3 Team Lex Scripta : Aditi Shroff | Amrita Shetty | Akhil Kumar | Arghya Chattaraj

Estate Planning is a process of organizing and planning succession of the estate of an individual with the prime intention that intended benefi ciaries receive the estate after death of an individual on a timely basis and in a hassle-free manner. It makes provisions for estate management, estate preservation and creating a legacy for the estate.

There are various techniques, which one can adopt to plan succession of his estate as follows:

• Joint ownership of bank accounts, immovable property etc. where on the death of a joint owner, his interest passes to other joint owner(s) by right of survivorship;

• Nomination in case of bank account, life insurance policy etc. where one can nominate a benefi ciary to receive the benefi ts on death of a person;

• A Will where one can specify the benefi ciaries to whom he wants to pass ones estate on death;

• A private family trust can be established while a person is alive, which passes legal ownership of the trust assets to trustees who in turn ensure that intentions/will of person settling the trust are taken care of.

ESTATE PLANNING

-Aditi Shroff Estate Planning through a Will

A Will is a legal declaration of the intention of a testator with respect to his property, which he desires to be carried into effect after his death. Will is an effi cient method whereby assets are transferred without incurring any stamp duty implications with respect to real estate and it also offers high fl exibility to the person to modify his testamentary disposition according to his changing needs. However, one of the shortcomings of making a Will is that it can be easily challenged in a court of law inter alia on grounds of fraud or coercion. Descendants challenging validity of a Will have in a number of instances initiated court cases. Once challenged, proving genuineness of a Will is a mammoth task. Also, obtaining a probate sometimes could be a lengthy process and it may defeat the purpose of judicious and timely distribution of assets as the legacy may be received by legatees only upon the probate being granted by competent courts.

Estate Planning through a Trust

The other vehicle to plan an effi cient succession is through a private trust. A private trust is formed and regulated under the Indian Trusts Act, 1882. The person who declares or creates the trust is called as “author of the trust” or commonly also referred to as “settler”. The person who accepts the declaration of settlor is called the “trustee” and the person for whose benefi t the confi dence is accepted is called the “benefi ciary”. The subject-matter of the trust becomes the trust-property and instrument by which trust is declared is called the “instrument of trust” and also referred to as the “trust deed”. A trust provides for management of the estate during one’s lifetime and also provides for distribution and management of one’s estate post demise.

A trust is created when settlor- (a) indicates an intention to create a trust; (b) indicates the purpose of the trust; (c) indicates benefi ciaries, and (d) transfers trust-property to trustee. The trust deed is the charter document which contains all terms, rights and obligations which bind the parties including the time and/or occurrence of specifi ed events when the settlor may wish the trustee to distribute trust property or part thereof to any or all of the defi ned benefi ciaries. A trustee is in a special position of confi dence in relation to the benefi ciaries because legal ownership of the trust assets

4 Team Lex Scripta : Aditi Shroff | Amrita Shetty | Akhil Kumar | Arghya Chattaraj

vests with trustee and benefi cial ownership vests with benefi ciaries. A Trustee has a fi duciary role to play and is legally bound to act in best interests of the benefi ciaries.

There are two kinds of trust structures that can be designed according to needs of the family. In a revocable trust, the settlor has power to reassume control directly or indirectly over income or assets of the trust while in an irrevocable trust, the trust once created survives till date of dissolution of the trust and settlor cannot reassume power directly or indirectly over the income or assets of the trust. In both structures however, no decisions are taken by the trustee without the consent of the settlor or in consultation, ensuring adequate control in the hands of the settlor. Each structure has its own advantages and serves specifi c purposes. An irrevocable trust if structured appropriately, may offer insolvency protection.

Importance of choosing a Trustee

While some individuals name themselves, a family member, or friend as a trustee; others prefer to choose a trusted fi nancial institution for this important role. By choosing a corporate trustee, one helps ensure that current and future generations benefi t from the continuity, prudence, expertise and professionalism that a well-established organization can provide.

Possible re-instatement of estate duty in India

There has been a lot of discussion and debate at various forums on re-instatement of estate duty in India last year. Today in India, people can pass their wealth to their heirs without any

tax implications. A number of nations including Japan, U.S., U.K and many European nations currently levy an inheritance tax, also known as estate duty or death tax on the transfer of assets to the next generation. Estate duty is not a concept new to India. Estate duty (under the Estate Duty Act, 1953) was earlier levied and later abolished under the aegis of the then Finance Minister, Mr. V.P. Singh in 1985. At one point the estate duty rates in India were as high as 85% of the taxable estate. An appropriately structured irrevocable trust may mitigate impact of estate duty, if reintroduced in India.

Importance of Estate Planning

Estate Planning through a trust ensures unhindered succession of assets from generation to generation and takes care of needs of all minor, dependent and incapable benefi ciaries. A trust structure completes the succession planning process as shown below:

Conclusion

To sum up, in order to avoid fragmentation of business assets due to family feud

and for the purpose of effi cient asset management and its protection and to ensure

that the legacy reaches intended legatees, Estate Planning is the need of the hour.