You spend all your life accumulating wealth as much as possible so that in your absence, your family can survive, retain the same lifestyle and fulfill their dreams, isn’t it? Naturally, wealth, the property passes on to the heirs after the demise of the owner. However, at times, a lot of dispute arises due to these wealth transfers. So, if you want to properly plan your succession well in advance so that your family can live peacefully and acquire all your wealth without any hassle, you can opt for any of the tools of succession planning.
What is succession planning?
Succession planning refers to the process of passing on the assets you have to your heirs/next generation. You can decide what you want to pass on to whom and how. The main objective of succession planning is to distribute or pass on your wealth to the beneficiaries you want so that your hard-earned assets do not end up in the wrong hands. It needs to be done according to the law of the country you are residing in and having the assets.
Tools of succession planning
You can use different tools of succession planning for transferring your assets to your heirs. The primary tools of succession planning for passing on assets to heirs include –
A Will refers to a legal document in which you state your wishes regarding your children and heirs and distribution of your wealth amongst your heirs as per your wish. This can be implemented only after your demise.
- Gift Deed:
A Gift Deed is also a legal document that is used to legalize any gift. You can use the Gift Deed to pass on your wealth to your heirs. This has to be done within the lifetime of the owner and the heirs. You can gift your property, cash, bank deposits to your heirs using a Gift Deed, and this way it gets legalized. The person gifting his/her property is called the donor, and the person accepting the gift is the donee. The donee should accept the gift within the lifetime of the donor for the gift to be legally valid. However, this is a contract so, both the parties, owner and the heir need to be in the right state of mind to be eligible for entering into a contract.
A Trust is created to protect the assets/wealth of the owner. Here the owner becomes the trustor and the trustee is the person who takes the responsibility for the assets. Trust deed makes it obligatory for the trustees to manage the trust as per the terms and conditions specified in the trust deed. According to the trustor’s wish, the assets of the the trustor gets distributed by the trustee amongst the heirs.
Additional Read: How Can Wealth Management Help You Save on Tax?
Which one is better for you?
Each of these three above-mentioned tools of succession planning has its pros and cons. While Will can be beneficial for some people, others can pass on their wealth just by using the Gift Deed and there may be another section of people who will need to create a trust for transferring their wealth to thesir heirs. So, let’s find out which one is better for whom –
The benefits of making a Will to give away your wealth to your heirs include –
- Financial security:
No one is the same and thus one child of yours may need more financial support than the other. So, without a Will, your property will get divided equally amongst all your child irrespective of your needs as per the Indian Succession Act, 1925. If you create a Will, then you can pass on your wealth in the proportion you want. This will ensure enough financial security for your child who needs it the most.
- Prevent Family Disputes and Reduce Legal Hassle:
There are crores of cases registered and pending in the court of law in this country for properties. Siblings turn into foes for the wealth of their parents and civil cases run for an average of twenty years which is almost a generation. So, to avoid all these hassles, the best tool to distribute your wealth is a Will.
- Avoid Unclaimed Property:
In many of the cases legal heirs are not aware of all the assets of deceased person and thefore, property of the deceased person is unclaimed by the legal heirs.
One might want to help charity institutions and leave a legacy behind after death. Another important use of making a will is to make donations by making a poing in will that particular share of asset should be contributed to those bodies.
Additional Read: 5 Tips to Manage Money Like the Super-Wealthy Do
The benefits of using a Gift Deed for transferring your property and wealth to your heir includes –
- Legal Proof:
If you verbally gift your wealth/property to one of your heirs and not the other, then after your demise, the other can file a case. As per the Indian Succession Act, 1925, the wealth of parents gets equally distributed amongst the children. So, without a Will or a Gift Deed, your verbal consent will not be valid after your demise. Thus, to legalize your gift, you can make a Gift Deed for the same. This will act like legal proof that you have gifted the asset to your heir.
- Tax Exemptions:
If you pass on any property both movable and immovable using a Gift Deed to your heirs (spouse, children, lineal ascendants) then there is no tax implication on the same.
A trust can also be created for succession planning as having a trust means –
- Asset Protection:
The primary benefit of having a trust for your wealth is the protection of your asset. Suppose your child is a minor or has special needs, so, in your absence, they won’t be able to manage or protect your wealth. This will lead to outsiders taking benefit of your hard-earned wealth. However, when you have a trustee, your wealth remains protected and your child gets the benefit of your wealth. When he or she becomes eligible to take over the wealth, the trustee has to deliver the same.
- Tax Benefit:
Trust can be also beneficial in mitigating a lot of taxes like inheritance tax, and others. However, this depends on the jurisdiction of the Trust.
Wealth is created over time, with hard work, intelligence, and patience. For parents, there is nothing more important than their child remains protected, and gets to use the wealth accumulated by them. Each individual needs a customised plan to their circumstances and needs. With proper use of succession planning tools, you can not only easily pass on your wealth to your heir but also protect it.