Estate & Succession Planning through Wills, Private Trusts & Nomination (III)

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Estate & Succession Planning through Wills, Private Trusts & Nomination (III)

 

In the last issue of The Tax Talk, we have discussed the importance of the succession & Estate planning and the myths about the nomination and joint holding. Few other commonly used tools of succession planning are gift or family settlement or arrangement as under:

 

Gift:
Gift in between the relative specified u/s 56(2)(x) is tax neutral and free from income tax. Few adopt the tool of gift during the lifetime only for passing on the estate to the legal heir. But, we all are aware of the most popular case of renown Singhania’s wherein the gift as a tool of succession planning has set a bad precedent.


Family Arrangement or Settlement:

Family arrangement & settlement is not a tool of succession planning by choice of the owner but by mutual consent of the legal heir subsequently. If succession planning is missing then an alternative solution could be settlement/ arrangement/ compromise amongst the family members. This is obviously a matter of understanding and maturity amongst the family members.We all have also heard the case of Ambani’s wherein lack of succession planning has almost disrupted the biggest business empire of the country for a sufficiently longer period of time. Thankfully, it got resolved with the intervention of their mother and maturity of the brothers. The transactions of a family settlement entered into by the parties for the purpose of putting an end to the disputes amongst family members doesn’t amount to transfer and so genuine family arrangement and settlement is free from income tax liability – CIT Vs. R. Poonnammal 164 ITR 706 (Mad).

Will as a Tool of Succession Planning:

Will is one of the most powerful modes of succession planning. Let us know about the will:

1.   What is Will:
A will is simply a legal document in which the person declares as to who will manage & get the assets after death of a person. By making the will, a person can ensure smooth, logical, equitable, easy succession & distribution without much cost & litigation.

2.   How to Make Will:
There is no legal or defined format for making a “Will”. It’s not necessary to make the will on stamp paper. One can make it even on plain paper. Preferably, thick paper should be used and should not be folded. It is extremely important to keep it simple, precise and clearIt could be printed or handwritten. Normally, the printed version is preferred as it is more legible and clear in reading.

The will should incorporate the details of all the assets, properties, investments, etc as owned on the date of making the will. It may also incorporate the details as to where these documents, records, assets, are kept. If any asset is held in co-ownership, this fact should also be mentioned. For few assets like Gold, Silver, etc, the manner of its acquisition (like at the time of marriage, inheritance, etc) can also be specified for emotional, identification & taxation purposes. Even the digital assets like cryptocurrency, online vouchers, etc can also be mentioned in the will along with the place of accessing the password thereto.

Manner of the distribution of assets can be incorporated in the will. If asset is proposed to be given to a minor then a trustworthy custodian till minor attains an adult age should be appointed. If there is any liability also, it may also be mentioned and the mode/obligation of its repayment can also be discussed in the will.
After the will is prepared, all the pages must be serially numbered & signed

3.   Registration of ‘Wills’:
Registration of a Will is not at all compulsory. However, if the Will is registered, it is more strong & authentic evidence as to its genuineness. “Wills” can be registered with the registrar/ sub-registrar by paying a nominal registration fee. It requires the person to visit the registrar’s office along with 2 witnesses who are trustworthy. Considering the nominal cost, it is advisable to make the will and register it too.

4.   The person making the will must clearly mention the date of creation. The last will supersede all earlier ones. It should be titled as the “Last Will”.

 

5.   Executor & Witness:
Executor is a person who will carry on the tenets of the will. The will should appoint an executor & it should be trustworthy person. Executor should be appointed with his/her prior permission as the executor may be required to visit the courts on a few occasions for giving effect to the will. A person may appoint the primary executor & secondary executor. Similarly, the person should ensure that the will is signed by the witness. The role of witness is important if the will is challenged by the legal heir and the witness should be taken keeping this in mind.  Advisably witnesses should be younger than the person making the will.

6.   Changes / Rectification:
It is better to review the will after a few years to see if it requires the amendment/changes. Wills can be changed as many times as required. It is possible to change the will even if it is registered. If minor changes are there it can be done by executing a codicil. A codicil is a written statement which supplements or modifies an already existing will. It must be executed in the same manner as that of the original will. If substantial changes are required then it is advisable to execute a fresh new document mentioning it as the last will.

7.   Information about will to the legal heir:
Will takes effect only after the death of a person. It is advisable that a signed and sealed copy of ‘will’ is kept in such a way that it can be accessed and implemented after the death of the person. For this, the intimation of will and its place of storage may normally be communicated to close relatives or friends who can ensure that the wealth of the person is distributed according to the desire of the person making the will.

8.   Tax Planning through will:
Through proper drafting of a “will”, a person can very strongly & powerfully plan & manage subsequent tax impacts in the hands of the legal heir. Will is not only the tool for wealth distribution but can also be a muscular tool for tax planning. Normally, authentic/ registered will is never questioned by the taxmen. There is no impact of clubbing provision if the assets are passed through will.

Conclusion:
Will takes effect only after the death of the person. However, there is one powerful tool of succession planning during the lifetime of the owner which could be by way of Private Trust. We will discuss it in the Next issue of The Tax Talk.

 

[Readers may forward their feedback & queries at nareshjakhotia@gmail.comOther articles & response to queries are available at www.theTAXtalk.com]

Regards,
CA Naresh Jakhotia
Partner – M/s. SSRPN & Co.
10, Laxmi Vyankatesh Apartment
Telephone Exchange Square
Central Avenue Road
Nagpur-440008.

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