Estate Planning: Meaning, Benefit and Steps Involved

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13 mins read

The previous module was all about retirement planning, setting goals early, working towards them, leveraging the right savings options, and utilising relevant tools. In this module, we will look beyond the golden years and focus on the lives after you- the legacy you wish to leave and what will happen to what you leave behind. That brings us to estate planning.

Estate planning is a key aspect of ensuring your financial well-being as well as that of your loved ones at present and in the future. That is because it is not enough to simply accumulate assets and assume that everything else will fall into place after you are gone. It is quintessential that you make the necessary arrangements to manage those assets during your lifetime and ensure they pass on smoothly to the beneficiaries after your demise.

Estate planning is also important because it helps you minimise the impact of taxes, optimise the distribution of wealth, and even handle healthcare decisions towards the end of life. Before understanding the importance of estate planning, it is worthwhile to know that estate refers to your total net worth, including investments, properties, bank accounts, assets, and personal belongings.

Estate Planning Benefits

Wondering why estate planning matters? Well, it unlocks a multitude of advantages. They are listed below:

Helps in assessing and allocating assets efficiently and minimises the scope of conflicts among beneficiaries.
Minimises the scope of legal challenges post demise through lawful documents like trust and will so that your wishes are clearly outlined and conveyed.
Protects loved ones when you are not around and addresses need related to education, healthcare, support of elderly parents and minors, etc.
Saves a substantial amount of tax and retains more wealth for heirs through strategies like gifting, trusts, and charitable contributions.
Preserves family businesses and ensures seamless transfer of management and ownership.
Maintains harmonious familial relationships in your absence and provides you peace of mind during your lifetime.

Major Steps Involved in Estate Planning

Now that you understand the importance of estate planning, it is time to understand how to go about it. Broadly, the estate planning process in India entails:

Taking stock of everything that constitutes your estate and collating relevant documents like bank statements, property deeds, insurance policies, etc. You should also consider liabilities like loans and mortgages so you can calculate your net worth.
Identify beneficiaries (spouses, children, family members, other dependents, charities, etc.) and their distinct financial needs and objectives.
Establishing the estate plan’s goals in line with your vision, values, and the financial security needs of the beneficiaries.
Selecting the right estate planning tools, like trusts, wills, nominations, powers of attorney, etc.
Drafting legal documents and executing them with the aid of an estate planning lawyer in compliance with Indian regulations.
Reviewing the estate plan periodically against changes in financial condition, personal circumstances, and estate laws, and making essential adjustments.

Now that you understand the steps broadly, let’s dive deeper into one of the most crucial aspects of estate planning – creating a will.

Creating a Will and Assigning Beneficiaries

A will is a legally binding document that clearly states how your assets, investments, properties and such will be distributed after you, the testator, pass away. The will activates after your demise and is the only legal document that establishes your beneficiaries as well as the distribution of your estate.

Steps Involved in Creating a Will

Consult an estate planning attorney who can give you the necessary legal guidance based on your specific circumstances. They can help you draft a will that is compliant with Indian regulations.
Gather information about your assets and liabilities. This will give you a clear idea about your total net worth.
Decide who will benefit from your estate or inherit your belongings, properties, and assets. Beneficiaries can include any entity of your choice, be it a family member, friend, or charity.
Select an executor for the will after due consideration. They will be responsible for implementing your last wishes.
To draft the will, collaborate with your attorney. The document should unambiguously identify your assets and state your distribution plans along with any conditions you might have for the transfer of your wealth.
Have two witnesses present when you sign the will. They should be adults, competent, and not beneficiaries. The will must also be signed by the witnesses.
Though not a mandate, get your will notarised if possible. This will make the document more genuine and robust.
Make sure you store the original will in a safe place and inform a trustworthy family member or executor about its location. For added security, share a copy of the will with your attorney.
Review the will periodically, and if there are any changes in your assets, family structure, or circumstances, you can modify the will’s contents accordingly.

In India, the person creating a will cannot be a minor. They also need to have a sound disposition, not suffer from any mental weakness, immaturity, illness, or delusion, and be fully aware of the document’s contents and objectives.

Also note that handwritten wills are valid in our country as long as they are completely written by hand, signed, and dated by the testator. Signatures from witnesses can enhance the authenticity of such wills.

Assigning Beneficiaries

Zero in on the entities or individuals you want to receive your assets.
Specify the share each beneficiary will receive clearly. You can name the specific assets that will go to them, fixed amounts of money, or percentages.
Make provisions in case the primary beneficiaries cannot inherit their shares for some reason. Name contingent or alternate beneficiaries.
To avoid any dispute or confusion, clearly mention each beneficiary’s full name, address, and relationship with them.
In most situations, disclosing your wishes to loved ones before assigning beneficiaries can help prevent arguments or misunderstandings later. However, use your discretion in this regard.
Designations of beneficiaries might change over time based on events like deaths, births, marriages, etc. In such cases, you might need to update your will.

Remember that the process of assigning beneficiaries and creating a will might vary across jurisdictions. So, seek legal advice so that your will follows the local laws and can be enforced without any hassle.

Key Intermediaries in Will Creation

Intermediaries, in this case, refer to professionals who facilitate and ease the process of will creation and ensure that the final document is absolutely accurate, comprehensive, and legally valid. Here are some of the major intermediaries you should know about:

Estate planning attorney – He is a legal professional who has knowledge and experience in estate planning, trusts, wills and other aspects of this process. The attorney should be well-versed in relevant laws in India so that there is no problem in drafting and enforcing the will.
Executor – This is the individual who holds the responsibility of executing the instructions detailed in the will after your demise. They are in charge of managing the estate, ensuring that the provisions in the will are followed closely, and distributing assets.
Notary public – This refers to an impartial witness who is present when the will is signed by the testator and the witnesses. The act of notarisation lends authenticity to the will.
Witnesses – These adults attest to the signature of the testator and make it easy to execute the will.
Legal and financial advisors – Such advisors include tax professionals and accountants who can help you estimate the value of assets, advise on taxes, and suggest ways to minimise tax obligations as much as possible.
Trusted advisors or family members – Engaging in an open discussion with them can help you draft a proper will with a balanced approach and thereby avoid conflicts in the future. It will also give you a better idea of the financial needs and aspirations of potential beneficiaries.
Financial institutions – You can choose to inform a financial institution or bank about the existence of the will and its location. Or you can even keep the original copy in the bank for security’s sake. By informing the bank, you will also make things easy for your executor when the time comes to carry out your last wishes.
Registrar of wills – Depending on your state or jurisdiction, you might want to register the will with the local registrar so that there is solid proof of the will’s existence. Though this is not mandatory, registering a will can prevent future disputes or disagreements.
Guardian in case of minors – If you intend to make provisions for minor children in your will, appointing a guardian is crucial. You should also obtain the guardian’s consent for the same and identify them clearly in the will.
Online will platforms – If you are not sure how to get started with creating a will, there are online platforms and software solutions that can help you put together a basic draft. However, it is advisable to speak to an estate planning attorney, so that the final is in sync with your exact requirements and the laws.

Learn More

Now that you know about the importance of estate planning, the process of creating a will, the intermediaries involved, and the things to consider while assigning beneficiaries, it’s time to connect with an experienced and reputed attorney. They can offer you tailor-made advice based on your specific situation, preferences, and long-term vision.

In the next chapter, we will explore how you can pick an appropriate guardian while making provisions for minor children in your will. You will also find out how you can use estate planning tools for the same leverage with the help of legal professionals.

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