Estate Planning – Secure your Family

Rushin Savani
(Investment Officer, e-Wealth Centre, SBI Wealth, Mumbai)

Date: 13th August, 2020

Contents
 Myths of Estate Planning

 What is Estate Planning ?

 Importance of Estate Planning

 Mode of creating Estate Plan

- Will - Trust

 Taxation

 Will vs Trust

 Private Trust

 Nomination Laws
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Myths of Estate Planning

 Estate planning is meant only for the wealthy

 Estate Planning should be thought of only after retirement

 My legal heirs will handle it maturely

 I have registered my nominee(s), they will be the beneficiaries of my assets, anyway

 I don't need to seek legal opinion

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What is Estate Planning ?

Estate planning is the process of planning for the orderly administration

and disposal of their estate. Estate planning ensures the management of your
estate during and beyond your lifetime. Basically, it is the act of preparing for
the transfer of a person’s wealth and assets after paying all the liabilities.

Estate is all of the property a person owns or controls. The property in one's
estate may consist of financial assets (e.g. bank accounts, stocks, bonds, or
business interests), tangible personal assets (e.g., artwork, collectibles, or
vehicles), immovable property (e.g. residential real estate, tea/timber rights),
and intellectual property (e.g. royalties).

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Importance of Estate Planning

The primary goal of Estate Planning is ensuring that the estate of

Died intestate (i.e. without a legal Will in place),
the individual passes to the Estate owner’s intended
can leave various complications for your family.
beneficiaries.

There could be serious disputes amongst family Estate Planning helps you ensure the following:
members over your estate that can devastate
the peace and happiness you’ve always sought • Avoiding disputes within or outside the family
for your family. • Ring fencing personal assets to avoid claims / litigations in the
future
In a this materialistic world, we live in today, • Can provide for, or address to a family member or a loved one
people are unfortunately behaving like hounds, with special needs
wanting to grab a bigger pie. • Can also help pass accolades bestowed on you to a specific
individual
The tragic sagas, of families being disrupted • Helps to prepare for contingencies
over money matters is rather disturbing and • Estate planning helps the beneficiary reduce tax
what’s alarming is that such stories are • Retaining confidentiality, as obtaining a Probate is not
unfolding every day…! necessary

In the absence of estate planning, if one dies intestate, assets are

then distributed amongst the family members (legal heirs) as per
succession laws of the religion that the person belongs. 05
Modes of creating Estate Plan

Will

Trust

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 WILL
A will is explained as a legal declaration made in writing by a person who clearly sets out the manner in which he/ she would
like his or her property (movable or immovable) to be distributed after his/her death. A Will, is a document which comes into
effect the moment its maker dies. Therefore, till the time a will comes into force, it can be revoked or varied.

Indian Succession Act, 1925 (“ISA”) defines Will as:

“the legal declaration of the intention of the testator, with respect to his property, which he
desires to take effect after his death.”

If a person dies intestate, then rule of forced heirship applies in which an individual cannot
decide who will inherit the estate on his death. In such scenario, assets are distributed as per
succession laws of the religion that the person belongs to.

Example of succession laws applicable as per religion are Hindu Succession Act, Muslim
Shariat Laws, Parsi Succession Act amongst others.

Some key terms associated (with Will) :

Testator/Testatrix, Witness, Executor/Executrix, Codicils, Probate, etc.

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 Probate

A probate is a document issued under the seal of the court and under the signature of a proper official authority, certifying that
the original Will was created and witnessed on a certain date. To that effect a certified copy of the Will of which probate has
been granted, is attached. This grant and the copy of the Will both together form the Probate.

Probate is a court-supervised process of authenticating a last will, if the deceased has made one. It includes locating and
determining the value of the assets of the testator, paying his final bills and taxes, and distributing the remainder of the estate
to his rightful beneficiaries.

Probate can be expensive

Seeking a grant of Probate of Will is time consuming task

Loss of Privacy

Lack of Control

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 Who can make a Will

A will can be prepared by anyone who is 18 years of age (21 years, if a guardian is appointed by the Court), of
sound mind, and free from any coercion, fraud and undue influence.

As you know, life is quite unpredictable and uncertain. It is always better to prepare a Will and store it safely
while you are young and/or in pink of financial and physical health. You don't need to wait till you own lots of
wealth to transfer or till you turn 65 to create a Will.

You can always revise it as your assets grow. You see, with old-age comes several physical and mental
illnesses.

Under the following circumstances you must consider creating a Will, right away…

 Married or in a relationship
 Started a family
 A situation of divorce or re-marriage
 Terminal illness

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 Important points to consider while writing a WILL

While writing a Will, remember following points to save your family from any hurdles they may have to face when you
are not there:

 If you want to change the Will, it is better to write a new one and destroy the existing one. If contested in court, the
recent Will is always taken as the right Will

 Make sure you register the Will even though it is not mandatory

 Witnesses signing on the Will should not have any relation with the beneficiaries

 Do sign the Will on every page and number it so that there is no scope of addition or deletion

 Take a doctor’s certificate to prove that it is written in a sound mind

 Keep the Will in safe custody like in a locker in the bank

 Do not reveal the contents of the Will to anyone

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 Intestate

The property of a Hindu male died intestate, or without a Will, would be given first to heirs within Class I of The Indian
Succession Act, 1925. If there are no heirs categorized as Class I, the property will be given to heirs within Class II.

Class Ist Heirs Class IInd Heirs

1. Son 1. Father
2. Daughter 2. (a) Son's daughter's son, (b) son's daughter's daughter, (c)
3. Widow brother, (d) sister
4. Mother 3. (a) Daughter's son's son, (b) daughter's son's daughter, (c)
5. Son of a predeceased son daughter' daughter's son, (d) daughter's daughter's daughter
6. Daughter of predeceased son 4. (a) Brother's son, (b) sister's son, (c) brother's daughter, (d)
7. Widow of predeceased son sister's daughter
8. Son of a predeceased daughter 5. Father's father; father's mother
9. Daughter of predeceased daughter 6. Father's widow; brother's widow
10. Son of predeceased son of predeceased son 7. Father's brother; father's sister
11. Daughter of predeceased son of a predeceased son 8. Mother's father; mother's mother
12. Widow of predeceased son of a predeceased son 9. Mother's brother; mother's sister

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 Trust

A trust is created where the absolute owner of property (known as the Settlor) passes the legal title in that property to a
person (the Trustee) to hold on trust for the benefit of another person (the beneficiary) in accordance with the terms set out
by the Settlor. Trusts are being increasingly considered as preferred mode of managing and passing on the family
assets in the most efficient and seamless manner.

Trust can be set-up either as :

i. Revocable: A trust that can be revoked (cancelled) by its settlor at any time during this life. Since a Settlor continues to control the
asset indirectly through a revocable trust, it does not essentially provide asset protection

ii. Irrevocable: A trust will not come to an end until the term / purpose of the trust has been fulfilled. It cannot be terminated or
revoked or otherwise modified or amended by the Settlor

iii. Discretionary: An arrangement where the trustee may choose, from time to time, who (if anyone) among the beneficiaries is to
benefit from the trust, and to what extent

iv. Determinate: The entitlement of the beneficiaries is fixed by the settlor at the time of settlement or by way of a formula, the
trustees having little or no discretion, or

v. Combination Trusts: namely: of (i) - (iii)/(iv), (ii)-(iii)/ (iv)

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 Benefits of Estate Planning by creation of Trust

 Protecting assets against actual and potential creditors

 Self Beneficiary -The person who creates the Trust can himself be one of the beneficiaries and
enjoy the benefit of his own estate during his lifetime

 Efficient Succession planning by providing for children and grand children

 Avoidance of family disputes

 Retaining confidentiality, as obtaining a Probate is not necessary

 Possible tax benefit

 Providing for future administration of assets to protect against future incapacity and for
incapable beneficiaries

 Lower Contestability as compared to a Will

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 Taxation

As per Section 61 of the Income Tax Act, tax treatment is as follows:

Revocable trust: Settlor continues to pay tax on the income generated from it. The tax
imposed would be at the rates applicable to the Settlor

Determinate Trust: Here assessment can be raised on the beneficiaries and benefits /
deductions, etc. are also available to the beneficiary, with respect to that beneficiary’s
share of Income

Discretionary Trust: A trustee will be regarded as the representative assesse of the

beneficiaries and will be subject to tax at the maximum marginal rate .

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Will vs Trust

Will Trust

Confidentiality

Requirement of Probate

Ease of Modification Low High

Control over Assets Low High

Cost Low High

By adopting a Trust route a person can avoid the issues which arise in a will and make a ring fenced
structure to ensure that his future generations are well protected through a vehicle created by him/her and
according to his/her directions.
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 Private Trust : Key Points

The primary objective of any individual who wants to bequeath his assets during the lifetime or after death is to protect the
interest of beneficiaries. The beneficiaries might include minors who are not old enough to protect their interests. A trust
creation helps in meeting this objective. When there are one or more individuals like family members as beneficiaries, a private
trust is formed.

Structure of a Private Family Trust

 Irrevocable Discretionary Trust

SETTLOR Creator of Irrevocable
(You)
 Trust for Spouse and children Trust
Manage money & trust
operations
 Control of Assets
Trustees
Primary Family Manage & Distribute at
 Trust for 25-30 years or till life time of settlor 1. Managing Trustee (You)
Trust trustee’s discretion
2. 2nd Trustee (Confidant)
 To have 1 Trust or multiple trust

BENEFICIARIES Transfer of Wealth

(Your wife & Children)

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Irrevocable Discretionary Trust

IRREVOCABLE DISCRETIONARY

Assets are gifted irrevocably by the settlor to In a Discretionary Trust the share of
the trust i.e. Settlor relinquishes rights to the Beneficiaries is not defined and is at the
assets discretion of the trustees

Since the Settlor cannot take back the assets, The share of the beneficiaries is indeterminate
same cannot be attached in a Irrevocable trust

Irrevocable trust helps in meeting the

objective of Ring-fencing of assets

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 Trust for only Spouse & Children

Settlor as a husband, owes responsibility towards his wife & his children

Why trust for Grandchildren is not advisable ?

Adding many generations may lead to creation of a Trust where asset division may be complex,
impractical & susceptible to interpretations

A trust created for 25-30 years is better than a trust of 70 years including grandchildren since the
family dynamics can change over a period of time

Let your children decide for their children

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Control of Assets

The control on your wealth has to be with you and

after you, with the Family

You
Settlor should be the managing trustee and have control
Control over the assets of the trust and not the Third party
your
assets, There is a legal requirement to have 2 Trustees

not
The 2nd trustee should be a confidant, ideally a family
outsiders member

Avoid corporate trustee due to lack of corporate trustee

service in India

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Trust for 25-30 years or Lifetime

Duration of the trust shall be such that when the beneficiaries receive the distribution they should
be of a mature age to manage wealth

Scenario 2: When you do not have

Scenario 1: When you have a
a confidant acting as a Trustee,
confidant acting as a trustee,
than trust should continue till
then Trust should continue for a
settlor’s lifetime, provided your
fixed period of 25-30 years
children are of a matured age

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 To have 1 trust or Multiple trusts

Option 1 One common trust for both the children

Option 2 Two separate trusts for two children

Purpose is to Ring fence estate of both Husband & Wife, also to retain
Example : Criss Cross Trusts control within the family.

Scenario 1 : 2 Children Trust 1 – 1st Child Trust Trust 1 – 2nd Child Scenario 2 : 1 Child Trust 1 – Wife Trust Trust 1 – Husband
Trust Trust

Settlor You Wife Settlor You Wife

Managing Trustee You Wife Managing Trustee You Wife

Second Trustee Child 2 Child 1 Second Trustee Confidant Confidant

Beneficiaries Wife & Child 1 You & Child 2 Beneficiaries Wife & Child You & Child

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How to Make Estate Planning “UNCOMPLICATED”

Define your desired manner of distribution of wealth

List out immovable properties – identify specific beneficiary to each

For liquid assets – define a percentage to each beneficiary

Executor – may appoint an executor to deal with the succession of properties ( your spouse or
child can be a executor if not it can be a close friend / lawyer / CA )

Even though registration is not mandatory, it is advisable to get the Will registered as the
authenticity of the person signing the WILL is not questionable

Management of Money :

You may need to familiarize your spouse to manage the investments in case of eventuality

Involve spouse in every stage of planning and execution of strategy

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 Inconsistent Nomination Laws in India

Nominee is usually a custodian. In some Statutes nominee is “vested” with the asset. This could trigger a legal
issue on the “ownership”

Bank account : Nominee is just a custodian

Bank Locker : Nominee is just a custodian

PPF : Nominee is just a custodian

EPF : Nominee is Owner

Securities ( MF, Shares, Demat) : Nominee is Owner

Insurance Policy : Nominee is Owner ( Beneficiary nominee), Nominee is just a custodian ( collector nominee)

Property (Real Estate) : Nominee is just a custodian

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 Our Solution – My Will Services Online by SBICAP Trustee Co. Ltd.

Features of Online My Will Services :

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Steps to Create your Will

https://sbicaptrustee.in/mywill/index.jsp 26
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