The term “estate” might seem to be a very complicated term, but in simple words, it comprises of everything you own- right from your home, car, bank accounts, life insurance, investments and any personal possessions.
Irrespective of how big or small estate you have, you’re not going to take it with you after you die.
Hence, estate planning is a very important decision.
Below are the steps to an estate planning
1. What is Estate Planning and its importance
It seems that in India, people shut their five senses off when it comes to something as important as estate planning. Yes! They do.
Most of the people are not even aware that such a term exists.
Now you would be wondering what estate planning is.
It basically means making a provision for the management and disposal of one’s assets during his/her lifetime so that their family need not suffer after they have died. In simple words, estate planning is planning on what will happen to the assets that you own after you die.
It may be in the form of a will, or a trust, or an advance directive.
People feel that estate planning is only for the rich which is not the case. Estate planning is for everyone who has a family and equally important assets. Irrespective of how many and of what value of assets you have, you MUST do estate planning.
For that, there are certain steps you should follow.
2. Create a list of all assets and liabilities
First come first. This is the most important step. You should put down all of your assets and liabilities into a plan. If you don’t know how much assets you own, how would you plan on distributing them or make a will?
3. Understand why do you need a will
- A will makes it simple for your family to claim the assets you own after you die. If you do not have a will, it will become very difficult and time consuming for them to prove that they are the legal owners of the estate after you die.
- There are different laws for different communities and if you don’t make a will, your assets will be distributed in a standard way according to the law applicable to your family. For example, if you are a Hindu, the Hindu Succession Law will be applicable and your assets will be distributed according to the law among your heirs after your death.
Similarly, there are different laws for Muslims, Buddhists, etc.
You will also enjoy tax benefits. Yes! The assets of a person who has made a will will not be taxable after he/she dies. However, if a person dies without making a will, then his/her assets will be taxable after his/her death in the hands of the beneficiary.
4. Draft your will and name an executor
An executor is someone who will be in charge of managing your estate and make sure the instructions in the will are followed after you die. Actually, he is the person who will secure permission from court for distribution of the assets as per the will, this is called a probate. Probating a will is an important task. If you have made a will, you will be called a testator if you are a male and a testatrix if you are a female. Executor can also be the beneficiary under the will. There can be more than one executor also.
So make sure you get your will registered in proper manner and with proper executors.
5. Assign power of attorney & create a living will
These are basically types of healthcare documents. Also called advance healthcare directive, living will is the oldest form of healthcare directive. Living will is a document that you need to create if you want your medical wishes to be honored. It lays down guidelines on how you should be cared when you are incapacitated or in case of medical emergency.
Power of attorney is also a type of healthcare directive where you make a person responsible to take medical decisions on your behalf in case of an emergency.
Both these documents are of much importance as they set out your medical treatment and no one would like to risk their health in case of emergency.
6. Communicate with your heirs
It is very important that you tell your family about your properties, investments, possessions, and other valuable belongings. If they are not aware of all of them, how would they claim them? Do not hide anything from them, whether the amount is small or big.
The bottom line is that estate planning is for everyone and not just for the rich people. So if you want your family to not face any problem in claiming the assets you own after you die, do make a will. Also, communicate to them about what all assets you have if you want them to be happy and prove that you love them even after you die.
Tanu Shree Jain is Research Analyst at Elearnmarkets.com and StockEdge. She is a commerce graduate from Delhi University. She is Currently pursuing CA. Also Studied CRTA from Kredent Academy.