Entrusting responsibilities through legacy planning

We often witness, that people are ignorant or postpone their plans when it comes to legacy planning. Specific age is not the criteria for any uncertainty to occur; it could affect young individuals also. Many believe that the term ‘legacy planning’, ‘estate planning’ or ‘will drafting’ is for rich or retired individuals only, but every individual should be concerned about their assets and wealth.

In a way, each person owns an estate in some form or the other, such as a house, jewelry, vehicle, bank accounts, stocks, mutual funds, etc. Placing it in the right hands after you should be the utmost priority. This article will help you understand the importance of legacy planning and the urgency to make a will.

Legacy Planning

Legacy planning is a financial strategy that prepares people to bequeath their assets to their loved ones. It is more or less similar to estate planning and encompasses a greater part of planning and activities. Legacy planning involves personal effects such as family stories, accumulated wisdom and life lessons of your family. It is the process used for many purposes such as helping to preserve your assets for future use to transferring your wealth.

Why do you need a legacy plan?

Assume you are a sole earner and your family is completely dependent on you. If any unforeseen event occurs to you, would your family have easy access to your assets or would they have to go through any disputes or legal issues in court? Or if any relative tries to intervene in the financial matters? In situations, when you haven’t prepared a will or trust or power of attorney, the transfer proceedings happen according to the Indian succession law.

Therefore, a legacy plan aims to enable your family to receive the complete ownership of the wealth smoothly through a will or trust. Legacy planning reduces the disputes caused in the distribution of wealth.

Benefits of legacy planning:
  • Having all your wealth rightly transferred to the intended beneficiaries.
  • Assigning guardians for your minor children
  • Help reduce disputes and conflicts between family members
  • Avoids delay and minimizes court intervention
  • The individual and his family members - spouse, children are aware of the assets and liabilities he/she holds
Different documents to plan your legacy:

Will drafting

a will is a legal binding agreement that states who will receive the property after the owner’s demise. The will could be written on a plain paper and any individual above the age of 18 could draft a will. The will has to be signed in the presence of two witnesses. A witness cannot be a part of the will as his purpose is to justify or is proof that the testator was of sound mind while drafting the will.

Post the demise of the testator, as stated in the will the assets will be divided among the beneficiaries. Legally binding is not a compulsion, but if required, it could be executed under the court of law.

Oral Will applies to soldiers, airmen employed in actual warfare, or a mariner at sea by him declaring his intention before two witnesses present at the same time. Such a Will, however, shall become null at the expiration of one month if the testator is still alive.

A guardian is named in the will to look after your minor children after your demise. A child would attain a legal majority at the age of 18 unless a guardian was appointed during the minority of the child in which case, a child attains majority at the age of 21.

If the guardian you choose is not an executor, the guardian would not have automatic access to the money that is left for your children. Instead, they would get funds to raise your children from the executor.

When a will is not made, the law takes hold of the distribution.

Power of Attorney is a formal arrangement by which one person appoints another person to act on his behalf and in his name. This authority is given as a person incapable to take decisions on financial matters. It is an instrument in writing whereby one person, as principal, appoints another as his agent and confers authority to perform certain specified acts or kinds of act on behalf of the principal.

The parties in a power of attorney are principal or grantor – the person granting the power; and an agent or attorney – the person taking the responsibilities. It is also termed as an important document in estate planning. Thus, the agent gets the rights to execute contracts, deeds, cheques, mortgages, drafts, money orders, bonds, sale of securities, or shares of stocks. They also have the right to sign on documents such as insurance forms, tax returns, property documents and can accept the rent received.

The Power of Attorney does not mean that the agent owns any of principal’s property. It allows the agent to make financial decisions when the principal cannot. The principal can withdraw a Power of Attorney whenever he wants as long as the principal is competent. Appointing someone as an agent does not mean that the principal gives up the right to manage his own affairs. Even if you own the financial affairs, in case of paying off your debts, you cannot use wealth as your assets to cover the outstanding debts.

A trust is created is where the ownership of the assets is transferred from the owner to the trust. In simple words, it owns the cash, stocks, bonds, life insurance, or real estate of the testator. Trust handles the wealth of the owner while he is alive as well as after his death. The biggest advantage is that any property transferred to the Trust during your lifetime will pass directly to the beneficiaries; it does not need to go through a Probate court. It is a good way to take care of your minor children and helps in assisting your elderly parents.

Author of the trust - the one who sets up a trust, they are also termed as trustor, trust makers, grantor, transferor, creator, or donor.

Trustee – the one who owns the assets and is responsible for handling the assets.

Beneficiary – the one to receive the benefits of the assets, mentioned in the trust.

It is a judicial process that divides co-owned real estate among its owners. In simple words, the court decides how to divide the property amongst the joint tenants, tenants in common or coparceners.

Transferring ownership of the property in the others name, under the guidance of the municipal record. A mutation is done to keep a revenue record for the government. Here, when the property is muted the right owner of the property will be entitled to pay off the property taxes.

It is a voluntary transfer of assets from one person to the other without compensation or any consideration. In the case of a gift deed, the assets are transferred immediately. The person giving is said to be a donor and the one receiving is said to be done. The gift could be any movable (cash, investments, vehicle, etc.) or immovable (land) property. If the donor wishes to change his mind and wants to claim ownership in the property, the gift deed cannot be revoked.

Joint ownership is that legacy plan where on the death of the owner, the property is transferred to the surviving owner. Here, assets such as property, bank accounts, and investments can be owned jointly. In situations to the joint owner not able to pay off the bills, the family members, i.e. spouse or parents and children will take care of their finances. This is most likely used to reduce or avoid estate complications such as probate fees or estate administration. If something goes wrong, the deceased joint owner cannot own the joint property and does not become a part of the deceased joint owner’s personal estate. That means the joint property will not be distributed as per the deceased person's Will.

During a legacy plan, the most important requirement is to register a nominee for your property, investments, and bank-related matters. A minor can be registered as a nominee but can claim the value after turning 18. The nomination is just a way to claim the value owned by the deceased member. It is essential to keep a nominee or beneficiary registered or register during financial goals while you are alive, to avoid unnecessary trouble to your family.

Succession means the person next after the predecessor or after the person who dies. That means if the father dies, his wealth will proceed to his wife or/ and children accordingly. If there is a Will made the document will state, the exact proportion to be distributed according to the deceased member's wish. Most individuals assume that succession planning is an option but it is a necessity.

What do you mean by Intestate?

When a will is not created, the distribution of the wealth of the deceased member goes according to the probate. It is also called as intestate and the proceedings happen, based on the set Acts. These Acts are different for few religions and the family will have to go according to those rules.

Indian Succession Act, 1925

This Act is divided into two categories, namely testamentary succession (written Will) and intestate succession (No Will). The law does not apply to a Hindu, Muhammadan, Buddhist, Sikh, or Jain.

Christian Succession Act

The Christians follow the Indian succession act, which is applicable in both testamentary and intestate succession. Indian Christians native of India come under this Act and for property matters. Domicile certificate of the dead individual is important.

Hindu Succession Act

The Indian Succession Acts, law related to testamentary succession is applicable for the Hindus. For the purpose when the Will is not drafted, they go according to the Hindu Succession Act, 1956. One of the most important features of Hindu Law is the Hindu Undivided Family (HUF) while considering the intestate succession. This Act applies to the whole of India except the State of Jammu and Kashmir.

Succession for Muslims

The Indian Succession Act does not apply for both testamentary succession and intestate succession because they follow the Quran. Hedaya or Fatawa Alamgiri is the authority that handles the subject of Wills for Muslims.

The following payment has to be made if the deceased member is a Muslim
  • Funeral expenses and deathbed charges
  • Wages due for services rendered to the deceased within three months just preceding his/her death by any laborer, artisan or domestic servant
  • Expenses of obtaining probate or letters of administration or succession certificate
  • Legacies not exceeding one-third of what remains after all the above payments
  • Remaining two-third should go to heirs as on intestacy.
  • Other debts of the deceased according to the respective priorities (if any).
Succession for Jains

As per drafted Will, the Jain law goes according to the Indian Succession Act, whereas, in not drafting a Will the law goes according to Hindu Succession.

Succession for Buddhist

Buddhist law states that the owner with Will drafted come under the Indian Succession Act, whereas, it goes for Hindu Succession if the Will is not drafted.

Succession for Sikh

The Sikh follows the Jain and Buddhist law when it comes to Succession.

A probate is a copy of a Will certified under the seal of a court of competent jurisdiction with a grant of administration of your estate to the executors and is essentially a decree declaring the correctness and legality of your Will. It establishes the right of the beneficiary to the asset being inherited.

The court and executor pay off debts, file tax returns, and notify potential heirs during a probate. The process will last for months and generates legal and administrative expenses that erode your estate. Probate can be controlled and avoided by having a beneficiary in place and also use a trust which distributes the assets among the members. The trust will then ensure your loved ones get their inheritance faster and avoiding unnecessary fees.

A Legacy planning done in advance keeps you assured that even after your death, you have kept a managed legacy for your loved ones. You are avoiding unnecessary hurdles and expenses that will be incurred, if there is no legacy plan. Even when you plan for the estate, it is always good to review in years as there could be an addition to your investments and family requirements too.

ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is a Member of National Stock Exchange of India Ltd (Member Code :07730) and BSE Ltd (Member Code :103) and having SEBI registration no. INZ000183631. Name of the Compliance officer (broking): Mr. Anoop Goyal, Contact number: 022-40701000, E-mail address: complianceofficer@icicisecurities.com. Investment in securities market are subject to market risks, read all the related documents carefully before investing. Composite Corporate Agent License No.CA0113, AMFI Regn. No.: ARN-0845. We are distributors of Insurance, Mutual funds and Sovereign Gold Bonds. We act as a Syndicate, Sub -syndicate member for IPO, FPO. ESOP funding is been provided pursuant to SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 and as amended from time to time and approval of NSE and BSE. Please note that Mutual Fund Investments are subject to market risks, read the scheme related documents carefully before investing for full understanding and detail. Insurance is the subject matter of solicitation. ICICI Securities Ltd. does not underwrite the risk or act as an insurer. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon.

The information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities Limited. The contents of this mail are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. While due care has been taken in preparing this mail, I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any inaccurate, delayed or incomplete information nor for any actions taken in reliance thereon. This mail is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject I-Sec and affiliates to any registration or licensing requirement within such jurisdiction.