I think, it is a different talent pool that is required to be put together.
     
19. PersonalFN : Alright, Mr. Choksi thank you very much. I am sure our viewers would benefit from your views.
    Thank you so much Sir, for your precious time and insights.
    
    About Mr. Dileep Choksi : Mr.Dileep Choksi is a reputed chartered accountant, having over 35 years of experience in the accounting profession. His areas of specialization include accounting, tax and corporate advisory services. He advises some of India’s largest business houses on strategic decisions and multinational clients on cross border structuring. Mr. Choksi has been a visiting faculty member at leading educational institutes such as Jamnalal Bajaj Institute of Management Studies and Bankers Training College. He is presently a member of the boards of several listed companies. In addition to his accountancy degree, Mr. Choksi holds degrees in management accounting and law.
     

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