How to plan for your estate?
Estate planning is not a top priority for most of the people. Often those who plan the sensible distribution of wealth are seen as wise seniors and respected even after they are gone.
We plan for our household and medical expenses, buying a house, plan for retirement, children's education etc. One area that gets the least focus is estate planning. Most people believe that the only option available for estate planning to them is ‘writing of Will'. Estate planning is not just writing of Will and getting it probated. We also need to know what is estate planning, why it is important to them and what are options available.
With our growing income, the lower middle class is now becoming an upper-middle-class, and upper-middle-class is becoming an upper class. People today realize the need to preserve the wealth built and pass it down judiciously. Thus, the need for estate planning is increasing.
What is estate planning?
We would like to pass down our hard-earned saving in a judicious manner to the next generation. Whatever we accumulate during our life (earning minus expense + growth) forms our estate that we pass on to our next generations. The estate includes immovable like home (real estate), agricultural land, etc, as well as immovable assets like gold jewellery (commodity), our bank balance & fixed deposits (cash).
The objective of estate planning is that you decide who will receive and control your assets. If you desire that every penny of your hard money should go to your next generation, you should be doing estate planning.
When to plan
Most of us defer estate planning for a later date or time. Not that we do not want to plan the distribution of our assets, but we avoid for various reasons such as—to avoid discussion on demise, avoid difference of opinion with a better half on the distribution of asset, lack of knowledge etc. You can plan for assets acquired and also for assets that you may acquire in future. We must put this on our priority list and not postpone it, thinking it to be irrelevant.
Here are your options for estate planning:
1. Write a Will
It avoids family dispute (though not a sure method)
Distribute assets according to your wish
Needs to be probated to avoid legal conflict. (Probate means a copy of the Will certified under the seal of a court of competent jurisdiction).
Can be challenged in court.
Only control assets that are in one's name.
Not helpful when one becomes incapacitated.
In case of a minor child, need to depend on the executor or court-appointed guardian.
2. Giving away / beneficiary transfer: Distribute the property (estate) when one is alive.
Avoid family disputes
In case the person is not earning, he/she would become dependent on children.
Once distributed, it cannot be claimed back
3. Joint ownership
Difficult to remove co-owner
4. Revocable trust: Create a living trust and transfer assets to trust. The grantor creates trust by writing trust deed and funds the trust by transferring the assets (movable as well as immovable). The trust deed specifies grantor's instruction for distribution of wealth. While grantor is alive, he has full control over the activities as well as an asset transferred.
Trust can be created by the writing of the trust deed. This requires a person to specify the purpose of the deed and how will it function. He needs to identify the trustees and give the instruction of appointing successor trustees. He also needs to specify when trust has achieved it's objective and how (and when) trust can be dissolved and assets liquidated.
Trust needs to be registered with registrar office of state government (trust falls under state list and hence are governed by state laws) by paying stamp duty.
Control is in hand of the creator.
Can change / revoke at any time?
Instruction is carried out when one is incapacitated or dies.
Saves the trouble of probation.
There are a few options, but working with an estate planner, often a lawyer is prudent. A lawyer can understand your requirement in detail and suggest a suitable option.