My best friend passed away. The family inherits Rs 80 lakh and Rs 30,000 monthly rent. How to plan their future?

My best friend passed away, leaving behind his wife and 2 daughters in classes 11 and 8.  His wife is a homemaker. The house is owned, and his wife will continue to receive a fixed income of Rs 30,000 from rental properties. He used to work for an IT company, and the death benefits amount due for disbursement is around Rs 80 lakh. Can you please suggest the tax implications and how to invest this amount wisely to help until the kids graduate? 

Reply by Rahul Jain, President & Head, Nuvama Wealth

In the given scenario, the rental income will be taxable in the wife's hands. The taxation of death benefits of Rs 80 lakh will vary depending on the nature of the benefit. For example, if the benefits include leave encashment, gratuity, or provident fund, all these benefits are taxed differently. If the benefit is tax-free, it will remain so. 

The amount of death benefits net of taxes must be invested judiciously. The asset allocation principle must be applied per the financial goals and the time to goals. In the given scenario, there are two children whose educational (schooling, graduation, and post-graduation) goals are critical.  Because these goals are 8-10 years away, a large portion of the corpus should be invested in 4-5 diversified equity funds with a good track record. The funds can be a mix of large, mid, and small caps. The remaining surplus can be invested in safer avenues like the bank fixed deposits. 

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The rental income is a source of regular income and must be used to meet the daily household expenses. The rental income is typically low yielding. Hence, the return must be compared with alternative sources of income, like the interest on fixed deposits. If, for some reason, the rental income is lower than the possible interest from fixed deposits, the property may be sold, and the sale proceeds, net of capital gains, may be reinvested into bank FDs.  

Besides investments, it will be prudent that the family take a reasonable health insurance cover. You may even confirm if your buddy had taken the life insurance or was offered by his employer. In that case, the claim amount can greatly support the family. 

It is better to consult with a certified financial advisor to identify an investment strategy that aligns with their specific needs and risk profile. Make informed strategic decisions and adapt a financial plan that caters to different life-stage demands.

(Views expressed by the investment expert are his/her own. E-mail us your investment queries at askmoneytoday@intoday.com. We will get your queries answered by our panel of experts.)