Estate planning is the process of transferring all your assets (collectively referred to as estate) to your beneficiaries according to your wishes. This can also include the medical care.
Let's understand some basic terms of estate planning.
The sum of all the assets of a person, less his liabilities becomes his estate. In short, all properties, bank accounts, investments, insurances and collectibles, less the liabilities of a person, are collectively called a person's estate.
In simple words, a will is a document to ensure that your wishes with respect to your estate (assets less liabilities) are followed after your death.
In legal language, a will is defined as 'the legal declaration of the intention of the testator, with respect to his property, which he desires to be carried into effect after his death.' But such disposal comes into effect only after the death of the testator.
The process of making a will is simple.
It requires no stamp duty or registration, although most experts advise that a will must be registered so that it is in safe custody.
Two witnesses must attest a will; one preferably a doctor.
A person who makes his will is a testator.
A person who executes the contents of the will after the demise of the testator is called the executor. The executor is the legal representative for all purposes of the deceased person.
Identifying an executor is a key decision. Your spouse can be the sole executor of your will. But what will happen in case you and spouse both die?
It is important that you have an alternate executor. In any case, it is a good idea to have at least two executors in the event of your and your spouse's death.
You should choose an executor who is unlikely to die before you. Keep in mind that it is extremely important that the executor is someone who knows and respects your wishes.
Legatee is a person who inherits the estate.
You should state how you wish your assets to be distributed. This includes naming one or more persons whom, you would like to receive all or part of your estate when you die, and who will benefit if your first choice beneficiary (or second or third) predeceases you.
Any person who dies without executing (making) a valid last will is known as dying intestate.
In such a case, the heirs would be governed by the Succession Act or Personal Law of the deceased. These acts give the order of succession.
Probate is the legal process of settling the estate of a deceased person, specifically resolving all claims and distributing the deceased person's property under the valid will.
Power of attorney
A will takes care of your estate if you die.
But one should always consider a person who can take care of your affairs and estate, if in the future you are unable to manage your things physically or mentally. To cover this contingency, a power of attorney is used.
A power of attorney is an authorisation to act on someone else's behalf in a legal or business matter. The person authorising the other to act is the principal, or donor (of the power), and the one authorised to act is the agent.
Power of attorney can be general in nature or can be very specific such as for opening a bank account or making an investment or representing someone in a real estate transaction.
A trust is a relationship in which a person, called a trustor (also known as settler or author of the trust), transfers something of value, movable or immovable, to another person, called a trustee.
The trustee then manages and controls these assets.
A trust can be private or public. A private trust's beneficiaries can be an individual or a group of individuals, while a public trust is for the benefit of a larger cross-section having a public purpose.
A trust can be especially useful if you have minor children, but it is extremely important if children have certain disabilities and will not be take financial decisions independently.
The writer is director, My Financial Advisor.