By Sanchit Garg
One thing that Covid has taught all of us is that life is very uncertain and one's "health" is something that everyone has started taking very seriously over the last few years. However, one thing that usually gets overlooked is the importance of inheritance planning in the wider domain of "wealth" management so that the hard earned money and assets are transferred to the next generation safely and smoothly in case of any sudden or unexpected mishap.
It's alarming to see that an enormous amount is stuck with the government which belongs to crores of investors and families because there are no claimants to such investments as the same were not governed by a proper inheritance plan. As per the latest RBI data, Rs 35,000 crores of unclaimed deposits had been transferred to the Depositor Education and Awareness (DEA) fund maintained by the RBI. Similarly, an amount of Rs 5,700 crores is stuck in unclaimed dividends with the Investor Education and Protection Fund (IEPF). In addition, as per some estimates unclaimed shares with IEPF could be worth Rs 50,000 crores as per current market prices. There is no data to substantiate the value of immovable properties which could be lying unclaimed in India due to several reasons.
In many of such cases, the major cause responsible for unclaimed assets is the demise of the owner and failure in transfer of rights from the owner to her/his successors. Be it real estate or financial assets in the form of shares, debentures, dividends, bank account deposits, insurance policies and Provident Fund, inheritance planning by way of leaving a clearly defined will or nomination is a very effective way for smooth transition of such assets to the successors. Thereby, a well-thought-out inheritance plan by appointing a nominee or writing a Will is quintessential to transferring wealth and assets in accordance with the country’s valid laws.
In Indian society, people usually perceive inheritance planning and transfer of assets as an insignificant and overrated thing that can be easily resolved through mutual consent in their absence. However, in reality in many cases the legal heirs or successors end up in situations of family disputes due to lack of clarity on distribution of assets or in situations where they are completely unaware of the assets. Many of such estates go unclaimed due to costs involved in reclaiming them & lack of knowledge. Contrary to people’s apprehensions and reservations, a well-defined inheritance plan prevents a situation of long legal battles, court processes, delays and financial burden and leads to more transparency and clarity amongst the legal heirs & successors.
In many households financial matters are limited to the earning member of the family & the information about the family’s assets and investments is not even communicated properly or documented anywhere for other family members. In such scenarios many such assets get missed out by the family members in case of demise of the owner. If the descendants do not have adequate information about the assets and liabilities, how can they claim their rights before the court? That’s why inheritance planning is a holistic way to address all those potential challenges that people may come across after the death of their loved ones. A well drafted will with the list of assets and nominations can make the process easier for the claimants.
Laws of Succession in India
The laws of succession in India can be divided into two parts, i.e., a deceased person leaves behind a valid and enforceable Will, and those where a person died without leaving behind such a Will (Intestate Succession). Further, laws of Intestate succession vary according to the religion of the deceased person, which means it is different for Hindus, Muslims, and Christians.
A valid Will is a written document that outlines the deceased's desire for the distribution of their estate. It can be made by any person capable of entering into an agreement, and the Indian Succession Act, 1925, does not prescribe a specific format or technical requirement. Essential requirements include the Testator's clear intention, the Testator's signature, two independent witnesses, and no technical terms or formats. Unmarried individuals can make a Will and marry after making it, but the last written Will prevails.
Further, in selected regions – Mumbai, Kolkata, and Chennai, Probate is a legal process for proving or establishing the validity of a will. To obtain probate, the Executor must make a suitable petition with the Executor's name, death date, last Will document, proper signature, assets, and jurisdiction based on the Testator's domicile or immovable property. But, if a person dies intestate (without leaving a Will), then an administrator is appointed by the court, issuing the Letter of Administration (LOA) to administer the property of the deceased person. Moreover, a Succession Certificate is required if he/she left behind only movable assets.
Importance of Nomination
Appointing a nominee is also considered an effective way of inheritance planning. Although a nominee is not a legal heir before the law, her/his role as a custodian of the assets, especially when legal heirs are minor, can be of utmost significance. In fact in case of minors, the nominee’s presence ensures that the deceased’s assets will not go into the wrong hands until the legal heirs attain adulthood and find themselves comfortable in utilising and managing the assets.
Hence, to ensure a smooth transfer of both movable and non-movable assets, protect the rights of legal heirs, and keep them away from disputes and legal battles, people should embrace inheritance planning at the right time without any procrastination. Their timely decision can protect the beneficiaries from many untoward situations, especially if they are minors or living abroad.
The writer is the co-founder at GLC Wealth.
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