Estate Planning: Solving the Puzzle

Planning your assets and estate during your lifetime is important to ensure smoother transitions and lesser complexities for your heirs in the future.

Believe it or not, we all own an estate. Contrary to popular belief, an estate is not just a piece of land or a coffee or tea plantation; it encompasses all the assets you possess, both real and financial. This includes land, buildings, furniture, automobiles, bank accounts, fixed deposits, investments in shares, bonds, mutual funds, life insurance, and any other assets with economic value.

Throughout our lives, we acquire and enjoy these assets. However, death is inevitable; at some point, we must say goodbye to this world. Regardless of the size of the estate, the pressing question is: What happens to the estate after we're gone? Who inherits what, and how do they get it? The answer lies in estate planning.

Estate Planning is a series of progressive and interdependent steps taken by the owner of an estate during her/his lifetime to protect, preserve, and allocate assets for the benefit of family members or loved ones. The aim is to ensure financial security, maintain the standard of living, and support the welfare of beneficiaries even after the estate owner's demise. This planning process addresses the legal, economic, and social dimensions of estate management and inheritance. It aims to simplify the complexities surrounding the transfer of assets after death.

Legal Dimension: Understanding Succession Laws

Succession, in legal terms, refers to the transfer of rights and obligations of the deceased to their legal heirs. There are two types of succession:

1. Testamentary Succession - Transferring estate through a will executed by the testator.

2. Intestate Succession - No will is executed, and the estate is distributed according to applicable succession laws.

In India, the primary succession laws are:

- Hindu Succession Act of 1956: Applicable to Hindus, Buddhists, Jains, and Sikhs.

- Indian Succession Act of 1925: Applicable to Indian Christians, Parsis, and Jews.

- Mohammedan Personal Law: Applicable to Mohammedans.

The rules of succession differ between Hindu males and females under the Hindu Succession Act of 1956. However, the Indian Succession Act of 1925 applies the same rules for both male and female successors.

Social and Economic Dimensions

Lack of awareness or knowledge about succession laws can lead to misunderstandings, disputes, and prolonged legal battles among heirs, resulting in avoidable expenses and obstacles in enjoying the benefits of the estate.

Consider this example: Santhosh Kumar, a 53-year-old Hindu, works as a Country Head in a multinational company. He's married to Sahana, and they have a son, Sridhar, and a daughter, Soumya. They live in a villa jointly owned by Santhosh and Sahana. Santhosh's estate includes bank accounts, fixed deposits (with Sahana as the nominee), and a Mercedes-Benz car valued at 1 crore. Tragically, Santhosh dies in an accident without a will (intestate dying).

In this case, since Santhosh is a Hindu, the rules under the Hindu Succession Act apply. The title and rights to his estate will be equally divided among his wife and children.

Why do we need Estate Planning? 

In today's fast-paced world, we often focus on achieving our goals without considering the potential impact of our absence on our loved ones. Therefore, it is imperative to have an estate or succession plan in place, ensuring that our loved ones can access funds, transfer property titles, and obtain ownership of valuable assets without difficulty.

Estate planning may seem like a puzzle, but with proactive steps, we can solve it.

Image courtesy: Pixabay

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