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In the past two decades, along with the growth in the Indian economy, individuals and businesses have also grown their wealth. With more wealth comes more responsibility and the need to consolidate that wealth in the most appropriate manner for your family and dependants.

This is where estate planning or succession planning comes in. Financial planners and private bankers have started including this aspect in their overall approach to wealth management. This means that engaging a planner or a banker is no longer just about allocating assets towards suitable investments; it’s also about securing those assets for your family in the most efficient manner.

While “estate planning" may sound like a complex activity, it needn’t be so. There is a simple starting point for everyone.

Why is it essential?

“Other than the traditional reasons for succession planning, many families are now becoming nuclear and aspirations of the next generation vary. Moreover, the incidence of divorces has increased, which creates an apprehension of the family wealth going to outsiders. Also, as professionals earn more, there is a need to cater to their overall wealth planning for dependants and for retirement," said Daksha Baxi, executive director, Khaitan and Co., which now has a separate group within the firm to cater to estate planning.

Creating wealth is important but ensuring that it is utilized appropriately and securely is even more so. You wouldn’t want your kith and kin struggling to claim their legacy.

Prateek Pant, director–products and services, RBS Private Banking India, said, “Large family businesses already have some succession planning in place. But the past decade has created many entrepreneurs who aren’t part of a traditional ‘family’ business. They, too, are getting involved in carving out a succession plan for their dependants." As individuals get into entrepreneurship and become business owners, there is a need to consolidate assets. So why not address this at the start of your wealth creation cycle rather than thinking about it towards the end?

Estate planning helps in ensuring that wealth is divided between being risk capital and as a corpus for family’s security and retirement. Moreover, joint family businesses are no longer being run in their traditional form since subsequent generations are choosing not to be a part of the main business. Pant said, “The beneficiaries in a traditional family business setup may be settled in different global regions; this can add complexities when it comes to transfer of wealth."

Not just for the rich

Words such as “estate" and “wealth" are not meant only for a high net worth individual; in reality, anybody who has dependants needs to think about succession of wealth. “We speak about the need to draft a will with all clients and have yet to come across one who is not open to the idea regardless of age and net worth," said Deepali Sen, founder and partner, Srujan Financial Advisers, a Mumbai-based financial planning firm.

Estate planning is essentially about consolidating your assets and marking out beneficiaries. “The nature of the succession plan depends on the objective and on the complexity of assets owned. But at a very basic level, we begin by advising clients to consider joint holding and nominations for all assets. This ensures that some kind of a succession is in place," said Pant.

“We have seen people from various professions and across age groups, like bankers, fund managers, young business professionals, among others, coming forward with a need for estate planning," said Baxi.

A plan for you

How should you approach estate planning? Start by writing down the names of people who you would want to inherit the wealth you have created. The quantum of wealth is not important; rather, the fact that it reaches the right beneficiaries should be the focus.

It’s not necessary to leave everything only to family; you may also want to give back to society. Wills and trusts can be created to address your life’s philanthropic goals.

Having a wealth or estate or succession (as you like to call it) plan can be as important as having an insurance policy. In fact, in many ways more so, because you don’t want disputes among family members on asset sharing in the future.

Take account of your assets and make a simple list of everything you own that has monetary value and can be inherited. Not everybody needs to form a trust for estate planning; that’s more for business owners and professionals whose personal and business finances can get mingled.

“For business owners and professionals such as doctors, an estate plan will segregate business and personal assets so that any kind of personal guarantees or liabilities don’t infringe on the other side and vice versa," said Pant.

Once you have managed to consolidate assets, you can decide whether to create a trust or if a will can suffice. You need to make sure that your dependants have direct access to assets you have created for their wellbeing.

Unlike creating a trust, writing a will is relatively simpler. It can list out how you choose to distribute your wealth and assets. Your dependants would come to know of the will’s contents after your demise. A trust, however, can be made operational even when you are living, and its purpose is not just creating a smooth channel for inheritance but also to manage wealth. Issues such as managing wealth for minor dependants or dependants living overseas are better dealt through trusts.

If you are going to form a trust, there are many details to keep in mind, such as costs. Some expert estimates suggest that while it can cost between 50,000 and 2 lakh to make a will, setting up a trust can cost even up to 10 lakh depending on the details. Hence, it works to have a trust only if you have say a very large value of assets to apportion or a complex structure of ownership or need to segregate business assets in a specific manner.

A common belief is that a trust will help you save tax. But that may not be the case. “Tax is the last reason to make a trust. The incidence of paying tax is not reduced; it is simply passed on to the trustee rather than the settlor or the beneficiary," said Baxi.

Creating a trust will need you to consider details of whether you want it to be revocable or irrevocable. Then there are testamentary trusts which distribute income only after your death. Some structures become active during your lifetime itself.

As the idea behind creating a trust is to transfer assets, ensure that the wealth is taken care of and doesn’t get diluted.

What should you do?

According to Baxi, “Estate planning is a personalized process. There can’t be only one solution."

Clearly, this is not something you can achieve yourself and while you may have an idea how you want the wealth distributed, the execution will require help. You will need to engage a wealth adviser, a chartered accountant and a lawyer to see the process through.

The creation of an estate plan is mostly a one-time affair. But, if you do this at an early stage in life, say, when your children are young and assets are still growing, you may want to revisit it at a later date to keep things updated.

What’s important though is to take charge; take stock of what you own and make the transfer of wealth from you to your dependants a smooth and seamless process.

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