What is estate planning?

What is estate planning?

An estate plan is a set of documents that records how you want your assets to be distributed and how your financial affairs are to be handled once you have passed away.

It includes the will, power of attorney, beneficiaries, trust-related information, taxation matters and other matters of wealth distribution.

Estate planning enables seamless transfer of your assets due to ill-health, incapacitation or death.

Why do I need it?

An estate plan is quite important irrespective of the amount of wealth you have. Let us look at the reasons for its importance –

1) Protects beneficiaries

You would have created assets over a period of time. Your family is financially dependent on you. It is vital to ascertain how the family is financially protected and how the assets are distributed once you are no more. If you do not have an estate plan in place, the court will make decisions which may or may not be in your or your family’s best interests.

If you have children under the age of 18, you do not want them to be in a vulnerable position. As part of the estate plan, appoint their guardians and ensure that your assets are well-invested on them.

2)Distribute wealth in the way you want

If you do not have an estate plan, your demise can lead to your assets being distributed as per the succession laws applicable. You may have a plan to distribute wealth in a differently. For example, you may want to set up some donations or give money to people other than family. If there is no plan, these things are not efficient. There might be unforeseen litigations leading to unexpected creditors. An estate plan allows you to preserve and distribute your wealth the way you want.

3) Avoid family disputes

Most families are close-knit. But there are issues in every family that can escalate into major disputes in case of death of a breadwinner or the person with the money. In case of financial hardships, families bicker over responsibilities and debt. Children, siblings, and relatives can squabble or even go to court. Estate planning is a step towards avoiding the mess and offering peace a chance. It will help in case of ill-health or loss of ability to manage finances. With an estate plan, be free to support deserving loved ones or those suffering from ill-health.

4) Protect your wealth

An estate plan allows you to protect your wealth. You can put your assets into legally protected entities, such as trusts so that there are no unforeseen payments made from your wealth. Moreover setting up a trust will allow smooth succession planning and continuity of business

5) Efficient Management of Taxes

Smart estate planning can lead to minimum tax outgo. There is no inheritance tax but income earned from inherited assets or gains on sale of inherited assets are taxable. Properly planned wealth distribution will help in reduced taxes for beneficiaries.

How should I plan my estate?

Estate planning is complex and time-consuming but as we can see, quite essential to our financial life. Here is a simplified look at how to plan your estate –

• Enumerate your assets and liabilities and evaluate your net worth.
• List out the beneficiaries of your wealth. Include relatives, friends and also institutions you would like to support.
• Prepare and register a will indicating how your assets will be distributed.
• Prepare an estate plan with the help of your financial planner and legal advisors such that it takes care of distribution of wealth as you would like. Consider various scenarios such as your death, accidental death, divorce, ill-health, family situations, etc.

Estate planning is not as much fun as vacation planning but the future is unpredictable. In the absence of an estate plan and will, assets are distributed among legal heirs as per succession laws that may be different from your wishes. It is, therefore, imperative to draw up an estate plan that will protect you, your assets and your loved ones.

Vidya Kumar

Dilzer Consultants Pvt Ltd

10 January 2020