Estate planning
Also written Estate plan
Deciding during your lifetime who is to receive which of your assets after your death, and documenting it — mainly through a Will and nominations — so heirs can claim them easily and cheaply.
In plain language
Estate planning is the part of a financial plan that takes effect after you are gone.
The workbook defines it as planning during one's lifetime, earmarking one's assets to beneficiaries, typically family members, loved ones and institutions, so that they can be used or claimed after one's demise with ease, and without any significant cost.
Read that last clause again — with ease, and without any significant cost. That is the test. The estate exists either way. Planning decides whether the people you meant to leave it to receive it in four weeks or after four years of litigation.
It is listed in Chapter 3 as one of the four categories of financial goal, alongside basic goals, secondary or advanced goals, and retirement planning. It is not an optional extra for the wealthy.
How it works
The workbook names two constituents: the Will and the nomination.
Making a Will — a written legal declaration of how the deceased's assets are to be distributed. The workbook's procedure:
- Make a list of movable and immovable items.
- Decide which asset goes to whom, partially or fully.
- Name the person who will execute the Will.
- Preferably get it witnessed by a doctor and a lawyer, which gives it authenticity.
- Registration of a Will is not compulsory, but preferable.
- It may be written on plain paper, or with a lawyer's help.
Nomination covers the collection mechanics — who may claim the money from each institution — while the Will covers ownership.
What happens without a Will, in the workbook's own list: beneficiaries and the quantum of their benefits do not turn out as you would have liked; asset distribution happens as per personal laws and relationships; expensive litigation among beneficiaries and other claimants may follow; and succession disputes could take years to resolve and can be costly, reducing the benefit of the assets inherited even where nobody is fighting.
Either way, legal heirs must approach each bank, depository, mutual fund and insurer with a death certificate and a legal heir's certificate.
A worked example
Mr Deshmukh, 61, dies holding Rs 74,00,000 of assets spread across six institutions:
| Asset | Rs | Nomination |
|---|---|---|
| Flat in Pune | 48,00,000 | — |
| Bank FDs | 11,00,000 | Wife |
| Demat account | 8,50,000 | None |
| Mutual funds | 4,50,000 | Elder son |
| Life insurance | 2,00,000 | Wife |
He left no Will. He had told the family he wanted the flat to go to his wife for life and then to be split between the two sons — but he told them, he did not write it.
What follows: the flat and the un-nominated Rs 8,50,000 demat holding pass under personal law, not under his intention. The Rs 4,50,000 of mutual funds go to the elder son as nominee, who holds them as custodian and must account for them to all the heirs — a conversation that has ended families. The two nominated items, Rs 13,00,000 to his wife, are the only parts that move cleanly.
A Will on plain paper, witnessed, costing nothing, would have covered all Rs 74,00,000. Registration would have been preferable but was never compulsory.
Why NISM asks about it
Chapter 7 (Pension, Retirement and Estate Planning) carries the definition, the constituents, the six-step method for making a Will and the list of problems arising in the absence of one; Chapter 3 lists estate planning as a category of financial goal. Expect questions on whether registration of a Will is compulsory (it is not, but is preferable), on what happens in the absence of a Will (distribution under personal laws), and on the nominee-versus-heir distinction.
Common exam traps
- Registration of a Will is not compulsory — only preferable. This is asked directly and the intuitive answer is wrong.
- A nomination is not a substitute for a Will. Nomination decides who collects; the Will decides who owns. An estate plan needs both.
- No Will does not mean no transfer. The assets still pass — under personal laws and relationships, rather than under your wishes.
- A Will may be on plain paper. Neither a lawyer nor stamp paper is required, though witnessing by a doctor and a lawyer is preferred for authenticity.
- Heirs still need a death certificate and a legal heir's certificate at every institution. Nomination shortens that process; it does not remove it.
- Estate planning is not only for large estates — the workbook lists it as a standard category of financial goal for every household.
Where this is taught
Free preparation for NISM Series X-BRelated terms
- NomineeThe person you name to receive custody of your money or securities when you die — a custodian who must pass the asset to the legal heirs, not the owner of it.
- Succession certificateA certificate issued by a District Court under the Indian Succession Act, 1925 authorising the legal heirs of someone who died without a Will to collect the deceased's debts and securities.
- WillA written legal declaration of how a person wants their assets distributed after death. Registration is not compulsory but preferable; without a Will, assets pass under personal laws.
- Financial planningThe process of estimating what a person will need money for across their lifetime and building an investment plan to meet each of those needs — savings with a purpose attached.
- Net worthEverything you own minus everything you owe — the one number that says where a household actually stands, and the starting point of any financial plan.
- Pre-nuptial agreementAn agreement entered into before marriage setting out how finances and other matters will be dealt with if the couple separates — a device whose legality in India the workbook says is not established.
- Power of AttorneyA legal document by which you authorise somebody else — often your stock broker or depository participant — to operate your demat and bank account on your behalf. It is optional, and revocable.
- Beneficial nomineeA life insurance nominee who is a parent, spouse or child of the policyholder — entitled to keep the claim money in their own right instead of holding it in trust for the legal heirs.
- CodicilA supplementary document that explains, alters or adds to a Will and is read as part of it — executed and attested exactly like the Will itself.
- General power of attorneyA power of attorney that lets the agent do anything the principal could do. The booklets warn never to give one to your stock broker or depository participant; give a specific one instead.
- AssetsThings you own that have economic value, such as a bank balance, a fixed deposit, a house or a car. Assets minus liabilities gives your net worth.
- Special power of attorneyA power of attorney that gives the agent only limited powers, such as carrying out one specific transaction. SEBI guidelines allow a specific PoA to a broker or DP, never a general one.
- Legal heirThe person entitled by law to a deceased person's estate — distinct from a nominee, who only holds the money in trust until it reaches the rightful heirs.
- Irrevocable trustA trust whose settlor cannot take the property back, which is why the workbook records that it is protected from the settlor's bankruptcy and usable to secure the interests of dependents.
- TrustA legal arrangement in which property is transferred to trustees, who hold legal title and control it for identified beneficiaries on terms set out in a trust deed.
- GiftA voluntary transfer of movable or immovable property without consideration from a donor to a donee — usually irrevocable, and exempt from tax when received from specified relatives, on marriage or under a will.
- IntestateDying without making a will. The property then passes to heirs under the succession law that applies to the person, which may not be what they intended.