Mahesh Pai explains the importance of estate planning and the legal aspects involved in getting it done
Most of the time people believe that creating a will or having a trust to take care of one’s assets and family is estate planning. The answer is not wrong but it is not entirely right either. Estate Planning is not only about the next generation, it is about you, your beneficiary, and your society. People spend all their life in asset accumulation, asset preservation, and asset distribution. A major part of their life goes away in paying EMIs and creating assets, which they will not be using but rather distributing to their children later.
It seems like many people devote more time to planning a vacation or even selecting a restaurant to have dinner than they do to estate planning. It may not be as difficult to think about but without an estate plan, one cannot choose who gets everything that they have worked so hard for.
There are seven aspects to estate planning:
Legal: If one does not decide, who receives their money, then they do not have any control over what happens with it next. There are various legal aspects that one needs to take care of, while preparing a will as it is a legal declaration that involves the distribution of assets.
Taxation: A huge amount of tax needs to be paid in a few countries after one inherits assets and money from their parents or company, In India, we do not have inheritance tax yet but if someday the rule gets implied then a provision for the tax money should be made in advance.
Inheritance: It is always better if one decides who inherits what or else it may take years if the court gets into these
matters. The court does not know which sibling has been responsible and which one should not have access to free cash. An estate plan eliminates a family mess.
Charity: Many families take care of a lot of underprivileged families and charity homes. These charity homes rely on the money that they receive for their daily needs. An estate plan helps to continue charity work even after the demise of the person so that other people who rely on them do not get affected.
Retirement: All the estate that one has should not only be for their children but should be for them, too. When one spends so much of his time building these assets he might as well use it for his retirement when he stops working. Using a part of his estate is an important aspect of retirement planning.
Income Protection: if one falls sick due to any major illness or disability, his income will stop or gradually reduce. Taking care of one’s income with an effective plan now will help them later when they are unable to work and need income for their daily expense.
Asset transfer: One of the parts of estate planning simply means transferring or passing on the personal and business assets, financial instruments, properties to the next generation after the demise of the person.
Too many people do not plan – put off estate planning because they think they do not own enough, they are not old enough, it will be costly or confusing and they will have plenty of time to do it later. They do not know where to begin or who can help them or they just do not want to think about it and when something happens to them, their family has to suffer, in fact 80% of the cases are due to family property disputes. Estate planning is not something that one does when they are old, it can be done when they are young as well to protect their family and children. You do not have to be super rich for this. In fact, these days estate planning is done by the middle-class family even if they have only one home, they do not want disputes within the children on who acquire what.
None of us really likes to think about our own mortality or the possibility of being unable to make decisions for ourselves but one needs to be prepared for the unthinkable. Stopping fights even before they start is yet another reason why estate planning is necessary.
The bottom line
If you want your assets and your loved ones protected when you are no longer able to do it, you will need an estate plan. It is also an ongoing process and not a one-time event. You should review and update the plan as your family and financial circumstances change over a lifetime. The best time to plan your estate is now. Do not wait, you can put something in place now and change it later, which is exactly the way estate planning should be done
The writer is an investment consultant and business coach. Email: email@example.com