Increased purchasing powers, rise in life expectancy and related concerns about outliving retirement are primary factors to be considered while considering estate planning. In the given scenario or otherwise one needs to plan for financing health care or long-term care.
Contingencies like incapacitation or terminal illness need to be considered & planned. Everyone should plan for asset protection for self and family members. This includes asset protection from external and internal family members. Reasons and needs for considering an estate plan are numerous. For example, if one of the family members is differently-abled.
These members need special care and attention. By having an estate plan, one can ensure that the devolution is not mismanaged. A well-executed plan can avoid unnecessary chaos and discord. By creating a Trust, one can avoid the probate process and time delay associated with it. One can choose and select what you want to leave for which specific family member. If you intestate (without writing a Will) then the Succession Act will apply. Also to ensure that
philanthropic/charitable goals are met.
Larger Issues faced by HNIs while estate planning
One of the main areas of concern for the HNIs while drawing an estate plan is allocation/distribution of assets amongst the potential beneficiaries. They are not sure whether to involve the family members in the estate planning process. They feel this can lead to a bigger intra-family issue and can lead to opening a Pandora's box. Most of them are not sure whether they should gift the assets to their loved in their life time or post their lifetime. They are confused whether to opt for a Will or set up a Trust or do both.
Most HNI's have complex asset classes and family members may not be equipped to handle them on their own. It is also important to identify an executor or a trustee who has the relevant know how. They may have assets spread across various jurisdictions and do grapple with aligning these assets to the estate plan. One of the biggest worry for the HNI's is potential (expected) inheritance or estate tax. Most of the developed nations have estate taxes and they could range between 40 per cent to 55 per cent. They are not sure whether their heirs would be able to effectively manage the assets post their demise.
Increasing demand in India
The current trend is surely moving northwards. More and more people are opting for a well-planned and well-drafted estate plan. But that number still is not significant. Procrastination, nuclear families and others (some we will figure out later) are the common reasons why people don't want to execute the estate plan. In India, estate duties or inheritance tax is still not applicable, so there is no mandatory requirement to execute the plan.
India is poised to grow at 7 per cent odd in term of GDP and with a stable government at the centre, which is making huge investments in infrastructure and hence overall wealth creation will be on a growth trajectory. People are now investing in varied asset classes. Investments have moved from fixed income or gold to equities, mutual funds, real estate and other asset classes. With start-ups and new entrepreneurs doing well, more wealth creation options have been created. All this also leads to contingencies and risks. And to mitigate these risks one will have to execute an estate plan. We feel that the opportunity in this space is huge and we have not even started to scrape the surface.
The future of estate planning
India has fourth largest population of HNI's with 2.36 lakh HNI's. India's total inpidual wealth stood at $4,365 billion, while China, which topped the list, had a total inpidual wealth of $17,254 billion. By 2025, India is expected to see a 105 per cent growth in HNI population to 483,800 from 236,000, as per the Asia Pacific Wealth report. The number of HNIs Growth is in double digits.
The Indian economy is poised, with a growth rate of 7 per cent plus, a stable government and the big infra spending, the economy will certainly do well and that will add in creation of more wealth. When people create more wealth and estate, they obviously will have to plan and will need a good estate plan. So the future seem very promising and expect growth in the next few years.
(The writer is MD & CEO of dedicated estate planning firm Terentia)