Estate planning

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.

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:

1. Make a list of movable and immovable items.
2. Decide which asset goes to whom, partially or fully.
3. Name the person who will execute the Will.
4. Preferably get it witnessed by a doctor and a lawyer, which gives it authenticity.
5. Registration of a Will is not compulsory, but preferable.
6. 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.

Mr Deshmukh, 61, dies holding Rs 74,00,000 of assets spread across six institutions:

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.

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.

• 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.