| Inheritance |
 When a young successful professional from telecom background lost his life in an accident leaving behind his wife (home-maker ) and three children between four and 10 years of age, apart from the severe emotional shock, the family went through immense trauma since the deceased had not put in place any succession plan.
While, the man had left behind substantial wealth, enough to secure their financial future, the family still needed to grapple with multiple challenges—how to consolidate scattered assets? Who will manage the assets for the children until they reach the age of majority? How to ensure that inheritance is not squandered away but is protected for the family’s long-term benefit?
So, what is the first thing you think of when considering how to pass on your wealth? For most Indians, it’s probably a Will. Of course, that is the most traditional method but is it the right choice for you? What are the alternatives? And what are the advantages and disadvantages? Let’s consider the various options. The succession planning tools most often favoured in India are the Will, Personal Holding Company (PHC) and Trust. Apart from these, options such as life insurance and setting up a foundation are also used internationally.
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Will and Probate |
Where does a Will rank among all these choices? You should look at it as being the minimum measure you need to take. A Will is a legal document that describes how your assets should be distributed in the event of your death.
However, the actual distribution is controlled by a lengthy legal process called Probate. Derived from the Latin meaning to “prove the Will,” Probate can be cumbersome, time-consuming , in certain cases expensive and emotionally traumatic during a family’s time of grief and vulnerability.
A further drawback is that your assets not only have to be made available for public inspection but they are also frozen and cannot be utilised, pending Probate.
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Revocable Living Trust |
Given the disadvantages of a Will and considering how important a well thought-out succession plan is, you should also evaluate other options. For instance, an increasingly popular alternative among those with substantial wealth is a “Living Trust” . Living Trust is often called a Revocable Living Trust.
As the name suggests, it can be revoked or amended by the person creating it (settlor) at any time while the settlor is still alive and remains competent. Importantly, when you set up a Living Trust, it manages and administers your wealth both during your lifetime as well as beyond. In other words, there’s no need whatsoever for Probate from the courts since your assets continue to be held within the Trust. Eliminating the Probate formality implies that your family privacy is maintained and administration procedures are minimised so no extensive time lag and no additional costs.
Going back to the above case, had the gentleman formed a Trust, his family would have at least been absolved of the nightmare of collating the scattered assets and the accompanying administration. While there are many benefits to be derived from a Living Trust, there are also a few drawbacks. Though most of these are minor and should not discourage you, it helps to be completely informed of the disadvantages so that you can structure it appropriately.
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Living Trust
Since a Living Trust does not come under direct court supervision, a trustee who fails to act in the best interests of your beneficiaries may, in some cases, be able to take personal advantage. In addition, the cost of preparing a Living Trust could, in some cases, be higher than the cost of preparing a Will.
However, this depends on the particular estate plan and the difference in cost may not be significant if the estate plan is complex. Refinancing, especially of property held in a Living Trust, can be slightly difficult, though it is not impossible and is more of a minor complication that can slow things down.
Perhaps the most important decision for you to consider in a Living Trust is your choice of trustee to act in your place. The trustee may be your spouse, adult child, other relatives, family friends, business associates or a professional fiduciary, such as a bank or trust company. Whoever you decide, it should be someone who will follow through on your wishes in an impartial manner and without compromise so that your wealth legacy endures for generations to come.
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