Succession planning is an important aspect of the life of every earning individual.
Be it a middle-class family or the family of super-rich succession planning plays an important role but it is largely ignored.
You might have heard about the family battle in your neighborhood or any of your business associates or in the family of your best friend.
The reason might be the lack of succession planning or their total ignorance towards succession planning.
The carelessness in succession planning leads to painful family battles and a big pile of court cases relating to property disputes.
What is succession planning?
Succession planning is all about making arrangements for passing your property and investment from your generation to the next generation.
You might agree that life is uncertain no one knows what is going to happen to you in the next moment.
You may have various properties like houses, cars, gold, shares, etc. Also, you may have various types of loans too.
Succession planning provides the way that who is going to take your property after your death and who will pay your loan after you die.
Succession planning is the way to distribute your wealth to your children in the manner you wish.
Why succession planning is important?
Do you know that approximately 1.5 lakh crores are lying as unclaimed amounts with Indian banks and various insurance companies?
“Unclaimed amount” means nobody has come to banks or insurance companies for claiming that much of the amount.
Do you know why nobody has come to claim the amount?
This might be because of the fact that the holder of the account has died and none of his family members are aware of the amount lying in the accounts.
These circumstances arise due to the lack of succession planning.
Suggestions for ensuring the transfer of your property to your children.
Indian families are male dominating, typical and traditional families.
All the financial decisions are taken by men. Generally, females are not included in the financial decision of the family.
The problem is at both ends. The “husband” and the “wife”.
Wives do not want their involvement in financial decisions because they think if the husband is managing all the finances then what is the need for them to poke their nose?
Husbands dominate because they think their wife has no financial acumen or lacks financial acumen.
This situation creates a problem.
To avoid the problems, try to involve your wife in the financial decisions.
Inform her about the mode of operation of your bank accounts, your insurance policies, De-mat accounts, loans, etc.
Children may also play an important role in your financial decisions.
If your children are growing up and in the teenager category, try to develop financial intelligence in them.
Many of you would agree that today’s generation is a smart learner. They have the curiosity to understand things. Educate them on finances.
Reasons why people are not serious about succession planning.
Reason One.
People consider succession planning as a tool for wealthy people. But this is not correct.
Being wealthy is subjective. It depends from person to person.
Let’s say you have Rs.100 crore of wealth and you meet a person with Rs.1000 crore of wealth. What u would feel? You would think “How wealthy he is.”
Am I right?
The same question would come to the mind of a person with Rs.1 crore of wealth when he would meet you.
So “being wealthy” is relative from person to person.
The definition of wealth depends from person to person.
Whatever the amount of property you have, it is your wealth.
Therefore, you should start to do succession planning to ensure the proper flow of wealth to the next generation.
Reason Two.
There is another category of people who consider succession planning important but postponed their succession plan till their retirement.
These people are of the view that they do not need succession planning right now because they are still earning.
They think that succession planning is needed after retirement. This is an incorrect view.
Life is uncertain and unpredictable nobody knows what is going to happen tomorrow.
You should not postpone your succession plans till your retirement. You should start to do succession planning as soon as you realise that your wealth is growing and your children are also grown-up.
Succession planning is a dynamic process, which means the plan changes when the person acquires new property or attains some specific age or the situation changes.
For example,
Let’s say at the age of 35 you have two houses, one car, Rs 25, 00,000 in cash, and Rs 15, 00,000 in loan.
You have two children and a caring wife. If you prepare a succession plan it would be based on your situation at 35 years of age.
When you attain the age of 45 you might have acquired one more house and you might have Rs 50, 00, 000 of cash which was 25, 00, 000 at the age of 35.
Now you need to change the succession plan you made at the age of 35 years because the situation has changed now.
Now you have more property than you had at the age of 35. There are various other situations that may lead to the change of succession plan.
So succession planning is a dynamic process. You need to follow it differently at different stages of your life.
Reason Three.
People are of the view that there is no need for succession planning because they think their children are mature enough and there are no chances of any dispute between them.
If this thought is correct then can you justify why the “Priyamvada Birla WILL” case and the “Ambani brothers” dispute happened?
It is absolutely great to have a positive belief about the behavior of your children but you must not forget the real-life example of disputes such as the few I mentioned above.
So if you have children and you want the smooth flow of your wealth to the next generation then do not leave any stone unturned and begin your succession planning.
Reason four.
This is a very common reason but people understand it in an absolutely incorrect manner.
Now the registration of the nominee in your bank account, your insurance policy, and your De-mat account is considered necessary.
Most of the accounts have nominations by the account holders.
People are of the view that they have appointed a nominee in their accounts and in the case of any mishappening with them, the money or the benefit will flow to their children.
This is absolutely a wrong belief.
The nominee is just the person who has the right to receive the property in the event of the death of the account holder.
Nomination is not the alternative to ownership. i.e. property (Money) is not transferred automatically to the nominee in the event of the death of the account holder.
So after reading the above points you may have now become familiar with the concept of succession planning and the importance of succession planning.
Now let us understand various methods of Succession Planning.
Methods of succession planning.
Once you have decided that you would do succession planning for the smooth flow of your wealth to the next generation.
Now it is time to know about various methods of doing succession planning.
There are Four ways by which u can transfer your wealth to the next generation.
Trust.
Under this method, the trust is created by the person who is the owner of the property.
The owner is also called as “Grantor” or “Settlor” or “Author” of the trust.
Now, the owner of the trust has to write a trust deed wherein he would mention all the properties which he wants to transfer to the trust.
All the properties which are transferred to the trust are being managed by the trustee.
“Trustee” is a person who is responsible for the management of all the properties of the trust.
Trust is created for the benefit of some persons. These persons are called “Beneficiaries”.
If you are transferring your property to the trust for the benefit of your children and wife then your children and wife would be the beneficiaries of the trust.
In the trust deed, you can mention any number of conditions and situations based on which the properties will be managed by the trustee.
HUF (Hindu Undivided Family)
HUF is created by itself as soon as the person gets married.
It is a creation by the law itself. No separate action is required for creation of HUF.
Your wife, son, daughter and grandson will be treated as members of your HUF. In legal terms, they are called “Coparceners”.
You will be treated as the head of HUF and legally you will be called “Karta” of HUF. Any of the coparceners can transfer their properties to HUF for the benefit of all coparceners.
WILL.
A “WILL” is a written document through which you can easily distribute your wealth to your loved ones.
Any person above the age of 18 years and sound mind can create a “WILL”.
A person writing a “WILL” is called a “Testator” in legal terms. Through writing a will you can easily distribute your properties to your children and wife etc.
Distributing the wealth through “WILL” is an easy method to avoid family tussles after the death of the “Testator”.
The “WILL” document will become effective only after the death of the “Testator”. The person writing the “WILL” can make the changes in his “WILL” any number of times.
Gift.
Gifting is another mode of distributing wealth.
A gift is considered valid only if it is made voluntarily and without consideration. i.e. anything in return.
The person giving the gift is called a “donor” and the person accepting the gift is called a “donee”.
It is recommended to write a gift deed and register it.
“WILL” become effective only after the death of the testator but the gift becomes effective immediately.
Keynote
Once the immovable property is transferred to another person it is recommended to get it registered in the name of the new owner. This process is known as “Mutation”.
Power of Attorney is not suitable for establishing ownership over immovable property. Power of attorney becomes ineffective immediately after the death of the owner.
Hope the above information has cleared your doubts about succession planning. You are now aware of the importance of succession planning. Now take informed decisions rather than relying on myths.
