OUR APPROACH: SUCCESSION PLANNING AND WILL DRAFTING
Introduction :
Every financial plan comprises two main aspects—cultivating wealth and managing its transmission. It is essential to lay down a mechanism that facilitates the transfer of wealth as per the preferences of the owner, and succession planning and will drafting play a pivotal role in achieving the objective.
Succession planning, in conjunction with will drafting, aids in the transfer of wealth in a planned and organized manner. The ownership and control of a firm devolve as per the will of the owner.
Businessmen, professionals, High Net Worth Individuals (HNIs), Non-Resident Indians (NRIs), and families with multiple property holdings would benefit from the handling of the succession plan in the beginning to resolve doubts and differences and to ease the task of management of the representative family members.
Pavan Kumar & Co provides a range of services to clients, including succession planning and will drafting.
Succession Planning Services
The term ‘succession planning’ encompasses both the devolution of ownership of the assets and the responsibility and accountability for the same.
‘The assets’ may include, but are not restricted to,
Immovable properties
movable properties
Intangible wealth
Financial instruments
Enterprise
Family Business
Other personal belongings
As part of the succession plan, the business owner should identify the person/persons who would be managing the business in the future.
Certain methods organize the property one owns and to whom it should be distributed upon one’s death. Under these methods one can also identify potential claim problems and the necessary paperwork.
What is Will Drafting?
Will drafting refers to the preparation of documents by which one disposes of his/her property upon death in a manner that is in accordance with the law.
A will may contain dispositions of property, identifications of beneficiaries, and/or the appointment of an executor.
A will can be very complicated if it is not properly drawn or if information is outdated. There are many different ways to express a gift in a will. An attorney is often needed to interpret wills.
A will is only one part of the overall estate plan. Often, an estate plan should include a review of one’s business and financial interests.
Who Should Plan for the Future?
Every person should make a plan for the future. The plan should identify how certain interests will be met upon death. This includes the ownership and control of a business.
- Business Owners
A plan should be made for the ownership and control of a business upon the death of the current owner.
- Employees
Employees also should plan for the future by providing for the orderly transfer of their accumulated wealth.
- High Net Worth Individuals (HNI)
Families with a variety of investments (e.g., businesses, financial assets, properties, etc.) may require a more sophisticated family office to integrate and oversee their investments.
- Non-Resident Indians (NRI) with Indian investments
Non-resident Indians owning various investments (property, businesses, etc.) in India must make plans to transfer and dispose of such assets upon their death. Various international laws and norms may impact the transfer of such assets.
- Growing Businesses
Business owners and founders should consider succession planning even at the growth stage of their business.
Key Documents to be Organized
There are several legal and financial documents that may be needed to begin the succession planning process. Owners should be prepared to provide such documents to the lawyer or professional assisting them with succession planning.
The following may be such documents:
Real estate titles
Bank and Investment Accounts
Stocks and Bonds
Insurance and Business Partnerships
Business Loans and Liabilities
Estate planning documents (e.g., wills, trusts)
Powers of Attorney and Beneficiary Designations
Personal ID and Addresses
Relatives and Dependent Information
Business Information
These documents will vary based upon the resident jurisdiction of the individual and the types of ownership interests they hold.
Succession Planning Process
- Identify Your Assets
Prepare a list of all business interests, financial and physical assets.
- Assess Ownership
Review the names of the owners of the various assets and determine if the ownership structures and strategies are congruent with the succession plans.
Identify Beneficiaries
Decide who will inherit what you own or what you have an interest in owning. Circumstances within your family may change and, as a result, your will may need to be altered.
Review Existing Nominations
Examine your nominated beneficiaries for your financial products and ensure they are up to date. While a nomination for a product is a gift, the terms of the Will may differ. Therefore, it may be advisable to consult with a legal professional.
Consider Tax and Legal Consequences
There may be adverse tax consequences for you or your beneficiaries for the transfer of certain assets. It is advisable to seek legal and/or financial advice for certain transactions. This may be especially useful for non-resident Indians and business people.
Prepare a Will
Make your will in accordance with the law of your jurisdiction and ensure it reflects your current wishes.
Review your plan regularly.
It is prudent to review your plan following a significant event, e.g., the birth of a child, marriage, divorce, death of a beneficiary, etc. Maintaining a Will is as important as preparing one.
Common Mistakes When Planning for the Transfer of Your Estate
Being too low or too late
Many people believe that the transfer of their estate will occur at a later stage of their life. However, it is prudent to begin organizing your will at an earlier stage to allow yourself ample time to organize complex or hard-to-reach assets.
Not Documenting Your Assets
Many people die without their beneficiaries knowing about all their assets. For your beneficiaries to know about your assets, it is advisable that you create a consolidated list of your assets and/or liabilities.
Overlook Business Assets
Separating business and personal succession is not possible. The business owner may have to consider the shareholding and management positions, among others.
Neglecting Changes
There may be considerable difference between the owner’s will and the actual situation with respect to ownership of assets, and the family situation.
Identifying Beneficiaries and Nominees
In the eyes of law, there may be several ways to effect a person’s will. It is, therefore, necessary to take legal advice.
Acts Done Outside India (NRI)
NRI’s are often faced with the problem of dealing with laws of different countries.
Planning For Future Generations
The financial planner and chartered accountant can assist in developing a strategy to achieve the goals of the family for many generations.
Through their services, they may assist:
Analyze family and business finance.
Evaluate any existing issues and remain compliant.
Organize finance documents.
Review and comprehend finance documents.
Identify potential business and investment opportunities.
Estimate the potential tax impact.
Organize and integrate business and personal financial documents.
Assist in the process of planning family wealth for the present and future generations.
Identify the personal finance needs of the family and NRIs.
Legal matters, including drafting wills and other legal documents, are to be handled by an advocate or a lawyer.
Pavan Kumar & Co., established in 1985, is a chartered accountancy firm providing numerous services, including personal income tax returns, GST returns, payroll, accounting, auditing, bookkeeping, business and practice startup services, litigation, tax consultation, and financial services.
When it comes to succession planning in Bangalore, we look into the financial situation of the client and take up the tax, accounting, and related compliance issues.
We make financial planning clear and simple for individuals, including salary earners and business owners (from small business owners to startup founders to HNIs).
The blog post may include responses to the following questions:
- What does succession planning mean?
Succession planning is a process of organizing the transfer of one’s wealth and other legacies to the intended beneficiaries.
- Is it not sufficient to nominate beneficiaries?
It is always prudent for a person to execute a will and/or trust, in addition to nominations, to document his/her intentions with regard to the distribution of the estate. In case of nominations, the legal consequences may vary with the nature of the property.
- Can NRIs do succession planning for their properties in India?
Succession planning for NRIs is also permitted, subject to Indian laws, tax and other regulations and foreign exchange controls.
- When is it appropriate to review my Will and succession plan?
These documents should be amended after major lifestyle or financial changes including getting married or divorced, the birth or death of an immediate family member, the purchase or sale of a major asset, a change in the structure of your business, or if you move to a new country.
- Is it true that a Chartered Accountant (CA) can assist with estate and succession planning?
Yes, a CA can definitely assist with the planning and management of a family’s wealth. However, legal documentation and advice should be obtained by a professional lawyer.
Final Remarks
Succession planning is about planning the transfer of your assets and providing for your family. It should be done in a manner to provide clarity to your family regarding their financial future.
It is particularly important for families, business owners, and individuals to plan for the future, including for Non-Resident Indians (NRIs).
We understand the financial aspects of succession planning and are equipped to assist you with the same. There are a variety of legislative, regulatory, and compliance requirements. Tax treatment of transactions is different from the perspective of a resident and a non-resident. Deadlines for compliance also vary.
This blog does not replace the services of an accountant. Each person should consult an accountant for all matters relating to their personal circumstances.
Pavan Kumar & Co specialises in tax and accountancy services and provides a broad range of business services, including GST, audits, payroll, and business advisory. Located in Bangalore, we are available to provide our services to clients throughout Karnataka.
Disclaimer: This blog is for educational purposes only and should not be treated as tax, legal, or financial advice. Please consult a qualified chartered accountant for advice based on your specific situation.