Passing on Wealth

Preparing a succession plan can often be a tricky affair. Here, we tell you the options available and how to zero in on the correct model.
Shoaib Zaman/Money Today        Print Edition: August 2014
How to pass on wealth in right way
Picture for representation purpose only. (Source: Reuters)

The story of heirs fighting over property has helped many scriptwriters pen Bollywood potboilers. Such stories are common, despite the fact that no one wants to see their heirs fighting or wants their wealth in the wrong hands. Therefore, there are two pertinent questions: do you need to set up a succession plan? And if yes, what is the best way to do so?

Sonali Pradhan, managing director-head of wealth planning at Royal Bank of Scotland, believes that people with investments of more than Rs 1 lakh in securities should have a wealth plan. She adds that in its absence, their heirs may require a succession certificate or a legal heir certificate to inherit such securities. A succession certificate is a document issued by a civil court to the legal heirs of a deceased person. It establishes the authenticity of successors who inherit securities and other assets as well as the debt. She adds that although the simplest way of transferring wealth is by way of joint ownership, it may not be the best option. We explain all possible way to distribute your wealth and their pros and cons to help you decide better.

Neha Pathak, head, trust & estate planning, Motilal Oswal Private Wealth Management Business, explains the term: "A trust means vesting or placing property under the control of a person in the confidence that he will hold it for the benefit of a third person and/or himself." The person who puts in the money is called the settlor of the trust while the person who gets the money is the beneficiary.

Feroze Azeez, director, investment products , Anand Rathi Private Wealth Management believes that if there is a need to manage the money, a trust can be of big help. "For example, if I wish to ensure that the money is managed when I am not around, I need a trust. But if I need to transfer without worrying about managing it, a Will might work," he says. Highlighting other aspects of the Trust, Rohit Shah, founder, GettingYouRich, says, "The trust can give better control over assets and allow distribution of wealth when the person is living." However, he added that maintaining a trust is expensive and also needs help from experts to setup. Also, it is mandatory to register the trust for immovable assets.


If I wish to ensure that the money is managed when I am not around, I need a Trust. But if I need to transfer without worrying about managing it, a Will might work.


Director, Investment Product, Anand Rathi Pvt Wealth Management

As far as preparing financial documents go, a Will is pretty indispensible. Pathak of Motilal Oswal believes that every individual should write a Will. She explains that a Will is a document that contains the wishes of a person and in case the person dies without forming a Will, his or her property devolves as per the personal succession laws.

A Will comes into effect only after one is deceased. If the objective is to just distribute wealth, then a Will is a good choice. The size of assets and family conflicts can also be a consideration," says Shah. A Will is inexpensive and can be created with conditions, he added. Although one can always draft their own Will, it would be best to take the help of an expert so that the probability of a contest is less. But remember that a Will is not without probate-the legal process where a court oversees the payment of debts and distribution of property under a Will. This can be a slow and costly process. Also, in case any of the successor feels that he has not received his rightful dues, the Will can be contested and this lead to delays. This may result in confusion and could culminate in time consuming and expensive litigation.

Azeez of Anand Rathi believes there is no benefit of forming a company as it just gives shares to an individual. Kanishk Agarwal, Co-Founder and Managing Director of the AGacquisitions Group, adds, "The company structure is more expensive to administer given the increased laws and regulations that have to be adhered. But it offers higher flexibility in ownership as well as financing options available using the assets as collateral."

Piyush Shahi of Shahi Hotels & Properties , a member of the family where wealth is passed through company, adds that in case of a company, there are enough checks and balances to ensure the absence of malpractices. But the biggest problem is that if the majority shareholders are in agreement, then the minority shareholders can be marginalised since special resolutions can be passed only with the agreement of 75% of the shareholders.

HUF is an entity that can be formed only by a married individual who is a Hindu, Sikh, Jain or Buddhist. All lineal descendants of the karta, their spouses and children automatically become members of his family. "HUF is normally more of a tax-planning tool though it can help achieve estate planning objective," says Shah. But the unlimited liability assigned to the Karta make the structure less desirable, especially when the assets comprise of business interests that could be prone to losses/liabilities etc. The HUF is simple to set up and is recommended when the scale of assets is small to moderate and when no liability can be assigned to it.


For small asset size and simple situations, a Will may be better. But if the asset is to be earmarked for a specific person, Trust may be a better option.

Calculate the income and expenses of the family over the next few years to understand the best structures that suit your needs. Remember that 'one size fits all' does not apply in this case.

A Will can always be challenged in court. A HUF, on the other hand, may be cumbersome to maintain; also you can set it up only if you are married.

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