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Wealth Succession
Planning
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Sonali Pradhan is Managing Director, RBS Financial Services (India) Pvt. Ltd., a part the Royal
Bank of Scotland Group.
Sonali has over 14 years of experience largely in the banking industry. Prior to joining the RBS Group,
she was Associate Director at Warmond Trustees & Executors Pvt. Ltd. assisting
High Net worth Individuals with estate planning solutions.
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 Given the dynamics of wealth creation in the past two decades, Indian
households have witnessed some of the largest absolute gains in wealth in the
world. This wealth creation is not restricted to business households but many
individual professionals have also appeared in the top earners list. Alongside this wealth creation, we
are also poised to witness one of the largest wealth transfers in the history.
However there is lack of awareness and pro-activeness in planning for such
wealth transmission process. Many are not aware about the implication of passing
away intestate which means dying without writing a Will.
There are personal laws based on the religion of a deceased individual, which
defines the successors in case of an intestate death. While it is the legal
heirs who will inherit the wealth in this process, the proportion in which the
wealth will be inherited may not represent one’s wishes. Additionally the heirs
are required to complete lengthy legal formalities to get an access to the
wealth, let alone the disagreement between the legal heirs.
Fortunately there is some awareness about the Will amongst the households.
“Will” is the most easy and effective document in the succession
planning process. One can define the beneficiaries and their share in the estate
in the Will. Details of assets and the beneficiaries written down on the plain
paper witnessed by two individuals with self attestation are sufficient to
create a valid Will. However the main limitation of a Will is that it can be
challenged. Additionally, depending on the state in which one passes away and
has estate in, the beneficiaries need to complete the legal formalities before
inheriting the assets.
Typically a Will if complimented by nomination and appropriate joint tenancies
can make the succession process seamless. It is important to note here that a
nominee is merely a custodian of an asset except in case of the shares. The
financial institutions hand over the corpus of a deceased investor to the
nominee who is required to distribute it amongst the legal heirs or the
beneficiaries of a Will. Nomination does not award a title but is useful to get
immediate access to the wealth. Hence whether one writes a Will or not, one has
to ensure appointing a nominee for all the assets.
 PRIVATE TRUST is another way in which
wealth succession can be planned. A trust can be set up during one’s lifetime or
upon one’s demise. Similarly the assets can be gifted to the trust during or
after the lifetime. Depending on the desired control, the gifts can be revocable
or irrevocable. The person setting
up such a trust is known as a Settlor and he/she defines the beneficiaries to
these assets, the age at which an asset will be transferred to them or any other
condition for a transfer. The settlor appoints the trustees to manage the assets
who are responsible to distribute them to the defined beneficiaries. A transfer
of assets to the beneficiaries is relatively seamless and dispute free process
in case of a trust. But the success of a trust depends on the trustees and
clauses defined in the trust deed.
Whether it is a trust or a Will, one needs to first note down all the assets and
liabilities. It is important to understand the needs of the beneficiaries and
their situs. Contingencies are also to be considered while planning such
transfer. The wealth transfer is not always related to demise and one may chose
to transfer a part of a wealth during one’s lifetime.
Another important aspect in wealth transmission is to consider the name in which
the asset is held. One may hold the assets in an individual name or a corporate
structure, a partnership firm, a sole proprietary firm or
HUF. In case of corporate structures, the shares can be
bequeathed and not the assets of such corporate. Similarly the partnership
capital can be bequeathed. In case of HUF
assets, the coparceners automatically become the successors. Post a legislative
change in 2005, daughters are also considered as coparceners, even after being
married.
Lastly it is important to review the wealth succession plan, just the way an
investment portfolio is reviewed. Depending on the death, marriage, divorce or
birth, one may need to change the plan. Seeking a professional assistance in
this process is also recommended.
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