Whenever the topic of estate planning and wealth transmission is broached the first, and probably the only thing that comes to most people's minds is having an appropriately drafted and legally registered will in place. And understandably so, given that a will is one of the cornerstones with regard to enabling effective and seamless transmission of wealth across generations. But in today's day and age the quantum of wealth amassed and transmitted is usually quite significant. Also, the mix of assets through which wealth is transmitted by individuals today has become a lot more diverse and complex. Therefore, there is a lot of work that needs to be done alongside the preparation and maintenance of a legally enforceable will in order to ensure effective transmission of wealth. So, in today’s post I will be taking about aspects of estate planning and wealth transmission that would be supplementary to our wills and therefore ensure that our wealth goes to the right people, in the right way and at the right time.
Organising the assets we have accumulated effectively is the first and foremost step to being able to transmit wealth effectively. This would include identifying and listing down details of all the assets we currently hold. This is easy to do in case of physical assets such as real estate and gold. But in the case of financial assets this may become more challenging, since such assets are likely to be scattered over a number of places. Therefore, it is important for us to organise and collate details regarding our investments such as property documents, bank account statements, credit card statements, payment schedules of outstanding loans, insurance policy documents, demat account credentials and so on. Proving ownership of our assets is also just as essential. Therefore we must ensure that our personal details are accurately reflected in all the relevant documentation pertaining to our assets and investments. Today, most of our assets and investments are linked to our PAN Cards and/or Aadhaar Cards. Therefore, our personal details (such as our name, address and date of birth) that appear on the documents pertaining to our investments must be exactly the same as they appear on our PAN and/or Aadhaar Cards. Any discrepancies between the two must be reported to the relevant authorities or service providers immediately and corrected. Ignoring this aspect may leave scope for disputes over ownership rights in the future. And this could hinder the intended beneficiaries of our wealth from being to claim and employ what is rightfully theirs.
Once our assets and the associated documents have been organised and verified, the next step would be to see to it that our assets are properly apportioned among our families and other intended beneficiaries. And this where our will would come into the picture. Our will must be properly drafted and registered, and clearly state the number and names of our intended beneficiaries. It must also reflect the relevant identification details (PAN or Aadhaar numbers) of both ours and our beneficiaries. Not having a legally enforceable will would mean that we would need to produce a valid succession certificate in a court of law, which comes with its own set of procedural hurdles.
But, a will in itself is not enough to ensure that our beneficiaries enjoy the benefits of our assets. They would also need to access and retrieve the assets they have been bequeathed, even in our absence. The best way to provide for this would be to create and maintain a document giving details required to retrieve our assets at any point of time. It must provide operational details such as details regarding our assets and investments, email and mobile passwords, trading and demat account credentials, insurance policy details, a list of creditors to be paid and also debtors who owe us.
The document may be maintained in physical or electronic form. But it is preferable to maintain it electronically since it is convenient to store and also provides greater security by way of password protection. Also, if we have significant amounts invested in a variety of mutual fund schemes we must ensure that we make our mutual fund investments through a demat account. Investing in mutual funds does not mandate the need for a demat account. But in a case where our investments are not linked to a demat account, our beneficiaries would have to file separate claims with each fund house in order to get our mutual fund holdings transferred to them. With a demat account, our beneficiaries would just have to make a claim for our demat account, and everything contained within the demat account (stocks, ETFs and mutual funds) would automatically be transferred to them.
It is often observed that wealth handed down by one generation to the next rarely lasts beyond three generations. This is because generational wealth tends to follow a similar life cycle everywhere across the world. The first generation creates a sizeable amount of wealth, the second consumes it without concerning themselves with its preservation, meaning the third would only recieve a residual amount of wealth, or worse, none at all. The key issue that is brought to light here is that while wealth creation recieves all the attention from us, wealth preservation usually recieves none of it. This is duly reflected in the fact that most of us do not invest the time to create a set of clear directives which our beneficiaries can fall back on when it is their turn to manage our wealth. Therefore, alongside our wills we must also flesh out a set of principles with regard to the way we would like our beneficiaries to manage the wealth they recieve from us. These principles must reflect our personal philosophies with regard to the way we manage our money. They would in turn serve as directives for our beneficiaries to effectively manage our money after our time. It is always desirable to set our money management principles out in writing. We can then clearly explain our principles to our beneficiaries before handing over a copy of the written document to them. If this record were to be maintained in digital format, it would be even better. It would facilitate greater security of the document and allow each successive generation to update the document with their own principles before handing it down to their heirs.
Effective wealth transmission is therefore about more than simply setting out how much of our accumulated wealth and assets each of our beneficiaries would recieve. It is about ensuring the existence and ownership of our assets, enabling smooth access to them and putting in place a clear framework for our assets to be managed and preserved by our heirs and beneficiaries after our time. And while a legally drafted and registered will is a central component of the wealth transmission process, it cannot be treated as the be all and end all of our wealth transmission endeavours. Having a will in place should rather be seen as a single component within the framework of a broader estate planning exercise, which also ensures that all the measured discussed in today's post are duly undertaken. Following such a well conceived approach to wealth transmission would ensure that we cover our bases. And this would mean that those who come after us would not only be able to access our wealth without hurdles and ensure that our wealth is managed and preserved exactly as we may have envisioned it. This would allow our beneficiaries to leave our wealth in the same place, or in an even better place, compared to where we left it for them.
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