In the absence of a will, the distribution of the estate is governed as per laws of the nation. If you are a Hindu it is as per Hindu Succession Act 1956. For Christians, Jews and Parsis it is as per the Indian Succession act 1925. If you are a Muslim your property will be divided according to Muslim Personal Law.
After ones demise if he/she has no estate plan that includes a will, he/she is considered to have died in estate, and the state where he/she live will determine who gets your asset as determined under the states inheritance laws. This means that ones loved ones might be left out at disposition of the property, and in the worst situation when there is no body to claim it then government becomes the owner of the same. Therefore estate planning is very much required as this is ultimately planning for ones own assets with the future perspective.
An estate plan is the process of planning for the orderly administration and disposition of property after the owner dies.
An estate plan can be as simple as having a will and naming a beneficiary, or as complicated as having several trusts for different purposes in addition to the will. Estate planning involves making plans for the transfer of your estate after death. Your estate is all the property that you own. It can include cash, clothes, jewelry, cars, houses, land,
retirement, investment and savings accounts, etc.
Will: In a will you state how you would like to distribute your assets (land, property, gold, cars) after death. Who should get how much? This is basically what a will is all about.
You need an executor (someone you trust) to execute the will on your behalf (Make sure that your wish is honored as you are not around to do the job yourself).
Trust: A trust is used to transfer wealth to your heirs (children).These trusts have to be compulsorily created/ registered and governed under the Indian Trusts Act 1882.
In a trust you (Settlor) can transfer your movable property such as a car as well as immovable property such as property or land to the trustee (person who holds the property on behalf of your beneficiary/children).
The trustee is the executor (manager of the assets) on behalf of your beneficiary and ensures that your wealth reaches the beneficiary irrespective of what happens to you.
You can transfer shares/mutual funds, fixed deposits, cars, land, apartments/house, gold, art as well as antiques to the trust.
Nomination: If you have a fixed deposit, shares or mutual funds you need to make a nomination, where you state who will get the money lying in these accounts on your death. The person you appoint is the nominee. The nominee (basically someone you trust) transfers your wealth/investments to your heirs (Children).The nominee is not the owner/inheritor of your wealth. He is a protector/trustee of your wealth and makes sure your beneficiaries (heirs) receive the money. Nomination is done mainly for shares/mutual funds, life insurance policies or land and property.
When you die after making a will your beneficiaries/heirs inherit your property/wealth. The nominee you appoint (could be your nephew or a lawyer), serves as a trustee and makes sure your wealth reaches your heir. A nominee is not permanent and you can change your nominees any number of times. You can appoint your heirs (children) as nominees. If your child is a minor and you appoint him as a nominee you need to appoint an assignee who serves as a guardian.
Estate plan should not be considered permanent because your desire may change. Estate plans should be reviewed at least every two-three years but, additionally, any important change in your life demands immediate review.
Objectives and goals of Estate Planning
In India, in general people tend to neglect it for a number of reasons including complacent attitude or to save on taxes or nomination is already there or I don’t have any assets at all.
This often results in protracted legal battles for succession. For the smooth succession of assets, hence, it is advisable to form a private trust — a popular way of estate planning.
Under the Indian Trust Act, 1882, a trust may be created for any lawful purpose by the settlor (the person creating the trust) in his lifetime by a non-testamentary instrument or through a Will. One can create a family trust or for the sole benefit of an individual.
If the trust is created for the sole benefit of a person, then under Section 56 of the Indian Trust Act he at any time could ask the trustee to transfer the trust property to him / her or to a person as he may direct, in which event, the trust will come to an end. If the family trust has been set up then more number of people would be involved. A settlor could also bequeath his/ her absolute property (in his/her Will) to the trust that he / she proposes to set up. However, if the settlor wants to transfer the property in his/ her lifetime then the transfer becomes liable for stamp duty under the Indian Registration Act.
In case, the settlors property is conveyed to the trust as per his/ her Will, then no stamp duty would be payable on the transmission of the property to the trust.
Trust Deed Creation
To translate the intentions of the settlor into a document called the trust deed is the logical next step. A charter document of the trust, it should be drafted and reviewed carefully to remove any anomaly.
The nature of the trust is decided keeping in mind a number of factors such as the citizenship of the settlor or beneficiaries, the ownership pattern and location of the assets, etc. Depending on all these factors, the nature of the trust is decided. It could be discretionary (i.e., where the allocation would be at the discretion of the trustee) or nondiscretionary (where the settlor states specifically how the distribution of the trust property is to be made). It could be revocable or irrevocable. It has an implication from income tax perspective as well for both settlor as well as the beneficiary.
A number of trustees are appointed for the administration of the trust. The trust deed or Will should clearly specify the intention behind the creation of the trust, its purpose or objectives, and who would be the beneficiary or beneficiaries. If the trust is created during the settlors lifetime, further properties can also be transferred to it.
A trust is set up keeping the welfare of certain individuals in mind. Following are the persons who are associated with the trust –
The trust deed is executed by the settlor and trustee elaborating on the intentions of the settlor and the nature of the trust structure. It should clearly state the name of the settlor, trustees and beneficiaries, their powers, appointment and removal, distributions to the beneficiaries and their succession plan and the date of dissolution of the trust.
One must remember that, the structure of the private trust is technical in nature, and requires legal and tax expertise, it is advisable to get the trust deed made by the professionals only.