TOOLS OF ESTAE PLANNING:
GIFT : Individuals believe that they receive the greatest benefits when they transfer property before their death. This can be accomplished through an estate planning tool called gifting.Gifts are an important estate planning tool for individuals. Gifts reduce the size of an estate. As a result,there may be savings in probate expenses. Gifts can also accomplish income tax savings during life by shifting income producing property from one family member to another who is in a lower tax bracket. In addition to expressing love and affection, gifts serve other purposes. They can give children an opportunity to participate in the management of a family business which will lead to compound growth of business. People who are making the gifts should be sure that they are not depleting assets to the point they do not have enough for their own support. It would not be taxable to gift to relatives as per Income Tax of India Act.
Following is the list of relations which are considered as “relatives” for this
• Your spouse
• Your brother or sister
• Brother or sister of your spouse
• Brother or sister of either of your parents
• Any of your lineal ascendants or descendants
• Any lineal ascendant or descendant of your spouse
• Spouse of the persons referred in above points.
There is a valuation aspect involved in gifting of immovable properties
- If the property is gifted without any consideration then if the stamp duty value exceeds Rs. 5,00,00/-, stamp duty value will be taken
- If the property is gifted for a consideration, then the actual value of the property will be taken
Wedding gift is not taxable in your hands, either from relative or non-relative. So even if you get Rs.50 Lakh as wedding gift from someone in your wedding, it’s not taxable in your hands.
Partition/Mutation: Many professionals may put this in the after death estate planning but we select it as during the life time estate planning tool. It may be done after the death of intestate. But, as we are in the process of writing estate planning tool from the point of earner/head of the family or holding assets people,partition is any division of real property or personal property as per owners wish and intention.
Mutation is an administrative act. The mutating authority can mutate the property if it is satisfied that the title in the property had passed to the beneficiary.
TRUST: A trust is an arrangement under which one person, called a trustee, holds legal title to property for another person, called a beneficiary. You can be the trustee of your own living trust, keeping full control over all property held in trust. The unique feature of a trust is the separation of legal and beneficial ownership. This means that different legal personae hold the legal obligation to manage assets to those who are entitled to benefit from the assets.
The big advantage to making a trust is that property left through the trust doesn't have to go through probate court. In a nutshell, probate is the court-supervised process of paying your debts and distributing your property to the people who inherit it. The average probate drags on for months before the inheritors get anything. And by that time, there's less for them to get. In many cases, some hefty percentage of the property has been eaten up by lawyer and court fees. Trust reduces your tax liability but does not make you completely tax exempt. Person in the higher income tax slab can create a Trust if he/she is looking to transfer assets to their loved ones in the near future and aid in saving taxes.
The law governing Trusts in India is codified and contained in the Indian Trust Act, 1882.
It is important to appoint Trustees who are trustworthy. There is the possibility of the Trustees turning unfaithful.
A revocable trust will provide that during your lifetime, you receive all of the benefits of the trust assets as you choose. Following your death, the trust assets are distributed in the manner you’ve directed through the trust terms. A revocable trust is a trust in which the person who established the trust may change the terms of the trust or revoke the trust entirely at any time. Assets held by a revocable trust are still considered personal assets for tax purposes.
An irrevocable trust can be created during your lifetime or can be established through estate planning documents at your death. Irrevocable trusts include terms for how assets should be held or distributed for your beneficiaries throughout the term of the trust. An irrevocable trust cannot be changed after it is established. Assets placed in an irrevocable trust are not considered part of an individual’s estate and are not included in the valuation for estate tax purposes. Revocable become irrevocable upon the death of the person who established the trust.
In an increasingly complex legal and economic environment, financial intermediaries should avoid trying to be everything to their clients. Estate planning is a highly technical area and intermediaries will refer their clients to specialists.
Power of Attorney: A power of attorney is an instrument containing an authorization for one to act as the agent of the principal that terminates at some point in the future either by its terms or by operation of law such as death of the principal or agent. General Power of Attorney is a legal document which gives the person you choose (the agent) the power to manage your assets and financial affairs while you are alive.
Limited power of attorney allows the principal to give only specific powers to the agent. The limited power of attorney is used to allow the agent to handle specific matters when the principal is unavailable or unable to do so. For personal care and health decisions such as where you live, what you eat or what medical care you will receive if you get sick or injured, you can name someone in a power of attorney for personal care.
A Power of Attorney can be revoked by the principal at any time, as long as he or she is competent.
Life Insurance:Life insurance is very important and versatile tool in estate planning process. It can be used for estate liquidity, debt repayment, income replacement and wealth accumulation. Through Life Insurance, one can protect the wealth from significant dilution. In case family own business, insurance may provide funds that younger generation need for growth of a business. In general, money received by the beneficiaries upon the death of the insured is income-tax free.
Life Insurance trust can be used as effective tool for this purpose. An insurance trust has three components. The grantor is the person creating the trust -- that's you. The trustee you select manages the trust. And the trust beneficiaries you name will receive the trust assets after you die. Recoverable and Irrecoverable Life Insurance Trust are two variable of Insurance Trust which can be arranged in estate planning.
Insurance Act, 1938 have some sections which are important for this purpose. Two of them are Section 38 and Section 39. Section 38 of Insurance Act, 1938 related to Assignment and Section 39 related to Nomination of life insurance policies. Section 6 of Married Women Property Act, 1874 provide simple method by which a married man can make a settlement for the benefit of his dependents without the formality of a deed of settlement, but operates to give the beneficiaries under such a policy certain statutory privileges by virtue, of which they secure decidedly better protection than they would get under a settlement outside the Act. One such protection is that the policy(s) cannot be attached by any creditor.
WILL : The term ‘Will’ is defined under ‘Section: 2(h)’ of The “Indian Succession Act, 1925”, means the legal declaration of the intention of a testator with respect to his property which he desires to be carried into effect after his death. A testator is authorised with a power to appoint any person as beneficiary of his Will whereas ‘Section: 5’ deals with the law regulating succession to deceased person’s moveable and immovable property.
It will decide, who will receive your money, property and. It also allows you to make charitable donations, appoint guardians for your children who are under 18 years and name an executor of your will, the person who will handle the details of paying debts and settling affairs. Without a will, your estate distribution will be left to the government/ court.
The following are the must for a valid will:-
i.Intention of The Testator supreme: The testator of the Will has right to revoke Will at any time which can only be proved by the intention of the testator that whether he is intending to revoke the previous testamentary instruments made by him or he can state in his Will that ‘This is my last Will’ then it can be presumed that all the earlier testamentary instruments has been revoked.
ii.Animus testandi : Animus testandi is a Latin term meaning an intention to make a testament or will. Animus testandi is required to make a valid will. Lack of animus testandi makes no will, whatever form may have been adopted to make it. For example, a insane person can make no valid will, because s/he has no intention /animus testandi.
iii.Revocability : Every will is revocable during the lifetime of the testator. Every people who is not a minor, of sound mind and free from fraud, coercion or undue influence can make will. A Will made by the testator may be irrevocable in some cases where an agreement is entered into contrary to the Will, may bind the testator.
iv.Disposition of property: The declaration as regards the disposal of the property must be intended to take effect after a person’s death.
General Requirements for a will
- He/she can dispose of all his/her property or any part of property under a Will.
- The testator should execute the Will in presence of at least two witnesses.
- The maker of the Will should sign or put his /her mark at the end of the Will. If the testator does not signor put his/her mark at the end of the Will, the text following the signature or mark usually be ignored or the entire Will may be invalidated.
- Normally, non -registration of a Will does not lead to any inference against the genuineness of a Will.
- If a document is required by law to be attested, the same should be proved by way of examining one attesting witness and otherwise the same cannot be used as evidence.
- If a document is registered under the provisions of the Indian Registration Act, 1908 (XVI of 1908) and its execution is specifically denied, one attesting witness must be examined.
- vii.The testator shall sign or shall affix his mark to the Will, or it shall be signed by some other person in his presence and by his direction.
- The signature or mark of the testator, or the signature of the person signing for him, shall be so placed that it shall appear that it was intended thereby to give effect to the writing as a Will.
- The Will shall be attested by two or more witnesses, each of whom has seen the testator sign or affix his mark to the Will or has been some other person sign the Will, in the presence and by the direction of the testator, or has received from the testator a personal acknowledgment of his signature or mark, or of the signature of such other person; and each of the witnesses shall sign the Will in the presence of the testator, but it shall not be necessary that more than one witness be present at the same time, and no particular form of attestation shall be necessary.
Estate Planning is not just about protecting your assets after your death it also provides protection in the event that age, injury or illness leaves you unable to make decisions for yourself.