Tag: Estate planning

Family Trusts : How it helps in your Estate Planning

Posted on by Team Jagoinvestor

Who doesn’t want to ensure the financial safety and security of loved ones?

You work so hard for your entire life to build the required corpus, assets or to grow your family business (if any) to inherit the legacy to your family.

But, what if there are many heirs to your property?  In the case of having children from a previous marriage?  In other words, you have a very complex family structure.

Have you given a thought that how will a smooth inheritance process take place after your demise?  Who doesn’t want to avoid family disputes on property-related issues? This is where one needs estate planning.

In this article, we will introduce you to the concept of family trusts and the basics of estate planning.

Having an estate plan in place is to achieve seamless intergenerational legacy distribution, continuity of business, and safeguarding the benefit of all the heirs, are the best thing you can do for yourself and your loved ones.

What is Estate Planning?

Estate planning is nothing but writing it down, how you want to distribute your wealth among your family members after your demise. It can also be a plan that defines, how will your family legacy be carried on or who will head family business, in case you are ill or in a critical health condition.

Estate includes immovable like home (real estate), agricultural land, etc, as well as immovable assets like gold jewelry (commodity), our bank balance & fixed deposits (cash). Items such as our collections like coins and paintings are also a part of the estate.

When should one do estate planning?

People have a myth that estate planning is for rich, not for poor or it is a thing to be done after retirement. At the same time, it is suggested to do estate planning as soon as you are having any liability on you (Debt/Loans) and you have any asset whether physical or financial (whatever amount it can be).

You need to write it down, how will your debt be met, what asset should be used to pay off and who is answerable to things. It is to ensure that your loved ones are not troubled for loan related issues after your demise.

Most of us defer estate planning for a later date or time due to 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. But, the time is now and we must put this on our priority list and not postpone it, thinking it to be irrelevant.

As I said estate planning should be done by every person. However, a more important question is how to do it and what are the ways to do estate planning.

What are the ways to do Estate Planning?

In India, it includes making a nomination (for financial assets – it is suggested to always nominate a person whom you want to actually transfer the asset), joint ownership, will or setting up a trust.

If there is no such thing or there are any disputes like nominee is different from the legal heir, then wealth distribution will happen as per the succession law depending on the religion you belong from.

As per succession law, the Property of a Hindu resident will be distributed as per Hindu succession law i.e. equally among class – 1 legal heir (spouse, mother, and kids).

For eg. You have a house worth Rs. 3 Cr. and there are 4 kids. You have not made any will or trust. So, it is not necessary that 4 of them will agree to the not single point of selling the house and distributing the proceed equally. One or two may disagree and keep the property with them.

If you want to know more about succession law, you can watch the video given below –

Estate Planning – using Trust

If there is a complex family structure like kids from first marriage, many kids, stepmother, special child or a minor, or you have a business empire and due to a lot of drawbacks/disadvantages of another source of estate planning like nomination, succession law or will (whether registered or not) it is suggested to have a living trust (private trust) to enable smooth inheritance of wealth.

Trust is an agreement between the settlor (maker of trust) and the trustees to transfer legal ownership of assets/property to the trustee with an obligation that the same should be held and used for the benefit of all the beneficiaries as specified in the trust deed.

For forming a trust, you (the giver of wealth) need to write a trust deed that specifies all the instructions for the distribution of wealth. The settlor then appoints a trustee to execute the trust deed and he/she also needs to fund the trust by transferring the assets (movable as well as immovable). 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.

Trust deed – The trust deed should specify the purpose of the trust, it’s objective and how will it function. You need to identify the trustee or trustees which can be a friend or relative or it can also be a corporate entity. You also need to give instructions in the trust deed about execution in case of any incapability happens to you (critical health conditions) and about its dissolution.

Trustee – Corporate trustees are professional firms or companies that provide or arrange different services as required by the trust. In a trust deed, you need to specify the successor trustees (if first trustees are not alive or are retired).

Myth about Trustee

People think that if they form a trust, their wealth will be owned by the trustee and they will lose control over it. So, yes the trustee becomes the owner but in a virtual world. In reality, the trustor has an obligation to fulfill the purpose of the trust deed.

A trustee has no right to use the property for himself/herself. He/she can use property just for the benefit of beneficiaries. However, while the settlor is alive, he has full control over the activities as well as an asset transferred.

In fact, nowadays there are various professional trust agencies that provide trustee arrangements. They don’t have any biased or personal sake in your wealth and they will stand as whole-time executor of your trust deed.

Drawbacks of Will

We know that a will is one of the traditional method used to do estate planning. But, will whether registered or unregistered can be challenged in the court of law. Let’s see in detail, what all are the drawbacks of will?

1. Will can not take care of unforeseen eventualities – As the will is a final declaration of your intention with respect to your property, which the courts endorse only after your demise. Thus a Will can not take care of unforeseen eventualities like any disability or illness as it is towards the disposition of property of the deceased rather than management.

2. Probate of will takes long period – A Probate which is necessary for establishing the rights of the executor or the beneficiaries under the Will in certain cases may take 6 months to 1 year and until such time, the beneficiaries would not be able to use the assets.

3. Can be challenged in court – Authenticity of a will can be questioned in the court on the grounds of fraud, forgery, undue influence (made in the pressure of something), mental illness of maker, lack of will-maker’s capacity, lack of knowledge and approval, and revocation. Even a registered will can also be questioned as registering a will does not lend it any legal sanctity or remove suspicion about its validity it’s just that it reduces the grounds on which it can be contested in court.

In India, a traditional way of estate planning has been setting up Hindu Undivided Family (HUF) which is a distinct unit for tax policy as per the provisions of section 2 (31) of the Indian Income Tax Act. However, it may be noted that after a property gets apportioned to a HUF, every coparcener has an equal rights to it and partition of HUF land has often led to clashes and court cases.

Therefore while the HUF with its archaic tax treatment and confused entity fails to cater to the requirements of present-day wealthy the Will is posed with un-certainties and the nonsense of a Probate. In such an atmosphere, one approaches the Family Trusts with a lot of hope and expectations that Family Trusts have managed to standby.

Why private trust should be used for a special child or minor child?

As an investor, we focus more on wealth creation. However, how will this created corpus devolve on the child and who will provide for & take care of the children when the parents are no more are important questions as well.

Hence, estate planning for parents with a special child (mentally or physically challenged) or minor children is even more crucial. Those parents need to plan in advance that who will take care and provide the needful to their special child.

A parent can grant responsibility of guardianship to a close relative but, it is a whole-time job and no one is sure that the things will work out as per the plan. In today’s world, everyone has their own priority and problem, there is no surety that he/she will be able to spend enough time on this responsibility.

So, to deal with it, a parent is suggested to form a trust and appoint two trustees – one from relative/friend and second should be a corporate trustee. In this way, the corporate trustee is a professional has all the arrangements mentioned in the trust deed of a parent with a minor child or a special child. It will also help parents to pass on the day-to-day operation and execution responsibilities to corporate trustee

Following are the services with a professional trustee can provide or arrange for a special child

  • Full-time helper
  • A cook
  • Health care attendants
  • Specialist doctor
  • Basic household groceries
  • A channel for making payments of all bills/expenses

Conclusion

For a special child or minor child, as they are not able to claim there right, you need to appoint an executor along with a will. And due to various drawbacks of a will like long probate period or execution-only after the demise of the maker, it is suggested to have a trust formed.

Who will be the nominee for your financial products? – Concept of nominee with example

Posted on by Jagoinvestor

Did you think that your nominee is the person, who will get all the money legally from your Life Insurance Policy and Mutual funds investments? Ha! That is exactly what you’d think if you aren’t aware of the legal aspects.

We assume a lot of things which sounds like they’re obvious, but are not true from the legal point of view. Today, we’ll concentrate on nominations in financial products.

Nominee in Insurance , mutual funds

For whom are we earning? For whom are we investing? Who, do we want to leave all our wealth to, in case something happens to us? It might be your children, your spouse, parents, siblings etc., or just a subset of these. You also might want to exclude some people from your list for beneficiaries!.

So you think you will nominate person X in your Insurance policy, and when you are dead and gone, all the money goes to person X and he/she becomes the sole owner? You’re wrong, dude ! It doesn’t work that way.

Let’s see how it actually does!

What is a nominee?

According to law, a nominee is a trustee not the owner of the assets. In other words, he is only a caretaker of your assets. The nominee will only hold your money/asset as a trustee and will be legally bound to transfer it to the legal heirs. For most investments, a legal heir is entitled to the deceased’s assets.

For instance, Section 39 of the Insurance Act says the appointed nominee will be paid, though he may not be the legal heir. The nominee, in turn, is supposed to hold the proceeds in trust and the legal heir can claim the money.

A legal heir will be the one whose is mentioned in the will. However, if a will is not made, then the legal heirs of the assets are decided according to the succession laws, where the structure is predefined on who gets how much. For example, if a man during his lifetime executes a will.

In the will, he mentions his wife and children as legal heirs, then after his death, his wife and children are the legal owners of his assets. It is essential that one needs to execute a will. It is the ultimate source of truth and replaces the succession law. Nominee can also be one of the legal heirs.

Important

  • Mention the Full Name, Address, age, relationship to yourself of the nominee.
  • Do not write the nomination in favour of “wife” and “children” as a class. Give their specific names and particulars existing at that moment.
  • If the nominee is a minor, appoint a person who is a major as an appointee giving his full name, age, address and relationship to the nominee.

Why is the concept of nominee?

So you might be wondering, if the nominee does not become the sole owner, why does such a concept of “nominee” exist at all? It’s pretty simple. When you die, you want to make sure that the Insurance company, Mutual fund or your shares should at least get out of the companies and go to someone you trust, and who can further help, in process of passing it to your legal heirs.

Otherwise, if a person dies and hasn’t nominated anyone, your legal heirs will have to go through the process of producing all kind of certificates like death certificates, proof of relation etc., not to mention that the whole process is really cumbersome! (For each legal entity! The insurance company, the mutual funds, for the shares, for the real estate..) .

So, to simplify, if a nominee exists, these hassles don’t happen, since the company is bound to transfer all your money or assets to the nominee.The company the goes out of scene & then, it’s between nominee and legal heirs.

Example of Nomination

Ajay was 58 years old who died recently in an accident. As his children were settled, he wanted to make sure that his wife is the sole owner of all the monetary assets. This includes his insurance policy and mutual funds.

So during his lifetime, he nominated his wife as a nominee in his term insurance policy and mutual funds investments. However, after Ajay’s death things didn’t turn up the way he wanted. The reason being Ajay did not leave a will.

Though his wife was the nominee in all his movable assets, as per the law, his wife, along with children, were the legal heirs and all of them had equal right to Ajay’s assets.

One simple step which could have saved the situation was that Ajay should have made a will which clearly stated that only his wife was entitled to get all the money and not his children.

#Nomination in Life Insurance

A policyholder can appoint multiple nominees and can also specify their shares in the policy proceeds. Nomination in life insurance has one limitation, as insurance policies are bought to secure your financial dependents, your first choice of nominee has to be your family members.

In case you want to nominate a non-family member like a friend or third party, you will have to show/PROVE the insurance company that there is some insurable interest for the person. This happens because of a Clause called PRINCIPAL OF INSURABLE INTEREST in insurance.

Note that provision of nomination in life insurance is related to Section 39 of the Insurance Act. Note that as per LIC website

Nomination is a right conferred on the holder of a Policy of Life Assurance on his own life to appoint a person/s to receive policy moneys in the event of the policy becoming a claim by the assured’s death. The Nominee does not get any other benefit except to receive the policy moneys on the death of the Life Assured. A nomination may be changed or cancelled by the life assured whenever he likes without the consent of the Nominee.

Make sure, you have a nominee for your policy for easy settlement of the claim, if you do not have any nominee mentioned in the policy, it can turn out to be a disaster for your dependents to get a claim.

#Nomination in Mutual funds

In case of mutual funds, you can nominate up to three people, who can be registered at the time of purchasing the units. While filling in the application form, there is a provision to fill in the nomination details. Even a minor can be a nominee, provided the guardian is specified in the nomination form.

You can also change nomination later by filling up a form which is available on the mutual fund company website. Nomination in mutual funds is at folio level and all units in the folio will be transferred to the nominee(s). If an investor makes a further investment in the same folio, the nomination is applicable to the new units also.

A non-resident Indian can be a nominee, subject to the exchange control regulations in force from time to time.

Watch this video to know what is nomination in Mutual Funds

#Nomination in Shares

Quiz for you :). Now you know what a nominee means and who actually gets the money. So if there is a husband H, with wife W and nephew N, and he has nominated his nephew N to be the nominee of his shares in demat account, who will have the legal right to own the shares after husband’s death?

If you answer is wife, you are wrong in this case! In case of stocks, it does not work the usual way, if a will does not exist.

In the verdict, Justice Roshan Dalvi struck down a petition filed by Harsha Nitin Kokate, who was seeking permission to sell some shares held by her late husband. The Court noted that as she was not the nominee, she had no ownership rights over the shares.

Ms KokaThe’s lawyer had argued that as she was the heir of her husband who had died intestate (without a will), she should have ownership rights of the shares, and be able to do anything with them as she wished.

In this case:

Ms Kokate’s husband had nominated his nephew in favour of the shares. Justice Dalvi however noted that under the provisions of the Companies Act and the Depositories Act, Acts which govern the transfer of shares, the role of a nominee was different.

“A reading of Section 109(A) of the Companies Act and 9.11 of the Depositories Act makes it abundantly clear that the intent of the nomination is to vest the property in the shares which includes the ownership rights thereunder in the nominee upon nomination validly made as per the procedure prescribed, as has been done in this case.”

Source : Moneylife

It means that if you have not written a will, anyone who has been nominated by you for your shares will be the ultimate owner of those stocks, The succession laws on inheritance will not be applicable but in case, you have made a will, that will be the source of truth.

#Nomination in PPF

If the subscriber dies and there is no nomination at the time of death, the balance in the account, if it is upto one lakh, will be paid by the Accounts Office to the legal heirs of the deceased on receipt of application in Form G supported with necessary documents without the production of succession certificate. If the balance is more than one lakh, the production of Succession certificate will be necessary. (source)

#Nomination in Saving/Current/FD/RD Account in Banks

FD’s also come with nomination facility. While opening a new account, there is a column for nomination in the same form and you should fill it. You can nominate two persons with first and second option. Note that in case you have not done any nomination till now, you should request Form No DA-1 from your Bank which is used to assign a nominee in future. (Examples of ICICI Bank , HDFC Bank) . In the same way to change/cancel the nomination you need to fill up Form no DA-2. Read about Corporate Fixed Deposits

As per a famous case, A Bench of Justices Aftab Alam and R M Lodha in an order said that the money lying deposited in the account of the original depositor should be distributed among the claimants in accordance with the Succession Act of the respective community and the nominee cannot claim any absolute right over it.

Section 45ZA(2)(Banking Regulation Act) merely put the nominee in the shoes of the depositor after his death and clothes him with the exclusive right to receive the money lying in the account.It gives him all the rights of the depositors so far as the depositors’s account is concerned. But it by no stretch of imagination make the nominee the owner of the money lying in the account,” the Bench observed.

Conclusion

Now you know! Taking Personal finance for granted can be fatal 🙂 Just investing knowledge, isn’t enough to have a great financial life. You also need to be well versed with basic legal aspects and make sure you carry out all due arrangement .

Nomination is one important aspect you should seriously consider, when checking for the financial products you have bought or plan to buy in future. Mistakes in Personal Finance

Its important to make sure that your loved one’s do not face legal issues and only say and think lovely thoughts about you when you are not around, rather than crib & grumble 🙂 . Fix your nominee in all the financial products

How Hindu Succession Law applies if written WILL is missing ?

Posted on by Jagoinvestor

Do you know that Hindu Succession Law applies for the division of wealth in case a person dies without a written WILL? I know you might have never thought about it because you are not aware of how ugly it gets when the will is missing. Money is so powerful that relations don’t take time to break. Family members can really fight over the issue of who gets how much out of the wealth and a lot of times unexpected things happen. Even people you never thought can suddenly appear claiming their share in the wealth.

A properly written will (and registered one) is the best way to make sure the wealth is passed on to different people as desired. But in reality people don’t write will and keep thinking “one day, I will surely write a will when ..”.

So now coming back to the point, if a will is written, then there is no confusion and the wealth is divided as per the WILL. However, if a WILL is missing, then the wealth is divided as per the Hindu Succession Act 1956 laws for Hindu’s, Jain’s and Sikh’s. We have a separate law for Muslims and Christians, but for this article’s sake, let’s just talk about Hindu succession Law applicable for the Hindu population.  Also, note that in this article mainly we are talking about the succession laws related to what happened after death of a MALE (not female).

HIndu Succession Act 1956

Concept of Legal Heirs under Hindu Succession Law

Legal heirs are well defined in the Hindu Succession Law. All the relations are categorized into two classes called class I and class II. The first right on wealth is of Class I heirs. Only if there is no one available in Class I, then relations under Class II can claim their rights. If Class I & Class II both are missing, then there is something called Agnates and Cognates, but we will talk about it in some time. For now, let’s understand Class I & Class II heirs under Hindu Succession Law

Class I relations 

  • Son/Daughter
  • Widow
  • Mother
  • Son/Daughter of a pre-deceased son (pre-deceased means “already Dead”)
  • Son/Daughter of a pre-deceased Daughter
  • Widow of a pre-deceased son
  • Son/Daughter of a pre-deceased son of a pre-deceased son (3 levels)
  • Widow of a pre-deceased son of a predeceased son

Class II relations 

  • Father
  • Brother/Sister
  • Son’s daughter’s son/daughter,
  • Daughter’s son’s son/daughter
  • Daughter’s daughter’s son/daughter
  • Sibling son/daughter
  • Father’s Parents
  • Brother’s widow
  • Father’s sibling
  • Mother’s parents
  • Mother’s sibling

If Class I & Class II is missing?

In the absence of heirs of Class I and Class II, the property is passed to the agnates and cognates of the deceased in succession. Now, one person is said to be the agnate, if he/she is related by blood or adoption wholly through the male’s chain line. Similarly, one person is said to be the cognate of the other if the two of them are related by blood or adoption, but not totally through males, i.e. there has to be some intervention by a female ancestor somewhere. The first preference is given to Agnates and only if there is no Agnate, then the Cognates comes into the picture. To understand Agnate/Congate in plain Hindi, It means “Bahut Door ke Ristedaar”, Agnates are “Door ke Rishtedar” from the chain of Male line and Cognates are “door ke relatives” , but does not compulsory from the chain of males in the family. But leave this point as of now, I think from an understanding point of view just Class I and Class II is enough for someone.

Note that if there are more than one Widow’s, then they get one share only and then divide it between themselves and a person’s immediate family will also be considered as one unit only.

Some Important Rules and Points

  • A child in the womb is treated as a separate child as if he/she was out in the world, He/she gets a separate share in the property.
  • No succession rights if the widow has remarried on the date of succession.
  • If a person has killed the person from whom he was supposed to acquire the wealth and has been declared as a murderer by law, then he loses his right to acquiring assets.
  • If there is no heir qualified to succeed to his or her property in accordance with the provisions of this Act, such property shall go to the Government.

For Muslims, the succession laws are defined under The Shariat Act. Under that 50% of the property goes to the Widow irrespective of the number of other legal heirs (remember in case of Hindu Succession Law its equal share between Widow and children) and rest is shared in equal parts between children

Some Examples

Now based on the learnings we had till now, let’s see 6 examples (not real) and how the wealth will be divided into each of those cases. I have tried to take different scenario’s.

Example 1

Lets say Ajay is dead without a will and he has 5 people in his family

  • Wife
  • Two son
  • One daughter
  • Father

In that case his wife, 2 son and 1 daughter will come under Class I , but his father will come under Class II , in that case all the 4 people under class I will get equal share in his wealth. So Wife will get 25% of the wealth, First son will get 25% , second son will get 25% and daughter will also get 25% of the wealth (married or unmarried) .

Example 2

Lets say Robert was 60 yrs old. He dies in an accident and has no WILL . Suppose he has following people in his family

  • Wife
  • Widow of his dead son
  • 2 Children of his Dead son

This is an interesting case , in this there are mainly 2 units . The first one is his Wife who will get 50% of his wealth and the next unit is the Widow and 2 son of his dead son who will equally get 50% of the wealth and legally, they all need to share it in equal amount . Note that this happens considering as if the son was alive, in which case he would have got 50% share and then his family chain would claim it from him. So understand that each family here would be 1 unit and all the members of that unit will again share it back between them with same principles.

Example 3 

Suppose Ajay is dead without a WILL , but his family consists of

  • A pregnant Wife
  • Mother
  • Brother

In this case , there are 3 entities in the Class I , those are Wife , Mother and the Child in the Womb, here 1/3rd wealth goes to Wife , 1/3rd goes to the unborn child and 1/3rd goes to Mother. Note that a child in the womb has same right as a born child.

Example 4 

Suppose Robert dies without a WILL and leaves behind

  • Father
  • Brother
  • 2 children of his sister (sister is dead)

In this case, you can see that Class I has no member, all the members are from class II , in which case Father will get 1/3rd wealth, Brother will get 1/3rd part and his sister’s children will get 1/3rd and will divide it between them in equal parts.

Example 5 

Ajay dies without a WILL , his family consists

  • Mother
  • Brother
  • 2 Sister’s
  • Widow of one of his dead Brother

Here you can see that only one person belong’s to class I (mother) and every one else is in Class II , hence 100% of the property goes to Mother (remember that Class II gets anything only if there is no one in class I)

Example 6

Ajay is the head of the family and lives in a ancestral house in Pune and has his personal savings in Bank FD and one flat in Mumbai which he had bought from his own funds. Now Ajay dies, but he was smart and he has written a WILL and written that everything goes to his Wife and no one else gets anything. Suppose his family has

  • Wife
  • Mother
  • Brother
  • Sister

Now what happens in this case ? In this case, his Bank FD and his flat in Mumbai will 100% go to his Wife and no one else, However his ancestral house in Pune will be divided equally between all the 4 members. This is because there was a flaw in the WILL . An ancestral property can not be passed on through a WILL . Ajay had made a mistake thinking that he can assign the flat in Pune to anyone he wants . A person can only pass on his wealth through WILL if he has earned it (think bournville) , if you have acquired it from your older generation, then it will be claimed by all the legal heirs, and in this case it will be passed on to all the legal heirs of the family , so 25% to each member as they are all into Class I for Ajay’s father

Hindu Succession Law in case of a Female death

Till now we saw all the rules which are applicable if a person in question was a dead male, but in the case of a female some points are a little different.  The property of a female Hindu dying without WILL shall be distributed according to the rules set out as follows –

1. Firstly, upon the sons and daughters (including the children of any pre-deceased son or daughter) and the husband;
2. Secondly, upon the heirs of the husband ;
3. Thirdly, upon the mother and father;
4. Fourthly, upon the heirs of the father; and
5. Lastly, upon the heirs of the mother.

Important Points in case of Women Property

  • If the women have acquired any property from his Father or Mother, in that case, the first right will be of the heirs of her father and not husband, in case of absence of his sons or daughters
  • If the women have acquired any property from her husband, in that case, the first right will be of the heirs of her husband, in case of absence of his sons or daughters

An Example

Suppose Supriya is a widow without any children dies without a WILL. She has acquired 1 flat in Mumbai from her Father’s, and has acquired one Flat in Pune from her Husband through a WILL, now suppose Supriya has 3 people in family.

  • Father in law
  • Mother in law
  • Brother in law

Now understand this case properly , As the person in question here is a Women, there will be distribution of her property like this-

The flat in Pune was acquired by her from her Father and as she also has no children, that flat in Pune will go to her Father’s legal heir. if Supriya had a Sister Poonam, in that case Poonam would be the legal heir of her Father and she would get 100% of the flat in Mumbai. Supriya’s Family would not be able to claim it legally.

However the Flat in Pune was acquired by Supriya from her husband and in this case , her husband’s legal heir would be claiming it, which means Supriya’s mother in law would get the absolute right on the Pune Flat because only she comes under Class I (Father and Brother come under Class II for a Male) .

Conclusion

In case a will is missing and the legal heirs get into a fight over the wealth, things can get ugly and the wealth might to someone which you might not have wanted or imagined. Hence writing a WILL should be on a high priority list. This article just gives very basic rules under Hindu Succession Law, in reality, things can get more complicated and it’s always advisable to hire a good lawyer in these cases. This article is just for information and awareness purposes. Dont take it as the complete guide.

Please share your case or define an imaginary case and let’s see how the wealth would be divided in that case as per Hindu Succession Law.

Joints Account , Nomination or Will – Which one to use ?

Posted on by Jagoinvestor

There are 3 ways one can pass on his wealth to someone – joint accounts, nomination and Will. A lot of people do not know which one is more powerful than the other and when to use which one. Today let’s discuss a few points about joint accounts, nominations and will and some scenarios which will make them clear.

3 mistakes which investors make

1. Not understanding what a joint account means

If you want to make sure that after your death, your wife operates the account without any problem, then don’t just make her the nominee, better make her a joint account holder in the bank account itself.

If you choose “either or survivor” mode, she will be able to transact and do things along with you. But remember that when you make her a joint owner, she is the owner of 50% part only. If something happens to you, she will not automatically get your 50% share. It will be divided as per your WILL or will be divided as per succession laws.

2. Forgetting about old joint holders

A lot of people have joint accounts with their father, mother, brother etc years back, but now they want to pass on their wealth to their children/wife on their death, so they put their names in the nominee and also write a WILL (for full proof documentation), but once they die, the nomination and WILL be of no use, because there is still a joint account holder and their share cant be touched. So better change the joint account holder if you wish to pass on that part to someone else in the family.

3. Not changing Old nominations and WILL

A lot of people do not change the nominations of their bank accounts, mutual funds, or life insurance policies due to laziness, someone else is on the nominee list, but they want to transfer the asset to someone else. A lot of people think that making a WILL is the final solution, but in real life, there can be complications. What if the nominee and the person mentioned in a WILL are different? The nominee can take out cash from the bank or do some transactions. Then the legal owner will have to run from pillar to post to claim that money back and do all the legal work. See this classic issue of forgetting about the WILL

Hi , I am facing a big issue .. My husband had written a WILL long back stating that all the wealth should go to his brother after his death, but this happened years back, when we were having a lot of issues in marriage and fights, but after that everything was fine and things were on track. But seems like my husband never wrote another WILL after that and didnt change the WILL.  He died recently in an accident and now his brother has claimed all our property and bank balance because of that WILL . What can I do ?

Truly speaking, This lady can’t do anything … her husband was ignorant about these things and now she will pay for his mistakes!

Some best practices

  • If you are 100% sure that your wealth should go to some specific person, always have a joint account with that person with you as the primary person and also write a WILL for your share, so that it also can be passed to them seamlessly later.
  • Make sure your nominee should be the same person you want to pass on some policy proceeds or property, It does not make sense to say in WILL that your wealth should go to A, but in nominee the name mentioned is B.
  • If you have opened any accounts/properties/mutual funds/policies long back, it’s a good idea to revisit it and see that the nominee name is appearing and is consistent with what you want it to be.

Joint Accounts, Nominations and Wills are all ways to pass on your wealth to someone else once you die, so it is very important that you structure these in the best possible manner. Have consistency in all these 3 things. If you pass on your money to a person better open an account or buy the asset along as a joint owner, make sure you put his name as the nominee and also make sure that the WILL is written with clear directions.

Importance of will and some essential points to be considered while making a will

Posted on by Jagoinvestor

We will learn about creating a WILL in India today, but before that you need to answer this question – “Do you want to leave your wealth and let your loved one’s fight with each other to get their shares (a la the Ambanis!)?” –

I guess not! . If you nominated some one in all the financial products you bought and thought that it will be passed to them legally without any issues, you are living in the world of fantasies (kind of :). It’s a common misconception). You need to create a WILL to distribute your wealth in the manner you want to, and having nominated someone ain’t the answer!

Lets fine out in this article, how to make a will in India ?

importance of will

What is a Will ?

A will can be made by anyone above 21 years of age in India. You can make the will on plain paper in India. It’s not legally necessary to make the will on stamp paper. It is advisable to write your will in your own hand writing, as the same can be verified later in case of any doubts raised by relatives.

It might happen that according to your family structure and your preferences, you want to divide your wealth unequally or make a provision for a close friend or a faithful servant. This isn’t possible if you die without a will.

A lot of us feel that talking about “Making a Will” is pretty morbid, and hence, we don’t look at it with right attitude.

“A will is a sensitive topic to open up to. People are not comfortable discussing a will in India. There is a misconception that if someone tells you to make a will, the person thinks that indirectly you are telling him that his end is near or that you are eyeing his property. However, all apprehensions disappear when I tell them the consequences of not making a will.”

– Says Shankar Pai, who has done some commendable work in area of spreading awareness on making wills.

How to make a WILL in India and its importance ?

A will is so important, that it should be your first step in your financial life. If your family structure is diverse, and you want to leave your wealth to different members of family like you want to, you should prepare your WILL today, not tomorrow, not later.

To wit, if you die without preparing a WILL in India, your wealth will then be distributed as per ‘Hindu Succession Law’ (Government rules, on how wealth should be divided among family members). A common misconception, is to believe that all the estate is automatically passed on to the spouse, because children and sometimes even relatives can stake a claim to the property.

Laws of inheritance and succession, are complicated and diverse in nature, and are different in case of Hindus and Muslims.

Inconvenience for the family members:

Another point you should consider, is the inconvenience caused to your family members because of your laziness, in not making a will for them. In case of a dispute, your family members have to produce the proof about their relationship with and also have to go helter-skelter to lawyers and spent money and energy.

Much better then, to gift them some time of yours, and creating a will! This will save them a lot of headache.

Watch this video to know why it is necessary to get a registered will:

How do you make a Will in India?

A will has several parts, which duly completed, make up a complete Will. Though there is no legal or defined format, there is a template, which has been generally used for ages. It’s simple, it’s very logical and derives from common sense. Let’s look the whole format and some important points while creating a will.

Step 1 : Declaration in the beginning :

In the first paragraph, you have to declare that you are making this will in your full senses and free from any kind of pressure. You have to mention your name, address, age, etc at the time of writing the will so that it confirms that you really are, in your senses 🙂

Step 2 : Details of Property and Documents :

The next step is to provide list of items and their current values, like house, land, bank fixed deposits, postal investments, mutual funds, share certificates owned by you. You must also indicate, where all these documents are stored by you. In all probability, these are in your bank safe deposit box.

Even the will should be stored in there! Make sure, you take the details from the bank manager, about the procedure and rules of releasing your will from the safe deposit after your death. Make sure you communicate it to the executor of the Will or your family members.

I am sure, they’ll be pretty interested in this 🙂

Step 3: Details of ownership :

At the end of the will, you should mention who should own your assets items and in what proportion, after you have gone.  If you are giving your assets to a minor, make sure you appoint a custodian of your assets till the individual you have selected, reaches an adult age. This custodian obviously, has to be a trustworthy person.

Step 4 : Signing the Will :

At the end, once you complete writing your will, you must sign the will very carefully in presence of at least two independent witnesses, who have to sign after your signature, certifying that you have signed the will in their presence. The date and place, also must be indicated clearly at the bottom of the will.

Make sure you and the witnesses sign all the pages of the will. One important point while choosing witness, is that they should be your friends, neighbors, or your colleagues and not the direct beneficiaries in the Will. They only certify, that you yourself have signed the will in their presence and are not a party in making the will in India.

The envelope has to be sealed after completing all the formalities and the seal must bear your signature and the date of sealing. The witnesses need not sign on the seal of the envelope.

sample of WILL in India

See another Template from Department of Stamp and Registration, Karnataka here, thanks to Babu .

Execution of Will in Court ?

When you are dead, there is someone called an “Executor” who will be responsible for dividing your wealth amongst the beneficiaries and he will make sure the whole process is smooth (You must have seen this in Hindi movies). It is not legally required to get the will executed in a court of law in presence of a judicial Magistrate in India.

However, if you wish, the will can be executed in the presence of Magistrate or the public notary, nominated by the government authorities and sealed in their presence.

Changing the WILL in India ?

You can change your will any time you want to. However, make sure that when you make a new will, you mention that this will is the latest and supersedes all earlier wills. If you don’t, it can complicate the situation, cause major confusion, make such matters go to the court of law and take several years before arriving at any final verdict.

Making a Will through Lawyer

“Do-it-yourself” wills often do not contain all the necessary components as required by law and many times ruled as invalid by courts (for example no signatures from witness or no witness at all). Many a time,  it can happen that while creating the will, you use such ambiguous language that it results in lengthy legal battles (“My House should go to Sunita.”

Now if both mother and wife are called Sunita, which Sunita ought to get it?. Anyone who might benefit from the ambiguity of the will can jump in to claim a share! And if the courts decide in his/her favour, you wont like that situation 🙂 (not that, you’ll be around!)

What is a Probate and it’s importance?

A probate is nothing but a copy of will, certified under the seal of court. The executor (someone who is responsible to execute the will) has to file a probate petition in the court of law and if all goes well, the probate takes six months to a year. No right as executor or legatee can be established unless a court has granted the probate of the Will.

Probate can be granted only to the executor appointed by the Will. The cost of getting a probate includes legal fees as well as stamp duty on the value of the property being willed. The stamp duty varies from state to state. Probate is very important in case of Real Estate.

As per Sundar, a reader of this blog…

Legal heirs to get possession of the property from the nominees have to go through a legal process called probate. In Maharashtra this means, the will have to be submitted to Registrar and one will have to obtain a probate. The Registrar may ask the claimants to put an advertisement in newspaper to ensure that they will not be contested.

They may even ask the witnesses who have signed the will to come to their office and sign documents. After all this, and some court affidavits, the claimants have to pay the necessary tax to the state govt. which is hefty and based on property value. After Goverments takes its cut, then finally the probate order is given. Only then will the legal heirs get their property.

Note that, probate requirements differ from state to state. Hence even when making a will a Lawyer should be consulted. I know of fights between Nominees and Legal Heirs. Roadblocks put up by Goverment ( some times they ask for Registered Will etc.).

So just writing a will is not the end of the story. Better consult a lawyer before drawing a will.

Further please note especially in case of land or house property, the society will not transfer the flat without a probate and tax paid certificate. Many times, a prospective buyer will not buy a flat or land, if the holding is not clear and if the property had not been cleanly transferred and if there are disputes between nominees and legal heirs.

Flat may still stay in the dead person’s name till their heirs and nominees settle their disputes. Till then, the flat may be used by Nominees or any other person. But Society will not transfer the flat to prospective buyer till the process of probate is settled first. Hence such property cannot be sold easily.

Please proceed with great care in this matter.

Important points while making a Will

  • If possible, have the two witnesses be a doctor and a lawyer. A doctor signing a will, won’t raise any question of you, being of unsound mind. The lawyer, will vet the will and make sure you dont make stupid mistakes at the time of writing and signing it. 🙂
  • The attesting witness and his or her spouse should not be a beneficiary under the terms of your Will. This might create vested interests and some times make your will invalid. Also, make sure the witnesses are younger than you and not very old as your will might be in effect for several years! And you want them to be present in this world 🙂
  • Write your will on good quality thick white paper so it doesn’t get spoiled over a period of time. It should be stored in a plastic envelope in full size, without folds.
  • Note that you should keep just one more copy of will and stored separately from the original will. The will must be stored very safely in your bank, in safe deposit box. You must also inform your next of kin, as to where you have stored your will. Do not make many copies of your will.
  • In case of Hindus, it should be clearly stated if the property is inherited or not, because it makes a huge difference, as no ancestral property can be assigned to any person through a will. All rights on inherited property are acquired by birth. So if you inherited a property from your Father, you cannot say in a will, that you want to assign it to person X only! It will go to all your legal heirs as it is “Inherited”
  • A will must always be dated and if more than one will is made, the one with the latest date will nullify all the previous ones. In fact, there should be a statement in your will, nullifying all other previous wills. The pages should be numbered to avoid fraud.
  • The value of assets often fluctuates, so it is better to mention how much each beneficiary will receive, in percentage terms rather than absolute numbers. Unless it is pure cash.

So what appeals to you more ? Writing a will your self or hiring a lawyer for this and pay to him ? I hope you are clear about the rules and procedure for writing a WILL in India ?