Source/Contribution By : NJ Publications
Most of us are aware of what a will is and how it works. Most of us are also under the impression that the will is only for people who are of old age. Also, that a Will and estate planning is not important.
Before we explain why estate planning is important, let us look at what happens when you die without making a will. When an individual dies without making a will, then he/she is called to have died “Intestate”. Incase of death of an individual intestate, succession is then governed by personal laws of succession. When governed by personal laws, the division or transfer of estate may not take place as wished by the deceased.
For example, if a Hindu individual wishes to transfer some of his estate to his father or brother but doesn't make a Will, in succession by Hindu Succession Act, the father and brother will not get anything as they are not Class 1 legal heirs under the law.
Thus, as an individual, if you wish that your assets are distributed and divided not only according to your wish but also in a manner where it goes to the right beneficiary, estate planning becomes important.
Estate planning refers to the organized approach to managing the accumulated assets of a person that will be transferred to the intended beneficiaries. It covers the structural, financial, legal and tax aspects of managing wealth in the interest of the intended beneficiaries. The term estate includes all the money, assets, property owned by a person before death, and also all the liabilities the individual had before passing away. Estate also includes all the claims that the deceased was entitled to receive or pay.
Estate planning is important as without formal structures that ensure that these purposes are met, there could be disputes, conflicting claims, legal battles, avoidable taxes and unstructured pay-offs that may not be in the best interest of the beneficiaries. The estate of a deceased is generally passed on to the legal heirs of the individual, however, they can be transferred to any individual the deceased wishes to receive his estate or a part of the estate. The estate can also be passed on to a trust and be managed by trustees where the ownership is with a distinct entity.
One may argue that he/she has done nomination in financial assets. But one needs to understand that in case of nomination, someone has the right to just receive the investment or asset proceeds as an agent or trustee as per law and such a person is not a beneficiary of the same. The assets may be required to be transferred from the nominee to the legal heir as per the law.
Advantages of Estate Planning
1. Minimise delay, costs and legal hassles
After the demise, the legal formalities and transfers take time and the family generally has to wait a long time to get everything in order. With proper estate planning and a valid Will in place, you can avoid this delay for your family and they can get everything in order quickly and without legal hassles. A lot of money can also be saved which may go to lawyers and legal expenses in case of absence of an estate plan. An even higher amount of money is spent in case there are family disputes. One can avoid this hassle by simply creating a will and ensuring that a proper estate plan is in place.
2. Disclose all assets /investments
Most of us may not know the full details of the assets belonging to our spouses and similarly they too would not know all of our assets. This becomes even more important if you are the bread earner of the family. Your dependents will not be even aware of your entire estate and investments that you must have made. A detailed Will helps them by disclosing all assets/investments properly and getting all the affairs in order.
3. Avoid Disputes
Making a valid Will clearly states out your preferences in distribution of your estate. This will clearly help in avoiding any legal disputes in the family. In absence of any Will, disputes are most likely to breakout in distribution of properties and businesses. A valid Will signed by all beneficiaries /legal heirs will go a long way in keeping the family intact and together.
4. Plan for incapacity
While most people are convinced that estate planning is for old age, that is not true. Life is unpredictable and anything can happen at anytime. It is possible that one becomes incapacitated because of some unfortunate accident or sudden medical condition which leaves them unable to manage their financial affairs.
While estate planning, one can create a power of attorney for both financial and healthcare decisions in case of incapacity. This can help you and your family in difficult times.
5. Support your favorite cause
An individual can leave a fixed amount as donation or as charity to a cause he or she wishes. In often cases, where a proper will has not been made, these causes go unnoticed as the family is unaware of the deceased wishes.
6. Assign a legal guardian for your children /dependents
In unfortunate cases where both the parent pass away and the children are still minors, the court decides who the legal guardian to the kids will be. However, with estate planning, you can assign a legal guardian in case of any unfortunate incidents and make sure that your kids and dependents, if any, go into safe and trusted hands.
