Covid-19 second wave forces Indians to write out will and chalk out estate plans

Amit Kumar, 40, has lost his sleep due to the Covid-19 scenario. He constantly measures his temperature and is hassled after seeing social media updates, which show people struggling to get oxygen cylinders for their loved ones who are down with Covid.

“My worst fear is what will happen to my family if something worst happens to me. Being a primary bread earner I have many responsibilities,” he said.

Amid the fear of Covid-19 hitting home, Amit has decided to go for estate planning so that his family does not suffer financially in the case of his untimely demise.

Many people who were sitting at the fence have now started giving estate planning a serious thought. This is because by preparing a will, which is one of the most popular ways of estate planning, the property can be passed onto the family members without any legal disputes.

“One of the uncertainties of life is a time of death. In these times of pandemic, we have come across many dear ones losing their lives which we never expected will happen to them. Though I don’t wish to share because it is not a pleasant experience but it is a fact as an estate planner my practice has gone up after this pandemic. In the last year, I have executed more than 100 estate planning for my clients. Every day I am onboarding 1 or 2 clients due to pandemic,” said Suresh A, a Bangalore-based estate planner and certified financial planner during one of the recent webinars organised by the Financial Planning Standards Board.

During this time of crisis, we tell you how to go about your estate planning:

What is estate planning?

When the person dies in a family, his or her assets are generally passed on to the legal heirs. But many times it leads to disputes between family members because of no clarity regarding how it has to be distributed. Well, the feud between Ambani brothers has still not faded from our memories when it comes to transferring assets from one generation to another.

Having said that, estate planning is a systematic way to deal with the management of property and transfer of legacy to the next generation. Through estate planning, you can ensure a smooth transition of assets without any bitterness in relationships which we usually see when the head of the family passes away and the property gets distributed among siblings.

How to do estate planning?

Prepare a Will

A will is the most widely and commonly used method of succession planning in India. A will is a written document by which a person directs how his or her assets are to be distributed upon death. One can transfer movable, immovable, tangible or intangible assets through a will.  It is not that you need a lawyer or an advisor, as the actual job of writing a will could be simple. It can be as short as a few words or you can detail it over several pages. You can write it on plain paper in whatever manner you want.

The testator (person who writes the will) can modify it anytime by recording the changes in another document which is known as “Codicil”. Though registration of the bill is not compulsory, experts recommend registering the will in order to avoid future disputes. Also, it is good to appoint an executor to execute the requirements of the will. “Always it is recommended to have an executor. It is very crucial when the will is disputed and probate is required, said Suresh in the recent webinar conducted by FPSB.

Trust

In simple words trust is a relationship where the property is held by one party for the benefit of another party. Here the property is held by trustees for the benefit of beneficiaries. Property to trustees is transferred by the author or settlor of the trust. Unlike the will, assets are not transferred to beneficiaries but to trust, therefore, it helps in the preservation of wealth and minimises disputes among family members. It is also one of the ways to keep assets together through generations in large families.

There are different kinds of trust:

Revocable and Irrevocable: Here when the deed gives an author the power to revoke the trust it is called revocable. When the deed doesn’t give such powers to the author it is called irrevocable trust.

Public and Private: This depends on the status of beneficiaries.  It is called public if it is for the purpose of charity. In case it is created exclusively for family members then it is called a private trust.

Living and Testamentary: Living trust is one that is created during the lifetime of the author. A testamentary trust is created by a will and it comes into existence after the death of the author.

Determinate and Discretionary Trust:  When trustees determine the share of beneficiaries it is a discretionary trust. When the share of beneficiaries is fixed it is a determinate trust.

Then there is the Married Women’s Property Act, which plays a critical role too in succession planning.

Married Women’s Property Act

Under Section 6 of the MWP Act, a husband can assign an insurance policy to his wife and/or children after which it becomes their absolute property. The clause is extensively used while succession planning as it makes the proceeds from insurance policies completely encumbrance-free. For example, if you are a salaried person and have an outstanding loan, the creditor can attach the proceeds of your insurance. Similarly, if you are a proprietor, your creditor will have a claim on your insurance policy and can also be attached in case of insolvency. The whole purpose of buying insurance gets defeated if proceeds get encumbered when your family needs it the most. If the policy is assigned under MWP Act it becomes the absolute property of his wife/children.

Suresh said: “There is no right time for estate planning. When a person knows the assets and when the person knows the family even one night should not be passed without estate planning.”