Money matters! Personal finance is the key to unlocking financial freedom and achieving one’s long-term goals. It helps you budget wisely, invest intelligently to build wealth, and prioritise reducing debt and saving for retirement. In short, managing your money is essential to living the life you want, but what about after you’re gone? Let’s explore why legacy or estate planning is an important part of personal finance that is often overlooked, but important for any sound financial plan to be complete.
Personal finance is the process of managing one’s money in order to achieve financial security and success. It involves creating a budget, saving and investing money, managing debt, and making smart financial decisions. Legacy and estate planning is a sub-category of personal finance that focuses on preparing for the distribution of one’s assets after death. It is an important step that individuals and families must take to ensure their assets are distributed according to their wishes, minimise taxes and court costs, and provide for their loved ones in case of incapacity or death.
Tools for estate planning:
There are many options available for estate planning to suit individual requirements. Let’s focus on some of the most important ones:
- Will: The most basic, but perhaps the most holistic and useful succession planning tool available is the humble Will. A Will ensures that your assets are distributed according to your wishes post demise. Ensuring that you have a Will in place can go a long way in helping to avoid legal disputes among family members. For parents of young children, perhaps the most important reason to make a Will is to be able to appoint a trusted Guardian for their dependents. It is a healthy practice to keep your Will updated with the details of any assets acquired or forfeited, to reflect where you are in life and avoid rendering it obsolete. Overall, a Will can provide peace of mind and protection for both you and your loved ones.
- Trust: Setting up private trusts are beneficial if you have specific needs such as asset consolidation, smooth intergenerational transfer, protection against reinstatement of estate duty, taking care of beneficiaries with special needs, etc.
- Gift: A gift can be used as a tool for estate planning by allowing the donor to give away assets during their lifetime. This tool is popularly used in India especially on occasions such as marriage. It is important to note however, that gift deeds can be risky because it results in the person losing control over the asset.
- Others: Usually, adding a nominee to assets such as bank accounts, mutual funds, and fixed deposits can help to transfer these assets to the nominee in the event of the owner’s demise. However, what most people don’t realise is that a nominee is only a trustee of the asset. The legal heirs are ultimately the rightful owners, unless otherwise specified in a Will.
When parties purchasing an asset include the right of survivorship clause in the agreements, then it allows for the transfer of property ownership to the surviving co-owner upon the death of the other. This allows for a smoother transmission of assets to the surviving owner, without delays and legal expenses.
Key advantages of legacy and estate planning:
Now that we have a basic understanding of all the various options available, let’s delve a little deeper to understand the myriad benefits one can enjoy with a comprehensive estate plan in place.
- Preserving assets and providing for future generations: By creating a comprehensive estate plan, individuals can protect and preserve their assets for their children, grandchildren, and other beneficiaries. Without a Will, succession laws based on one’s religion take over and splits one’s assets among a group of legal heirs. Distribution of assets in this way can result in an asset having multiple owners, which is likely to dilute its overall value. Also, this kind of mandatory division of assets among specific heirs means that there is no way of ensuring that the more vulnerable members of the family get more than the ones who are already well-established, and may be less in need.
- Prevents future disputes: Estate planning helps outline the roadmap for the continuity of one’s legacy and the distribution of assets post demise. In this regard, a Will not only acts as an inventory of one’s assets, but also ensures that all assets are accounted for and distributed according to the wishes of the testator (person making the Will). This can help to avoid disputes and confusion among family members about who should receive which assets.
- Minimising statutory costs: Careful estate planning can help in the smooth transition and transmission of assets and reduce or eliminate certain statutory costs that can eat into an inheritance. By creating a Will, an individual can ensure that their assets are distributed according to their wishes and reduce the burden of taxes during transfer of the assets. Furthermore, if appropriately structured, a Trust may also help in planning should estate duty be reinstated in India.
One can therefore easily conclude that creating an estate plan keeping in mind one’s financial situation and goals is a must. With an estate plan in place, one can rest assured that their assets are protected and will be used in the way that was intended, thereby ensuring the continuity of one’s legacy. Knowing that your affairs are in order and your loved ones will be taken care of can provide peace of mind and help you focus on enjoying the present with your loved ones without worrying about the future.
Aditi Joshi is the head of legal affairs in Yellow.
[Disclaimer: The opinions, beliefs, and views expressed by the various authors and forum participants on this website are personal and do not reflect the opinions, beliefs, and views of ABP News Network Pvt Ltd.]