A Detailed Guide on Estate Planning | Zenith Finserve
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Estate planning is like creating a roadmap for what happens to your belongings and money after you’re incapacitated or no longer around.
What is Estate Planning?
Estate planning helps you ensure that your assets are managed and distributed according to your wishes, both during lifetime and after demise. It involves making decisions about who gets what, ensuring your loved ones are taken care of.
Estate planning includes making a will, naming beneficiaries for your assets, and possibly setting up trusts or assigning guardians for children. It’s a way to organise your affairs and leave clear instructions so that your wishes are honoured when you’re not there to express them. A Will is the most common form of an Estate Plan.
Myths about Estate Planning
Estate planning is only for the wealthy
Estate planning is important for people of all financial backgrounds. It helps ensure that your assets are protected, managed and distributed according to your wishes. Any of these things have nothing to do with how wealthy you are.
Estate Plan is only for the elderly
Life is uncertain. Unfortunate events can happen at any age just like it happened with Ankit, and having an estate plan in place ensures that your wishes are respected, regardless of your age or health condition. Therefore, there is no right age to prepare an Estate Plan. Sooner the better.
We do not need an Estate Plan as we have already appointed nominees.
Nomination takes care of everything is one of the biggest myths of Estate Planning. A nominee just acts as a custodian of those assets until they can be transferred to the rightful beneficiaries or legal heirs. A nominee does not have absolute ownership rights over the assets and is essentially a temporary caretaker until the assets are properly distributed as per the legal processes and rightful claims.
“Over Rs. 6 Lakhs Crores of assets are lying unclaimed with various Indian Institutions as on 31-Mar-2022. This is mostly due to lack of nomination and unawareness. You have addressed this issue to a great extent by nominating,. However, a Holistic Estate Plan serves a wider purpose.
Importance of Estate Planning
Estate planning is not solely about the distribution of assets on demise but also includes important decisions regarding healthcare, incapacity, guardianship of minors, business succession, privacy and confidentiality. It involves addressing both financial and personal matters to protect your interests and provide for your loved ones.
Benefits of Estate Planning
Estate Planning has many financial and non-financial benefits. Let us look at a few of them-
Asset Protection
Estate planning allows you to protect your assets from creditors, lawsuits, and potential claims. You can ensure that your assets are safeguarded and passed on to your loved ones. This is beneficial if you have a business or a loan or if you hold assets with someone together.
Providing for Loved Ones
Estate planning helps facilitate the smooth transfer of your wealth to your loved ones. It allows you to specify who will receive your assets and belongings, in what proportions, and under what conditions. This can prevent disputes among family members and ensure that your assets are distributed as per your wishes.
Guardianship for Minor Children
If you have minor children, estate planning allows you to appoint guardians who will take care of them in the event of your untimely demise. This ensures that your children are raised by individuals whom you trust and who share your values. This would have helped Ankit had they provided for guardianship.
Healthcare Decision Making and Incapacity Planning
Estate planning includes documents such as a healthcare directive, which appoint someone to make financial and medical decisions on your behalf if you become incapacitated. These documents ensure that your wishes regarding medical treatment, end-of-life care, and financial matters are respected even when you are unable to communicate them. This would have been handy for Ankit, at least legally, if Ishita had provided that Ankit would take decisions on her behalf.
Privacy and Confidentiality
Proper estate planning helps maintain privacy and confidentiality by keeping sensitive information out of the public domain. It allows you to protect your family’s privacy and keep your financial affairs confidential. Just like Ankit discussed his issues with you, he and his other family members may discuss with others also.
Business Succession
If you own a business, estate planning can help ensure a smooth transition of ownership and management. It allows you to plan for the continuation of your business, identify successors, and address tax implications or potential disputes among family members.
Minimising Taxes and Liabilities
Estate planning can help minimise tax and other liabilities. You can reduce this burden on your estate and preserve more wealth for your loved ones through efficient planning.
The Unique Benefit of Twofold Immortality
A unique thing about Estate Planning is that it also provides you the opportunity to create your twofold immortality. Twofold immortality in estate planning refers to the idea that by planning your estate, you can leave a lasting impact on both your loved ones and the causes you care about even after your demise.
The first aspect of twofold immortality is ensuring the well-being and financial security of your family and loved ones. The second aspect involves leaving a legacy and making a positive impact on society. You can support causes that are important to you, such as education, healthcare, environmental conservation, or social welfare by including charitable contributions in your estate plan. This allows you to contribute to the betterment of society and leave a lasting imprint that reflects your values and passions.
Through twofold immortality, you ensure the financial well-being of your loved ones and also leave behind a legacy of giving and make a difference in the world. It provides a sense of peace knowing that your estate will continue to support your family and contribute to the greater good, even after you are no longer physically present.
What happens if you do not prepare your Estate Plan?
In India, in the absence of an Estate Plan, the distribution of estate happens based on religion or place of residence. Every religion has their own Succession laws that define how the distribution should happen. Obviously, these laws are generic in nature as they cannot consider each family situation. The settlement happens based on the provisions of applicable law.
So, for instance let us discuss through a brief example of how it works in Hindu religion if a Hindu married male passes away.
If a Hindu passes away without making a valid Estate Plan, the assets of the deceased are first distributed equally among Class I heirs, which include the spouse, children (both sons and daughters), and the mother. If any of these Class I heirs are not alive, their children (i.e. grandchildren of the deceased) would be entitled to their share.
If there are no Class I heirs, the assets are then distributed among the Class II heirs. Class II heirs include the father, siblings, and their children (nieces and nephews of the deceased). Class I heirs take precedence and have a higher priority in terms of receiving the assets. However, if there are no Class I heirs, then will the Class II heirs be entitled to the assets.
You must be wondering, “Doesn’t the wife get all the assets if the husband passes away?” The answer is “No.”
If a Hindu married male were to pass away, all his assets wouldn’t go to his wife. The assets will be divided equally between wife and children. If the children are not mature, they may not even know how to handle the assets if they were to inherit it. That’s why it is important to prepare an Estate Plan.
Estate Planning Checklist
Estate planning also includes legal instruments such as a Will, Trust, Powers of Attorney, Advance Healthcare Directive, and others.
These documents provide comprehensive protection and address various aspects of your estate. Let us discuss a few popular documents in brief-
Will
A Will is a legal document that allows you to specify what happens to your belongings and assets after you pass away. It helps ensure that your wishes are carried out and that your loved ones are taken care of. In a Will, you can name beneficiaries who will receive your property, such as money, real estate, or personal belongings.
You can appoint an executor who will be responsible for managing your estate and carrying out the instructions in your Will. Creating a Will gives you peace of mind knowing that your assets will be distributed according to your wishes and can help prevent disputes among family members.
Trust
A Trust is a legal arrangement that allows you to set aside and protect your assets for the benefit of someone else, known as the beneficiary. It’s like creating a special container to hold and protect your assets. In a Trust, you transfer ownership of your assets to a trustee, who is responsible for managing and safeguarding them according to your instructions. The trustee acts as per the terms you lay out in the Trust document.
A Trust provides excellent benefits of control over your estate during your normal life, management and distribution as per your instructions if you become incapacitated or pass away. Trusts are useful to manage assets for minor children or individuals with special needs. Trusts are commonly used to provide financial support to family members, manage wealth for future generations, or support charitable causes.
Power of Attorney
A Power of Attorney is a legal document that allows you to appoint someone you trust to make decisions and take actions on your behalf. It gives them the authority to act as your representative in various matters, such as managing your finances, making healthcare decisions, or handling legal matters. This can be especially useful if you are unable to make decisions or handle your affairs due to illness, disability, or absence.
The person you appoint, known as your agent, has a legal duty to act in your best interests and follow the instructions you provide in the Power of Attorney document. A Power of Attorney provides peace of mind knowing that there is someone you trust to handle important matters on your behalf when you are unable to do so yourself.
Advance Medical Directive
An Advance Medical Directive encompasses various legal documents that give instructions or appoint a healthcare proxy to make medical decisions on behalf of an individual if they are unable to do so. An Advance Medical Directive allows you to designate someone you trust to make healthcare decisions for you when you are unable to communicate your wishes.
Is Estate Planning a one time or an ongoing process?
Estate plans may need revisions over time. Life and financial circumstances constantly change, and changes in laws can also impact the effectiveness of an existing estate plan. Regularly reviewing and updating your estate plan ensures that it remains aligned with your current wishes and circumstances.
Revisions to an estate plan can involve updating beneficiary designations, making changes to distribution instructions, appointing new trustees or executors, or incorporating new estate planning strategies to maximise benefits. By revisiting and updating your estate plan, you can ensure that it reflects your current intentions and provides for the orderly transfer of your assets in accordance with your wishes.
Who prepares an Estate Plan?
An Estate Plan is a combination of legal and personal finance affairs. A lawyer is an expert in the legal department, a Certified Financial PlannerCM (CFPCM) is an expert in personal finance affairs. For example, if parents of a special child want to provide for an ongoing income for the child, an experienced CFPCM would be able to suggest which financial instrument to use, how much inflation to consider, and so on.
So, do both a lawyer and a CFP can work collaboratively or if it is not a complicated Estate Plan like the one that involves establishing a Trust then even a CFPCM who is qualified and experienced in preparing Estate Plans can help. If a CFP is also a Chartered Trust and Estate PlannerTM which is a professional qualification in Estate Planning then that professional can prepare Estate Plans for clients even without a legal expert.
Why choose Zenith Finserve to prepare your Will?
At Zenith Finserve, we’ve seen many Wills that, though legally valid, caused unexpected financial challenges for the beneficiaries. These Wills meet all legal requirements but overlook the financial implications, leading to disputes, tax burdens, and complications with illiquid assets.
We believe that a Will should not only be legally sound but also financially efficient. We help ensure a smooth transfer of wealth, minimise taxes, and avoid unnecessary delays or disputes by combining legal expertise with financial planning. Let us help you secure your legacy with a comprehensive Will that truly serves your family’s best interests.
Frequently Asked Questions about Estate Planning
What is estate planning?
Estate planning is the process of organising your assets and deciding how they will be distributed after your demise or incapacity. It involves creating a Will, assigning beneficiaries, and setting up trusts or guardianships.
What happens if I don’t have an estate plan?
Without an estate plan, your assets are distributed according to local succession laws, which may not align with your wishes. This could lead to family disputes or delays in transferring assets.
Can estate planning reduce taxes?
Yes, proper estate planning can help minimise taxes on your estate, ensuring that more of your wealth is passed on to your beneficiaries rather than lost to liabilities.
How can estate planning protect my assets?
Estate planning helps safeguard your assets from creditors, lawsuits, and other claims, ensuring that your wealth is protected and passed on to your heirs as per your wishes.
Why should I create a Trust in my estate plan?
A trust allows you to protect and manage assets for the benefit of someone else. It provides control, helps avoid probate, and can support minor children or loved ones with special needs.
Can I make changes to my estate plan?
Yes, you can modify your estate plan as your circumstances change. It’s recommended to review your plan regularly to ensure it reflects your current wishes.
When should I update my estate plan?
You should review and update your estate plan after significant life events like marriage, childbirth, or changes in financial status to ensure it aligns with your current wishes.
What is a Will, and why is it important?
A Will is a legal document that outlines how your assets will be distributed after your death. It ensures your wishes are honoured and prevents family disputes over inheritance.
What is the difference between a Will and a Living Will?
A Will specifies how your assets should be distributed after death, while a Living Will outlines your medical preferences if you’re incapacitated and unable to communicate.
What is probate, and how does it affect my estate?
Probate is the legal process of validating a Will and distributing assets. It can be time-consuming and costly, but a well-structured estate plan can help reduce or avoid probate.
What is a Power of Attorney, and why is it needed?
A Power of Attorney authorises someone to make legal or financial decisions on your behalf if you become incapacitated. It ensures your affairs are managed when you cannot do so yourself.
How do trusts benefit my estate plan?
Trusts help in avoiding probate, protecting your privacy, and ensuring that your assets are managed and distributed according to your specific wishes. They are particularly useful for long-term planning.
What is an executor, and how do I choose one?
An executor is a person or institution responsible for carrying out the terms of your Will. Choose someone trustworthy, organised, and capable of handling legal and financial matters.
What should I consider when choosing a guardian for my children?
When selecting a guardian, consider their ability to care for your children, shared values, and financial stability. It’s crucial to discuss this responsibility with the person in advance.