Common mistakes to avoid when passing wealth onto the next generation

Devolution of property would be governed under the Hindu Succession Act, the Indian Succession Act, or the respective personal laws for Muslims in case there's no Will

The Association of Registered Investment Advisers (ARIA) recently came out with a white paper on nominations and succession planning. It provides insights into nomination facilities and specifies the measures, both conceptual changes and process of law, required across financial assets to simplify and ease the lives of investors and their families and successors. 

ARIA also launched an initiative to help investor families and financial advisors deal with specific challenges, such as processes related to the transfer of assets to the heirs, upon the death of an investor. 

Lovaii Navlakhi, chairman, ARIA, says, “This initiative will help people get information and assistance on financial records, transfer of assets, and beneficial nominee processes." Not havinng nomination and succession planning in place can have adverse consequences. Experts say it is never the big things, but the little foxes that spoil the vine. To help avoid such mistakes, we culled out a checklist by experts on five top mistakes to avoid while making a succession plan and nominations.

Later or never: Picking up the financial pieces after losing a member is never easy for the family. And if there's no succession plan, it becomes difficult for the heirs to get access to the deceased's investments. Wills are necessary for unhindered transition of assets from the deceased to the heirs. Suvigya Awasthy, associate partner, PSL Advocates & Solicitors says, "Many people are hesitant to execute a Will; as they do not realise its inherent value and significance. The distribution and succession of immovable assets becomes easier through a Will. Without one, the transfer of assets becomes a cumbersome process and may lead to conflicts among family members over distribution of assets." 

The biggest mistake an individual can make is to not have a succession plan, or to defer making one for later. Suraj Malik, Partner, BDO India LLP says, "People usually keep procrastinating until it is too late, and misunderstandings and disputes creep in." Experts say most people don't want to think of their mortality, or get overwhelmed by the task of making a Will. However, with Covid-19 in the backdrop, things are changing.

What to do: Remember, something is always better than nothing. There are enough resources online today that will help you make a basic Will online, if making an elaborate will overwhelms you. Online Wills offer many advantages: you needn't step out of your house and the costs are reasonable (they depend on the type of Will you wish to make). Moreover, you can prepare one now and change it later, if need be. The price is a few thousand rupees, depending on the type of Will you choose. You can have different types of Wills prepared: standard, joint, and for minors. Some also offer business succession planning.

Mismatch between nominee and legal heir in financial assets: Not updating a will or nominations over time is another mistake, say experts. Wills or nominations aren't a “shut it and forget it” issue. Malik says, "Another mistake is periodically failing to update it linked to important events in the family." For instance, if a new family member is born or someone dies, beneficiary/nominations might need modifications. Estate plans need to be updated after major life events, or when there's a change in goals, even change in public policy.

If there is a nomination, financial service providers are required by law to transfer the instruments to the nominee unless restricted by a court order. But there's a caveat here. Any transfer in favour of the nominee does not confer on him any beneficial interest in relation to the financial instruments, which will be subject to the applicable laws of succession. The nominee will hold the financial instruments (including any proceeds arising thereof) in trust for the benefit of the legal heirs of the deceased. So it helps to keep things simple. Ankita Singh, partner, A&P Partners says, "Although the nominee is just a trustee or a custodian, in order to avoid disputes, it's advisable to have the nominee as the legal heir. One more thing to keep in mind is that all technicalities like the spelling and other details should be meticulously filled to avoid disputes later."

What to do: While it's always good to be prompt on necessary updates, it's easier said than done. Financial experts say it's always good to review your investment portfolio at least once in six months. It's good to review nominations, estate plan as well, while you are at reviewing your financial portfolio. So financial advisor suggests linking significant dates like your anniversary to conduct reviews.

Choose wisely: A known devil is better than an unknown one. Utsav Trivedi, partner, TAS Law says, "Any person or a particular individual, while engaging itself in succession planning, should always bear in mind: “Who will fulfil your responsibility” while making nomination, as succession planning can only be achieved when it is done with utmost diligence and in a well-structured and thoughtful manner."

What you can do: Keep a trustworthy person within the family as the executor and administrator of a Will. Oftentimes, when a third person is nominated as administrator, he may not act in the best interest of the members of the family.

Non-registration of documents: Documents that are mandatorily required to be stamped and registered in law must be executed in the same fashion. Awasthy says, "People may be under a misconception that registering the document at a later point in time may suffice. However, the future remains uncertain. It is of paramount importance that documents are adequately registered, stamped, and multiple copies are available." Also note than when it comes to a Will, it's true that it is not compulsory to register it under the Registration Act, 1908, and even an unregistered Will that is properly executed, constitutes as a valid instrument under law. But the ground reality is different. Chances of dispute increase if the Will is unregistered.

Jyotika Jain, partner, Miglani Varma & Co (Advocates, Solicitors and Consultants) adds, "Legal heirs may dispute the Will, but under law, a registered Will has a very high presumption of it being valid. Furthermore, any additions that one may like to bring in to the Will can be easily done through a codicil. However, in case where there is more than one Will, the one later in time would have precedence."

What you can do: It is better that a Will is made in the presence of two witnesses and is registered.

Communicate clearly: Aditya Chopra, managing partner, Victoriam Legalis-Advocates & Solicitors, says, "Succession planning should be as per the needs, dynamics and long-term objectives of the family, but many families fail to understand its importance and arbitrarily enter into the transition phase." The efficacy of any succession plan lies in its effective implementation, which is possible only when there is proper structure based on the requisite parameters for a successful execution. Chopra says, "The most important aspect is that the succession plan needs to be communicated effectively to family members. Most of the time, the individual in control of assets does not seek active involvement of family members and fails to understand their requirements, which can make the process futile." The other pertinent issue one needs to understand is that legal battles are bound to be the natural outcome of difference in opinions and ego hassles. Proper succession planning can help avoid unnecessary litigation.

Jain of Miglani Varma & Co says, "When the member of a family does not leave a Will, then the devolution of the property would be governed under the Hindu Succession Act or the Indian Succession Act or the respective personal laws for Muslims."  

Things to keep in mind while making an online Will

• It must be backed by a physical Will and signed by at least two witnesses
• Also, though legally not required, getting a Will registered is always better
• Always make a video Will (film the signing by witnesses) in addition to making the online Will
• WillJini, Warmond.co.in, Makemywill.in and Legaldesk.com are few online will platform
• Apart from online and mobile Will making apps, there are brokers and insurance firms that offer such services on their own, or through tie-ups with an online Will maker