Estate Planning Basics

“Estate planning is only for the wealthy.”

It is for anyone who owns anything and cares who receives it. A modest estate left without a plan can take a family as long to settle as a large one.

“I will think about it after I retire.”

Life does not wait for retirement. The earlier a plan is in place, the less is left to chance, and it can be changed as often as your life changes.

“My family will sort it out sensibly.”

Most families mean to. Disputes over property are common all the same, often between people who were close. Wishes set down clearly on paper leave far less to argue about.

“I have registered nominees, so they will inherit.”

A nominee is, in most cases, a custodian. The asset belongs to whoever your will names or, without a will, to your heirs under the law of succession, and if they are different people the heirs have to claim it from the nominee.

“I do not need a lawyer for this.”

A plan turns on details: how each asset is held, your personal law, the formalities of a valid will. An advocate's eye is what makes sure it holds when it is needed.

Four instruments do most of the work. They are often confused, and they are not interchangeable.

• A will takes effect only on your death. Until then you keep full ownership and can change or revoke it as often as you like, by a new will or by a codicil, a short document that amends an existing will.
• A gift deed passes property now, during your lifetime. Once accepted it generally cannot be undone. A gift of immovable property must be stamped and registered to be valid.
• A private trust places assets with trustees, who hold and manage them for beneficiaries on the terms you set. It can run during your lifetime and long after it, which makes it useful for minor or vulnerable beneficiaries and for keeping a family asset together.
• A nomination tells a bank, insurer, depository or housing society whom to pay or deal with on your death. In most cases a nominee receives the asset to hold for your legal heirs and does not become its owner; the will, or the law of succession, decides who finally owns it. Life insurance can be an exception, where a spouse, parent or child is named as a beneficial nominee.

Jointly held assets need care of their own. A joint bank account operated "either or survivor" lets the survivor withdraw the money, but whether the survivor also owns it can depend on whose money it was. A will is still the clearest place to say what you intend.

A trust is created when its author, the settlor, places property with trustees to hold for the benefit of others, on terms set out in a trust deed. A public trust serves the public or a section of it, usually for religious or charitable purposes. A private trust serves particular people who are named or can be identified, and is governed by the Indian Trusts Act, 1882; a trust created by will is also subject to the Indian Succession Act, 1925.

Private family trusts are commonly set up in one of three ways:

• Revocable: the settlor can take the assets back, so the trust works much like a will that operates during life. It offers no protection for the assets.
• Irrevocable, with fixed shares: the assets cannot be taken back, and the deed itself says which beneficiary receives what, and in what proportion.
• Irrevocable and discretionary: the settlor names the beneficiaries and leaves the trustees to decide who receives what, and when.

People choose a trust to provide for a child with special needs, to release wealth in stages or on particular events, to keep a family asset together, to keep their arrangements private, or to keep some control over how assets are used after their lifetime.

Against a will, the trade-offs are these:

• Assets already settled in a trust pass under the trust deed, not the will, so they need no probate. Anything not yet in the trust at death still passes by will or by law.
• A trust costs more to set up. Transferring property into it can attract stamp duty, which varies from state to state.
• A trust deed is harder to draft well than a will, and less flexible once made. Everything depends on choosing trustees who will act well.
• A trust cannot appoint a guardian for a minor child. A will alongside it, often called a pour-over will, does that and catches anything left outside the trust.
• A will is open to challenge on grounds such as capacity, undue influence or forgery once it comes to be proved. A trust that is working during your lifetime is less exposed to those questions, though a trust deed can be challenged too.

No two plans are the same, because they turn on the same few questions answered differently:

• How much there is, and what kind: property, investments, a business, valuables.
• How each asset is held, and in whose name.
• Where the assets are, in India and abroad, and which courts and laws reach them.
• Your citizenship and residence, and those of each person who will inherit.
• Tax, now and for your heirs.
• Your personal law, which sets what you may leave and to whom.
• Your family: who depends on you, who gets on, and who may not.

What you can leave by will depends on how you hold it. Self-acquired property, bought with your own earnings or received by gift or will, is yours to leave as you choose, within the limits of your personal law. Ancestral property held in a Hindu undivided family is different: you own a share in it as a coparcener, and the family's rights in it shape what your will can do.

Personal law sets other limits. A Muslim may leave by will no more than one third of the net estate, and a bequest to an heir generally needs the consent of the other heirs. The legal guide sets out the rules for each community.

• List what you own and what you owe, with where the papers are kept. This list alone saves an executor months.
• Note how each asset is held: in your name alone, jointly, through a company, or as part of a joint family.
• Check every nomination and bring it into line with what you intend.
• Decide who receives what, and who receives anything you have not named, the residue.
• Choose an executor to carry out the will, with a second in case the first cannot act, and a guardian for any minor child.
• Have the will drafted, then signed by you and attested by two witnesses, neither of whom, nor their spouse, receives anything under it.
• Consider registering the will. It is optional, but it creates an official record and makes the will harder to challenge.
• Keep the original safe, and tell your executor where it is.

Nominations you may have missed: EPF and EPS

Provident fund, pension (EPS) and the linked insurance (EDLI) pay out fastest when an e-nomination is on record with EPFO, which lets your nominee claim online. It is done on the EPFO member portal: sign in with your UAN, choose e-nomination, add the family members and the share each is to receive, and sign with the one-time password sent to your Aadhaar-linked mobile. No paper is needed afterwards.

A plan is only as good as its last review. Look at it once a year, and at once after a marriage, a divorce, a birth or a death in the family, the purchase or sale of significant property, or a move abroad. For some communities, those whose wills are governed by the Indian Succession Act, marriage cancels an earlier will automatically.

Most challenges to a will say that it was not properly made, that its maker did not understand it, or that someone else's hand was behind it. Each of these can be answered in advance:

• Two independent witnesses, neither of whom benefits under the will.
• A doctor's certificate of sound mind from around the time of signing, especially for an older or unwell testator.
• Every asset identified precisely, with who receives it and in what share.
• Where you leave something to someone outside the family, or leave your heirs unequally, a sentence saying why.
• An executor you trust, named clearly, with a substitute.
• A typed, clearly worded document rather than a handwritten one.
• A video recording of the signing, showing you, your witnesses and the will.

• A beneficiary, or a beneficiary's spouse, acting as a witness. The will stands, but the gift to that witness fails.
• Property described too loosely to identify, such as "my flat in Pune" when there are two.
• No residuary clause, so anything acquired after the will was signed passes as if there were no will.
• Nominations that contradict the will, leaving the family to sort out the difference.
• A home-made will that misses a formality, which the family then has to defend in court.