Succession Planning Wills & Trusts. April 18, 2017

Transcription

1 Succession Planning Wills & Trusts April 18,

2 Contents» Estate Planning» What is a Will?» Important elements of a Will» Kinds of Wills» Who and when?» Why you should write a Will?» Some questions you should have answers for!» Probate» Trust» Types of Trust» Why should you form a trust?» Power of Attorney» Types of Power of Attorney and in circumstances you require one» Taxation of Trusts» Case Study 2

3 Significance of Life Cycle Stages RETIREMENT Will BIRTH OF CHILDREN Incapacity? Disability? Wife? Son? Daughter? Other beneficiary? CHILDREN S EDUCATION BUSINESS CHILDREN S MARRIAGE Divorce? 3

4 What is Estate Planning» Estate planning is a process of legally planning the disposition of current and future assets.» The effective techniques of estate planning are- Wills Trusts ESTATE PLANNING WILLS TRUSTS Hindu - Self acquired Muslim - Christians - 1/3 rd Forced heirship in certain cases 4

5 What is a Will?» Will means the legal declaration of the intention of a testator with respect to his property which he desires to be carried into effect after his death.» A Will helps to address some important issues- Clarity regarding distribution: This is important as assets can be distributed as one likes. Avoidance of disputes: An explicit distribution of assets minimizes the possibility of disputes among family members particularly as personal laws otherwise take over. Confidentiality: Doing what you want to do.» A Will gives you an opportunity to make provisions for minor children and children with special needs as per your wish.» A Will helps you address the transfer of offshore assets.» Supporting a cause close to your heart» Disinheriting certain relatives 5

6 Important elements of a Will» A Will must be dated.» It must be signed by the testator (Person creating the Will).» It must express a desire that the testator s wishes must be carried into effect after his death. Conditional or Contingent» There must be a disposition of property. Oral Joint» A Will must be attested by two witnesses. A witness need not read the contents of the Will before signing it. A Witness or his/her spouse cannot be a legatee in the Will. Kinds of Wills» Domicile of the testator Holograph Mutual Sham 6

7 Did you know?» A Will need not be typed, stamped or registered.» The Executor is the person who is responsible for carrying out your wishes as stated in the Will. If you do not appoint an Executor in your Will, the court will appoint an Executor.» Nominees hold assets only in trust, they will not be the legal owners of assets after you.» A Will can be changed any number of times. You can change or revoke by making a new Will.» It is not mandatory for a Witness to read the contents of a Will before signing. The Witness only confirms that you have signed your Will in his/her presence.» A beneficiary cannot be a witness. A witness s wife must also not be a beneficiary. However, a beneficiary can be an Executor.» A Will is always revocable even if testator may declare it irrevocable. When should you make a Will?» No specific right age but some factors to consider are- Marital or relationship status. Children. Situations of divorce and remarriage. Terminal illness Ensuring the continued contribution to a social or charitable cause. 7

8 Some questions you should have answers for!» To whom will your assets go if you die without a Will?» Who will look after your child/children if something were to happen to you and your spouse?» What are your and other family members rights in ancestral property?» Do you have rights in family property if you have had an inter-caste marriage?» Does your spouse or your children know about your assets/investments? Does ANYONE know?» Will your children living abroad be taxed on the assets passed in the Will? 8

9 Intestacy Heirs Hindu Male Hindu Female Muslim Christians Mother, Widow, son, daughter Husband, son, daughter Sharers Spouse, Father, Mother Daughter Father Son s daughter s son/daughter, brother, sister Heirs of the husband Residuaries (Agnates ) Son and Daughter Widow - 1/3 Lineal descendants 2/3 Widow - 1/3 Kindred 2/3 Agnates (male ancestor) One of fewer or no degrees of ascent Mother, father Distant Kindred (Uterine) Widow - whole Cognates (Common female ancestor) One of fewer or no degrees of ascent Heirs of father Heirs of mother Hindu Succession Act Sharia Act Indian Succession Act If there are no heirs then the property of the deceased reverts to the Government 9

10 Probate» Probate means the copy of a will certified under the seal of a court of competent jurisdiction with a grant of administration to the estate of the testator section 2 (f), The Indian Succession Act, 1925.» Probate gives the power to a person appointed as the executor under the Will to distribute and/or transfer the assets of the testator (who writes the Will) as per the wishes/direction mentioned in the Will which otherwise would not be possible for any other person to do it on behalf of the deceased.» Probate in India is compulsory in all the presidency towns such as Bombay (Mumbai), Calcutta (Kolkata) and Madras (Chennai). A voluntary probate can be obtained in other cities to establish the rights of executor to administer the estate of the deceased and transfer the assets in the name of the beneficiary as stated in the deceased s Will.» The jurisdiction to grant probate is with the district courts. 10

11 Power of Attorney» Power of Attorney includes any instrument (not chargeable with fee under the law relating to courtfees for the time being in force) empowering a specified person to act for and in the name of the person executing it. section 2(21), Indian Stamp Act, 1899.» A Power of Attorney authorizes a person to take financial and other decisions and implement them on your behalf when you are unable to make such decisions due to any incapacity.» A Power of Attorney is an instrument which helps you to give your limited or all power to take decisions related to your finance and assets which may include selling your home, making investments, operating bank accounts, getting a reverse mortgage so that the money can be used for your care and well being in-case of an illness.» A Power of Attorney can also be used to appoint another person to appear, sign and/or file cases in the honorable courts of India.» Power of Attorney can be either general or specific.» Stamp fees payable on Power of Attorney in Mumbai is Rs. 500 (Rupees Five Hundred only) 11

12 Types of Power of Attorney and in circumstances you require one» There are two types of power of attorney; General power of attorney- this type of power of attorney is general with respect to its subject matter and allows the agent (person appointed to do the acts) to performs all the acts and not the specific ones. Specific power of attorney- this type of power of attorney is specific with respect to its subject and allows the agent to perform the acts specifically mentioned in the power of attorney.» Circumstances under which you require a Power of Attorney- Physical incapacity To handle legal affairs Old age Travelling overseas 12

13 Trusts» Where a person has property or rights which he holds or is bound to exercise for on behalf of another others, or for the accomplishment of some particular purpose or particular purposes, he is said to hold the property or rights in trust for that other or those others, or for that purpose or those purposes he is called a trustee. A trust is a purely equitable obligation and is enforceable only in a court in which equity is administered. section 3, The Indian Trusts Act, 1882.» There are primarily two types of trusts; Private Trust and Public Trust. SETTLOR creates Private 1. For persons 2. Fixed tenure Public 1. For a cause 2. No fixed tenure TRUSTEE manage TRUST FUND BENEFICIARIES receive benefits 13

14 Taxability on creation of a trust» Transfer of a capital asset under a gift, will or an irrevocable trust is not treated as a transfer as per S 47 (iii)» Creation of a trust by a person through a gift or transfer of property whether movable or immovable, to his relatives shall not be chargeable, as per S 56(2) in the hands of the transferee. 1. ITO v. K.P. Varghese [1973] 91 ITR 49 held that the expression "gift" in Clause (iii) of Section 47 of the I.T. Act, 1961, should be understood in the ordinary sense and in the light in which it is understood in the Transfer of Property Act - "voluntary transfer of real or personal property without any consideration or, more strictly, without a valuable consideration". 14

15 Taxability of revocable transfers to a trust Trust Transfer Revocable? Irrevocability temporary or permanent? No Yes Trust income will be taxable in the hands of the settlor from inception Trustee shall be liable to pay tax in representative capacity Inheritor /beneficiary shall be liable to pay tax from date of acquisition of the asset/income 15

16 Taxability of Private Trusts Are the shares determinate? SEC 164 No Yes SEC 161 Profits include business profits? Profits include business profits? Yes No maximum marginal rate No rates applicable to an AOP subject to certain conditions rates applicable to each beneficiary subject to certain conditions 1. Trustees of Miss Gargiben Trust 130 ITR in determining tax payable by trustee on capital gains, trust income already assessed on beneficiary could not be added for rate purposes 2. Rajagopal Reddy v. Padmini Chandrasekharan [1995] 213 ITR 340/ 79 Taxman 92 (SC) - Benami not applicable to trustees 3. If a specific trust is having its beneficiaries as individual and discretionary trusts, but share of each of individual as well as discretionary trusts is specific, keeping in view that trustees of First Level Trust are to be considered as representatives, Assessing Officer can assess income of First Level Trust at maximum marginal rate as per section 164 to extent of respective share of such discretionary trust and at normal rate as per section 161 to extent of share of individual beneficiaries Neo Trust 54 taxmann.com 1 (Gujarat) 16

17 Taxability in the hands of beneficiaries» Beneficiaries are taxable if the trust is not liable to tax Trustees of H. E. H. Nizam s Family (Remainder Wealth) Trust 108 ITR 555 -even though a single return or a single assessment order may be made, there has to be as many assessments on the trustees as there are beneficiaries. Where there is a residue, there has to be one more assessment on the trustee in respect of the same composite return. Estate of HMM Vikramsinhji of Gondal* 45 taxmann.com 552 (SC)» Beneficiaries being minors All income accruing to the minor child would be clubbed with his parent whose total income is greater. In case the parents are separated, the income of minor will be included in the income of that parent who maintains the minor child in the relevant previous year.» Beneficiaries being a spouse In case an individual transfers an asset, without adequate consideration, to a person or an association of persons, for the benefit of spouse, the income shall be clubbed in the hands of the transferor. Tulsidas Kilachand 42 ITR 1 (SC) shares held in trust for benefit of wife 17

18 GAMUT OF SERVICES» Estate audit :- Comprehensive audit of your estate to ensure smooth and efficient transfer of assets to your intended beneficiaries» Will writing & related services - Complete suite of services including will drafting, will updation, registration, will safe- keeping, probate and executorship services» Minor/special child protection - An unique trust product to safeguard the interest of a minor/special child on death of his/her parent» Bereavement Advice - Comprehensive advice to IFAs to help client s family to take control of the entire assets on death of the client without a will (intestate)» Power of Attorney services- A complete package including PoA drafting, safe keeping of PoAs and verification of trigger events before hand-over to PoA holder to prevent possible misuse» Other Advisory Services - These are customised advisory services along with implementation assistance relating to estate and succession planning 18

19 Mumbai Delhi Hyderabad Chennai A-902, Marathon Futurex, N. M. Joshi Marg, Lower Parel (E), Mumbai P-57, South Extension-II, New Delhi , Mayfair Gardens, Road No. 12, Banjara Hills Hyderabad A, Jamal Lakshmi Nivas, 1 st Avenue, Indira Nagar, Adyar, Chennai Singapore # , Tanjong Rhu Singapore This document is for informational purposes only and should not be construed as professional advice. The user should not construe the material contained herein as business, financial, legal, regulatory, tax or accounting advice. WillEffect disclaims any and all liability to any person for any loss or damage caused by errors or omissions, whether such errors or omissions result from negligence, accident or any other cause. WillEffect assumes no liability for the interpretation and/or use of the information contained on this document, nor does it offer a warranty of any kind, either expressed or implied C. C. CHOKSHI ADVISORS