“When should one make his or her will?” A lawyer asked this question recently to a packed auditorium at an event. Pat came the replies: ‘why do I need a will?’, ‘as soon as possible’, ‘after retirement’, ‘after one’s marriage’. To this, the lawyer replied, “One must make will at least one day before he or she is about to die,” and the crowd burst out laughing and understood the point the speaker was making.
Wealth managers and advisors have come a long way over the last two decades. From recommending simple products such as fixed deposits, advisors have evolved to more sophisticated products which have benefitted their clients immensely. As AMFI data shows, both the number of investors and AUM are consistently rising. Moreover, clients have also become more receptive to equity as an asset class and SIPs as way of investing. The industry has also seen maturity in insurance advisory and private equity funds are also mushrooming. Although wealth management involves more than advising clients on MFs, majority of IFAs and even private banking RMs have done well by including these investment instruments in their client portfolios. However, it may be the right time to focus on offering a complete bouquet of services to retain wealth management clients.
Benefits of wealth creation and wealth preservation are being propagated for a long time. Preservation here denotes to protect ‘what has already been created’. In this stage though the client is not looking at excessive returns with high volatility, he is still expecting to generate ‘higher than inflation’ returns and keep his wealth intact with time. Preservation involves discussing and making small changes to portfolio and taking care of changing needs of clients without taking excessive risk.
The third step that completes the ‘wealth management’ is wealth transmission. Advisors must engage with clients on wealth transmission very early. IFAs stand to gain tremendously by bringing this step up-front with their clients. This will also be a true test of advisor because normally a client invests only part of his surplus through one distributor whereas while in making a will he will have to disclose his complete wealth and there lies the trust in the IFA.
Why is wealth transmission so important? Are we ready to discuss this step openly with our clients? Does it require in-depth understanding of law? Is that why advisors do not bring this up with clients? These are some questions that we must find answers to.
Wealth transmission is important because it takes years or even decades to create and preserve wealth but the same wealth can get seriously impaired if the creator does not carefully plan transmission in a clear manner. It is imperative that advisors pay more attention to this third step. Dissolution is certain in life but what is uncertain is its time. Since time is uncertain, one needs to be prepared.
Wealth can be transmitted through a simple will. A will is an important document that enables an individual to distribute his assets and wealth to whomsoever he wants to after his death. This way, a person can ensure that his wishes are carried out appropriately (distribution of his assets). Not only it is the right way to transmit, it is also the most economical way. In case a will is not made, post death the transfer of assets may involve a long-winded process of collecting details about all assets, clearing off the liabilities and then seeking the transfer of assets. Under this process, the creator seeks NOCs (No objection certificates) from all legal heirs to decide who inherits what portion of wealth. This may lead, at the least, to delays in claiming assets and lack of liquidity during such period or at the worst too long drawn out disputes over distribution of assets.
If will is not made, post dissolution the transfer of assets is subject to state court fees and inheritance laws. For example, to get a succession certificate in Mumbai, clients have to pay court fees of fixed amount say Rs. 75,000/- or 0.75% of assets whichever is lower. In New Delhi, the court fees can be as high as 2.5% of assets. This fee needs to be deposited in court as liquid money, which in itself can be big sum depending on the total assets that heirs are looking at transferring. Legal fees and other costs associated with court proceedings are additional.
Post amendment in 2005 to the Hindu Succession Act 1956, married daughters are also equally entitled to parents assets. Take an example where there are two married daughters and an unmarried son. If the testator (creator of will) dies intestate (without writing a will), his property would be equally divided among the three children. Now, consider a situation where as is the custom, daughters may have been given substantial assets as gifts and the parents may have desired to pass on the family home to the son. Not leaving a will with clear instruction on the apportionment of asset can lead to unnecessary complexity among heirs.
A probate (certificate under the seal of the court and signed by one of the registrars, certifying that the will has been proved) is required in jurisdiction of Mumbai, Chennai and Kolkata High Court. Under other court jurisdictions, probate is not compulsory and wishes of the testator can be exercised according to the will by the executor directly.
It does require good understanding of inheritance laws. There are services available that advisors can avail. It takes an experienced estate-planning lawyer to evaluate client’s particular situation and advise you of the options that best suit client’s estate planning needs and goals. Companies like willeffect.com, ezeewill.com and many more can bridge this gap between clients and advisors. Advisors can refer clients to these firms and can get customized solutions for their clients while earning a fee as well.
Now let us look at the important steps in making a will:
Step 1: Drafting a will
While preparing a will it is essential to take extra precaution. One wrong word or missing signature can change the entire intent of a will. Getting a will drafted with the help of lawyer can help you avoid costly mistakes.
Step 2: Attestation of a will
Once the will is drafted, the testator needs to sign or affix his mark to the will. The signature or mark of the testator should appear clearly and should be legible. It should appear in a manner that is appropriate and makes the will legal. The will should be attested by two or more witnesses, each of whom have seen the testator signing or affixing his mark on the will. Each of the witnesses should sign the will in the presence of a testator. A witness need not read the contents of the will before signing it.
Step 3: Registration (Under section 18 of The Registration Act, 1908, the registration of a will is optional)
However, registering a will gives you strong legal evidence that the proper parties had appeared before registering officers and the latter had attested the same after ascertaining their identity.
- A will must be proved as duly and validly executed as required by the Indian Succession Act.
- Once a will is registered, it is placed in the safe custody of registrar and therefore cannot be tampered with, destroyed, mutilated or stolen.
- It shall be released only to the testator himself or, after his death, to an authorized person who produces the Death Certificate.
- The cover should be super scribed with the name of the testator or his agent with a statement of the nature of the document.
Procedure for registering a will:
A will needs to be registered with the registrar/sub – registrar with a nominal registration fee. The testator must be personally present at the registrar’s office along with witnesses.
A will does not require stamping.
All of above only applies to wills and codicils made by Hindus, Buddhists, Sikhs or Jains.
Deepak Jaggi is Director and Head Sales - Retail, Deutsche Asset and Wealth Management.
“This article was prepared by the author in his personal capacity and for information purposes only. The views expressed in this article are the author's own and do not reflect the views of Deutsche Asset Management (India) Private Limited or that of the Deutsche Bank Group. Readers are requested to make their own independent assessment on the completeness and appropriateness of the article prior to implementing or acting on the views of the author”.
The views expressed in this article are solely of the author and do not necessarily reflect the views of Cafemutual.