What you should know about estate planning and the transition of assets

The main purpose of estate planning is to ensure that the family is protected and can continue to maintain the same standard of living they are used to after the main income earner’s demise.

Furthermore, estate planning also comes into picture if the person has become incapacitated due to any lifestyle disease. Various lifestyle diseases such as Parkinson’s disease, dementia, neurological disorders, etc., can affect normal functioning of an individual. To protect and preserve the individual’s wealth, it is important to efficiently utilize the financial resources. In such cases, the role of beneficiaries and executors should be clearly defined.

There are several tools that can be used to implement an estate plan. Individuals can use one of the tools or a combination of them, depending on their goals.

Insurance: Taking a comprehensive life insurance cover is one of the easiest ways to ensure that the family-members are well-covered. In case, the family loses its main source of income due to the income earner’s sudden demise, an insurance cover can take care of the family’s day-to-day expenses and other financial goals. Further, the Married Women’s Property Act (MWP Act) can be used effectively to protect the estate of a married woman, received through the insurance cover. It is a legal protection given to a married woman’s assets against creditors and other relatives. It secures the married woman’s assets and assures financial stability.

Nomination: You must check whether all your investments—real estate and financial assets—has a nominee. At the same time, the nominee should also be aware that he or she is a nominee. Often, there are cases where the nominee is aware only after the person’s demise. Nominations should be made across assets— banks savings account, current account, fixed deposits, bank lockers, post office schemes, bonds, demat holdings, stocks, mutual funds, physical shares (if one is holding), residential or commercial plots, flats, gold, silver, paintings, artefacts and any other assets.

Will: A will or testament is an important tool, which is used by the testator (who makes the will), to define the manner in which he or she wants the assets to be distributed after his or her demise. It is a legal document and thus, has an important role in estate planning. A will shows the basic intention of the testator regarding the persons he or she wants the assets distributed to after his or her lifetime. Without a will, the legal heirs can face a lot of problems to claim the assets, which can run into years. So, an individual should make a will. If there is no will made by the person, i.e the person dies intestate, then the legal heirs may need to obtain a succession certificate as per succession laws to claim the assets of the deceased person. Here are some important tips to keep in mind when making a will. A will has to be in writing. It can be even handwritten. It need not be on a stamp paper. It should have two witnesses. Preferably, the witnesses should be younger than the testator. Registration of a will is optional, but advisable if there is immovable property involved.

Gift deed: A gift deed can also be used to transfer assets to family members and relatives for movable and immovable property. But this is used for transfers during the person’s lifetime.

Trust: A trust is an entity that can be created to safeguard an individual’s assets. It is a separate legal structure from the individual. A trust can be created for beneficiaries, who are minors, physically challenged or for charitable purposes. A trust can be useful for avoiding disputes on assets.

Tejal Gandhi is a Mumbai-based certified financial planner.

Updated: 07 Sep 2023, 10:26 PM IST