Where there is a will…

Publication : Business Standard, New Delhi; Date: April 18, 2010


There is no way that your assets can be misused by someone else


When Deepak Sharma, 45, passed away, his wife and two children suddenly found themselves in a severe financial crunch. While he owned three flats and a plot of land, the records were missing.

Similarly, papers of his investments in stocks, mutual funds and gold existed in the bank lockers. But the family was not aware of it. Importantly, Sharma has not created a will that would have specifically identified the heirs to his property.

All the family got to know in the initial months was that Sharma had taken bank loans to expand his business.

Soon the family found itself in a severe fund crunch. Loans were paid back from the proceeds of the life insurance policy. But two of his properties went into litigation – a serious money guzzler for a family strapped for cash.

Finally, Sharma’s wife decided to let go of two flats to his extended family and sold the plot of land. To her relief, the chartered accountant was able to locate the missing investment papers. And after over one year, the family was able to settle down.

Sharma’s case is not is isolated, especially in small business families, and even among professionals. While people like Sharma create wealth, their families are unable to take advantage of this. This is simply because of lack of proper planning, more importantly, lack of a proper will.

Creation and preservation of wealth are important but it must follow proper distribution among people for whom it is meant. That’s why an overall financial plan must consider distribution of wealth as a key objective for smooth transition of your wealth and to avoid conflicts within the family.

Ask these three questions:

  • If I die, what would happen to my wealth?
  • Does my spouse know about all the insurance, investments, debtors and creditors that I have?
  • Will my wealth be distributed as per my wishes?

If you don’t have satisfactory answers to the above questions, it’s time you met a lawyer for estate planning. The cost to make a will can range from few thousands to much higher amounts, depending on the complexity of the document and the reputation of the lawyer.

Let’s look at what goes into distribution of wealth:

Estate: The sum of all the assets of a person, less his liabilities becomes his estate. In short, all properties, bank accounts, investments, insurance and collectibles, less the liabilities of a person, are collectively called a person’s estate.

Will: It is a document that ensures that your wishes, with respect to your estate, (assets less liabilities) are followed after your death. In legal language, a will is defined as “the legal declaration of the intention of the testator, with respect to his property, which he desires to be carried into effect after his death”. In other words, a will or a testament means a document made by person whereby he disposes of his property, but such disposal comes into effect only after the death of the testator.

Testator: A person who makes his will is a testator.

Executor: A person, who executes the contents of the will after the demise of the testator, is called the executor. The executor is the legal representative for all purposes of the deceased person.

Legatee/Beneficiary: Legatee is a person who inherits the estate under a Will.Intestate: Any person who dies without executing (making) a valid last will is known as dying intestate. In such a case, the heirs would be governed by the Succession Act or Personal Law of the deceased. The Succession Act or Personal Law of the deceased gives order of succession.

Probate: This is the legal process of settling the estate of a deceased person, specifically resolving all claims and distributing the deceased person’s property under the valid will.

The process of making a will is simple. It requires no stamp duty or registration, although most experts advise that a will must be registered, so that it is in safe custody.

However, there are certain mistakes you one needs to pay special attention to. Failing to appoint trustworthy executors younger than themselves is the common mistake that most people make. In case of Hindus, another common mistake is the failure to state if the property is inherited or not.

The question of inheritance becomes important because no ancestral property can be assigned to any person. All rights on inherited property are acquired by birth. Another factor one should remember is appointment of the nominee. A nominee is a trustee and need not necessarily be a beneficiary to a will. The nominee is merely a caretaker and the right to the property passes as stated in the will. If there is no will, the nominee will transfer the assets to the legal heirs. So ideally, if a will is made, it would be better to name the nominee as the beneficiary to ensure that the distribution is smooth and efficient.

Most importantly, it is very important to update the will every few years. There could be a lot of changes right from the size and type of assets that you hold to the beneficiaries. Death of an executor and/or beneficiary will necessitate a major change in the will. Instances such as a divorce or a family dispute too will require changes. Make sure the will actually reflects your wishes at a particular point in time.

The writer is director, My Financial Advisor

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