Before reading this article, find a place, where you can be alone and uninterrupted. Clear your mind of everything except what you will read in this article and I will invite you to do. Don’t worry about your schedule, your business or job, your family, or your friends. Just focus with me and really open your mind.

Current Scenario

You must have made all your effort to buy the best life insurance policies, which must have care of your family easily after your demise. You have been investing in financial products with high returns and taking the pain of working day and night for years and decades in jobs or businesses etc. Ironically, you hate doing and spend all your energy to earn the extra rupee for your family members because you want them to enjoy your wealth with your loved ones.

Visualize Experience

Now, take a moment; let’s imagine you suddenly die in an accident or due to some illness. In your mind’s eye, see yourself after your demise, your generated wealth like your bank accounts, properties, stocks, mutual funds, life insurance money, fixed deposits, PPF, EPF money etc. will not be passed to the person as you wished.  Your spouse or other family members are getting unable to claim back the asset. Your wealth is going partially or not going or taking a lot of time to move to the wished person at all. It has become headache to your legal heirs while claiming your wealth. All your efforts seem flush out! If you are wondering how this is possible and felt unbelievable, but it is blunt true for those people who have least or no focus on their estate planning.

If you did participate seriously in this visualization experience and touched for a moment and realized that estate planning was a very core part of your financial life more than anything else that you have missed, which were needed to work on this area diligently and your one action could save your family members from so much frustration/headache of going through the tough process. So it is entirely up to you, what kind of future you want to create for them.

Before you read further, take a few minutes to jot down your impressions in this visualize experience. It will greatly increase your personal understanding of “Begin with Financial Planning  and end in Estate Planning” is to begin today with the image, picture, or paradigm of the end of your life as your frame of reference or the criterion by which everything else is examined.

Now, what’s estate planning?

To put it simply, estate planning is to plan how your wealth will be passed on to your next generation or whomever you wish to in a smooth and hassle-free transfer of one’s assets and properties to his family members or anyone they desire. Estate Planning is a highly neglected area of financial life and the importance is learnt by people only when things go terribly wrong and they have to suffer due to this.

Estate planning has mainly 3 core tools one can on his/her wealth to someone- joint accounts, nomination and WILL. A lot of people do not know which one is more powerful than other and when to use which one. Today lets discuss few points about joint accounts, nominations and WILL and some scenarios which will make them clear

will

1.     Opening or Converting  Joint Account as the case may be

We all know what a joint account is?, but we have never seen it as a powerful estate planning tool.  A joint account holder is always treated as second holder apart from the primary holder and S/he will be the owner in case of death of primary holder.

While opening a joint account you can either choose “either or survivor” mode, S/he will be able to transact and do things along with you or “former or survivor” mode, so S/he will not be able to transact and own anything till you are alive, but once you are no more, S/he just becomes the owner, without any hassles. This is a better way to give control to someone after your death and more powerful. You can make some person joint holder in bank accounts, mutual funds, demat account, FD’s or real estate properties etc. If you have already single account in these instruments, you must convert your single accounts to joint account along with your spouse, mother or parents or one of the siblings, if needed. Almost all instruments allow this conversion except in case of immovable assets like a flat, where each co-owner (registered on the name of 2 or more parties), is owner of only his/her share. In case of death of one of the co-owners, his/her name share is not passed on to the other co-owner. It will move to the legal heirs as per WILL as we will discuss later. Since, we are talking about it from a pure estate planning point of view; we have not considered any taxation and other issues.

2.      Fixing your nominee in all the financial products

We assume a lot of things which sounds like they’re obvious, but they are not true from the legal point of view. As we assume that a nominee might be your children, your spouse, parents, etc., or just a subset of these will be the next owner of our assets in case we die!  But, one of the biggest shocks we get is when we find out that the nominee is not the final owner of the asset in question.

According to law, a nominee is a trustee, not the owner of the assets. In other words, he is only a caretaker of your assets. The nominee will only hold your money/asset as a trustee and will be legally bound to transfer it to the legal heirs. For most investments, a legal heir is entitled to the deceased’s assets. For instance, Section 39 of the Insurance Act says the appointed nominee will be paid, though he may not be the legal heir. The nominee, in turn, is supposed to hold the proceeds in trust and the legal heir can claim the money.

It must be noted that, there is an exception to this above said rule. The scope of the nominee power is defined as per different laws that govern various financial products. As per Companies Act, the nominee is the final owner and will even bypass legal heir or any written WILL. Hence, any financial product that falls under the purview of Companies Act, the nominee in those financial products will be the final owner and after death of the first holder, they have all the legal rights. So in this case – Shares, debenture of companies, fixed deposits of companies and demat account – all these financial products fall under Companies Act and the nominee mentioned for these products are the final owner. For every other financial product, Nominee is just a care-taker and the final owner will be the legal heirs only.

So, your first action is to check the nominations for your existing investment products and ensure at best put nominate the person who will be the next legal heir of your life insurance policies, your ULIPs, mutual funds, demat account, fixed deposits, bank accounts, PPF, EPF and anything where your money lies for new investment also.

3.     Making or writing a WILL

In simple words, a WILL is a legal document stating how your wealth should be distributed among a set of people and under what conditions. It’s a way to document your wish and give a legal framework to it. Note that you can divide only those assets through a WILL that are self-acquired and earned by you. You can’t give away something in a WILL if you have not earned – like ancestral property, which you got in heritance.

Most of the people never think about making a WILL. They feel that they have not enough wealth in their life for making of WILL, it is only for rich people like HNIs as there is no need for it. But, you will be amazed that a simple situation may create need of a WILL.

Let’s take a simple case of a middle class family where a person has taken a term life insurance of Rs 70 lacs. There is a small amount of cash in the bank Rs 3 lakh and few investments here and there. If the guy deep down his heart wants all wealth to go his wife only and no one else, how will do it?

The common phenomena, which will come to his mind is to make his wife the “nominee” and once he does that he thinks that “it is done”. He thinks that in case of his unexpected death, everything can be claimed by his wife as outlined above.

But, in this case, it will be surprised to know that the mother of the guy will also be a valid “legal heir” and shall be able to claim 50% of everything ranging from insurance money and other bank balances and investments with assumption that there are no children in this case.

To avoid any ambiguity of law, he will have to create a WILL, which would have to mention that everything would go to his WIFE and no one else after his demise, this simple act will make sure that from legal point of view, everything can be passed on to his wife without much hassle. Ironically, we just don’t want to do it as we leave the things on time and fate.

Conclusion

Now, you have visualized bad experience after your unexpected demise that how much mental agony family could have to face in case a WILL is missing?

Joint Accounts, Nomination and WILL are all integral part of estate planning to pass on your wealth to someone else once you die, so it is very important that you structure these in the best possible manner. Have consistency in all these 3 things. If you pass on your money to a person better open account or buy the asset along as joint owner, make sure you put his name as nominee and also make sure that the WILL is written with clear directions.

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Suresh Kumar Narula

SEBI Investment Advisor, Founder & Principal Financial Planner at Prudent Financial Planners
Suresh K Narula is founder and Principal Financial Planner at Prudent Financial Planners. He has earned the professional CERITIFIED FINANCIAL PLANNER and got registered with SEBI as Investment Advisor. He writes on personal and financial planning articles and got published in Dainik Bhaskar, Business Bhaskar and The Financial Planner's Guild, India. He is also a member of Financial Planner's Guild India ( An association of practicing SEBI registered Investment advisers) to create awareness about Financial Planning in general public, promote professional excellence and ensure high quality practice standards. Suresh received his an M.com from Himachal Pardesh University and an MFC from Punjab University, Chandigarh. He can be reached at info@prudentfp.in
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