Table of Contents
Estate planning is a process that deals with the accumulation, conservation, and distribution of an individual’s estate. Its purpose is to enhance and maintain the financial security of individuals and their families. Here are some key points to keep in mind:
- Estate planning is not just for the wealthy. Anyone who holds property and wishes to transfer it to specific heirs and in a specific manner needs estate planning.
- The objectives of estate planning include preserving assets for loved ones, appointing a guardian for minors, addressing concerns arising from an individual’s disability, ensuring availability of funds to pay liabilities after death, and streamlining an efficient method to collect and distribute assets.
- Effective estate planning should be done for families with minor children, individuals with high liabilities, properties in multiple states, owning a small business, estate taxes, and addressing the uncertainty of permanent disability.
- Succession planning is planning for one’s business, which takes effect within one’s lifetime. It involves questions about viability, family involvement, and qualifications for taking over the business. Estate planning and succession planning are distinct with different objectives, but both are necessary for financial security.
What Constitutes Estate?
|What Constitutes Estate?||– Estate consists of all the properties an individual owns or controls.
– It can be in different ownership formats such as sole ownership, partnership, joint agreement or trust.
– It includes any money or asset generated on a person’s death such as life insurance.
– Estate can be classified into three categories:
– Gross Estate: Real estate, bank accounts, investments, retirement account, life insurance.
– Residue Estate: Personal estate property such as car, jewellery, furniture, clothes, any other item found at one’s home, any investment not mentioned in the will or trust.
– Estate Debt: All debts and obligations owed to others such as housing loan, car loan, credit card payments, business outstanding, tax liabilities and legal cases.
|Consequences of dying intestate||– A person is deemed to die intestate when he or she has not made a valid will or the will is incapable of taking effect.
– Consequences on distribution of properties when an individual dies intestate.
– Property devolves upon the heirs as per the laws of inheritance applicable to him/her.
– The law of inheritance varies according to religion:
– Hindus, Buddhists, Jains and Sikhs: Hindu Succession Act, 1956.
– Christians, Parsis and Jews: Indian Succession Act, 1925.
– Muslims: Inheritance laws are based on religious texts where the laws are different for Shias and Sunnis.
|Succession Certificate||– When a person dies intestate, legal heirs have to apply to the civil court for obtaining a succession certificate.
– It is issued in accordance with the laws of succession applicable to the deceased.
Elements of Estate Planning-
|Elements of Estate Planning||Description|
|Will||A legal document that specifies how an individual’s assets will be distributed after their death, including the appointment of guardians for minors or children with special needs.|
|Trust||A legal arrangement that holds assets on behalf of a beneficiary or beneficiaries, with different types of trusts available, including testamentary trusts created in a will.|
|Power of Attorney||A legal arrangement where an individual designates someone to manage their finances in case they become incapacitated or unable to do so. Often used by NRIs to designate someone in India to manage their assets.|
|Living Will||An advance directive that states an individual’s wishes for end-of-life care in case they are unable to communicate their decisions, such as when they are terminally ill, seriously injured, in a coma, in the late stages of dementia, or near the end of life.|
|Nomination and Beneficiary Designations||Appointing nominees and beneficiaries to ensure a smooth transfer of financial assets after an individual’s demise. Beneficial nominees can be appointed for assets such as life insurance, with parents, spouses, and children automatically becoming the Beneficial Nominee under the new Insurance act. It is important to periodically review nominations and beneficiary designations, particularly in the event of a change in marital status or legal beneficiaries.|
Indian Succession Act, 1925-
|Religion||Testamentary Succession||Intestate Succession|
|Hindus||Indian Succession Act, 1925||Hindu Succession Act, 1956 (as amended in 2005)|
|Muslims||As per religion||As per religion|
|Jains, Sikhs and Buddhists||Indian Succession Act, 1925||Hindu Succession Act, 1956 (as amended in 2005)|
|Christians||Indian Succession Act, 1925||Indian Succession Act, 1925|
The Indian Succession Act, 1925 is applicable for testamentary succession for all religions except Muslims. For intestate succession, the Hindu Succession Act, 1956 (as amended in 2005) is applicable for Hindus, Jains, Sikhs and Buddhists. Muslims follow their own religious laws in both testamentary and intestate succession.
Hindu Succession Act, 1956:
|Application||The Act extends to the whole of India except the State of Jammu and Kashmir.|
|Succession of Property of a Hindu Male||Sections 8 to 13 of the Act lay down the general rules for succession when a Hindu male dies intestate.|
|Class 1 Heirs||Legal heirs who fall under Class 1 heir include son, daughter, mother, widow, son of predeceased son, father of predeceased son, widow of predeceased son, son of predeceased daughter, daughter of predeceased daughter, son of predeceased son of a predeceased son, and daughter of predeceased son of predeceased son.|
|Class 2 Heirs||Legal heirs who fall under Class 2 heir include father, son’s daughter’s son, son’s daughter’s daughter, brother, and sister.|
|Agnates||One person is said to be an agnate to another if the two are related by blood or adoption wholly through males.|
|Cognates||A person is said to be cognate to another if the two are related by blood or adoption but not wholly through males.|
|Full Blood Relationship||Two persons are said to be of full blood relationship when they descended from a common ancestor by the same wife.|
|Half-Blood Relationship||Two persons are related by half-blood when they have descended from a common ancestor but by different wives.|
|Uterine Blood Relationship||Two persons are related to each other by uterine blood when they are descendants from a common ancestor by different husbands.|
|Relationship by Adoption||An adopted child is treated as equivalent to a natural-born child.|
|Illegitimate Relationship||Illegitimate relationship with the father is not recognized, but it is recognized with the mother.|
|Order of Succession||Class 1 heirs will inherit simultaneously, and Class 2 heirs will inherit in the preferential order.|
|Distribution of Property||Property is distributed to Class I heirs according to Section 10 of the Act, and to Class II heirs according to Section 11 of the Act.|
|Succession for Hindu Males||The property of a male, dying intestate, devolves according to the provisions in Section 8 of the Act, and first upon the primary heirs, being the relatives in Class 1.|
Muslim Personal Law-
|Law of Succession||Combination of four sources: The Quran, Sunna, Ijma, and Qiya|
|Types of Heirs||Sharers (entitled to a certain share of property) and Residuary (take the remaining share of property)|
|Sharers||12 sharers, such as husband, wife, daughter, father, etc.|
|Factors for Share||Various factors decide the share of each sharer|
|Non-Testamentary Succession||Governed by the Muslim Personal Law (Shariat) Application Act, 1937|
|Testamentary Succession||Governed by relevant Muslim Sharia Law|
|Birth Right||No concept of ancestor property rights by birth|
|Inheritance by Representation||Per capita and per strip distribution|
|Joint Property||No distinction between self-acquired or ancestral property|
|Rights of Females||No distinction between men and women|
|Widow and Childless Widow||Entitled to one-fourth and one-eighth of the deceased husband’s property, respectively.|
Married Women’s Property Act, 1874:
|Provisions of the Act||Explanation|
|Insulation of properties of married women||Under this Act, a woman’s properties are insulated from court attachments or income tax department attachments that the husband has run up.|
|Applicability of the Act||The Act applies to any woman who at the time of her marriage professed the Hindu, Muhammadan, Buddhist, Sikh or Jain religion, or whose husband, at the time of such marriage, professed any of those religions.|
|Married woman’s earnings to be their separate property||A woman’s earnings acquired after the passing of this Act in any employment, occupation, or trade carried on by her and not by her husband, and also any money or other property acquired by her through the exercise of any literary, artistic, or scientific skill, shall be deemed to be her separate property.|
|Policy of insurance||A married woman may effect a policy of insurance on her own behalf and independently of her husband.|
|Insurance by husband for benefit of wife||A policy of insurance effected by any married man on his own life and expressed on the face of it to be for the benefit of his wife or his wife and children shall be deemed to be a trust for the benefit of his wife or his wife and children.|
|Legal proceedings by married women||A married woman may maintain a suit in her own name for the recovery of her separate property and has the same remedies, both civil and criminal, against all persons, for the protection and security of such property, as if she were unmarried.|
|Wife’s liability for post-nuptial debts||A person who enters into a contract with a married woman with reference to her separate property or on the faith that her obligation arising out of such contract will be satisfied out of her separate property, shall be entitled to sue her, and, to the extent of her separate property, to recover against her.|
|Husband not liable for wife’s ante-nuptial debts||A husband married after the thirty-first day of December, 1865 shall not be liable to the debts of his wife contracted before marriage.|
|Extent of husband’s liability for wife’s breach of trust or devastation||A husband shall not be liable for any breach of trust committed by his wife, or for any misapplication, loss or damage to the estate of the deceased caused or made by her, or for any loss to such estate arising from her neglect to get in any part of the property of the deceased, unless he acts or intermeddles in the trust or administration.|
|Definition||Process of transferring property ownership from one person to another by changing the name in revenue records|
|Objective||Maintain records of the rightful owner for tax purposes and grant permission for building plans|
|Handling||Generally handled by state governments and land development authorities|
|Procedure||Present owner must clear all dues and obligations before mutation can be recorded|
|Co-Owners||If there are co-owners, mutation does not allow one person to claim the property alone|
|Proof of Title||Mutation is not considered a proof of title and should not be the basis of acquiring land ownership|
Succession under Hindu Succession Act:
|Case||Mr. XYZ has died without a Will, with 1 surviving brother and 2 surviving sisters|
|Class I Heirs||Son, daughter, mother, widow, son of predeceased son, father of predeceased son, widow of predeceased son, son of predeceased daughter, daughter of predeceased daughter, son of predeceased son of a predeceased son, daughter of predeceased son of a predeceased son, widow of predeceased son of a predeceased son|
|Class II Heirs||Relatives specified in Class II of the Schedule|
|Order of Devolution||Class I heirs take simultaneously and to the exclusion of all other heirs; Class II heirs are preferred in order of entry in the Schedule|
|Mr. XYZ’s Case||No Class I heir, so devolution will be to Class II heirs specified in the Schedule|