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What is Wealth & Estate Planning

What is Financial Planning

Every one of us has a legacy. Most of us work lifelong to create it. In the modern world, a lot of that legacy IS material - money in the bank, property, works of art, jewellery, vintage fabrics and so on.

And well, a vital part of creating that legacy is to ensure that our successors get the maximum benefit from it.

Ensuring your successors get their “goodies” quickly and efficiently is Estate Planning. Estate Planning is a melting pot that combines the assets, taxation, inheritance laws etc. How well we serve it up is really an art.

The best of legacies, if all muddled up with endless trips to the lawyers and accountants is, well, - less a gift, more a burden. However, if the inheritance is well organised and accessible, its way better utilized.

So effective wealth creation is lost without Estate planning - the art of structuring your wealth, preserving and tax-optimising it - for us to use and then readied for transfer to the next generation. Wealth planning is a mix of tax planning, wealth protection, estate planning and business succession planning - it covers our total worldly wealth.

Individuals, increasingly, need a comprehensive wealth management strategy. Unlike our grandparents, we have frequently changing goals and priorities. The rule of primogeniture or first-born-gets-all has lost ground. Women are getting a fairer share in personal and business assets. We also have a far more litigant society. Also with the increasing inequality of income and wealth, to bring parity there is a growing likelihood of introduction of Estate Duty/Tax. Wealth and Estate Planning is essential - for the inheritor AND the creator.

In financial terms, Wealth refers to the state of being rich, having plentiful assets - money, investments, real estate, business etc.

Wealth Planning:

The layperson frequently thinks of wealth planning and wealth management as one and the same. Both are understood as a blueprint or plan to manage one’s money. We misunderstand it as organising cash flow under the different categories or requirements we have - present and future. Failing to appreciate the role and function of Wealth Planning, we ask only the following questions:

1. How much should one save?

2. How much should one spend?

3. How much money is required for the future lifestyle without compromising?

This is Wealth Management, for which you take the following steps:


1. Define your goals

2. Estimate your present financial position - Assets & Liabilities, Income, Savings etc.

3. Choose your investments according to your life stage - age, dependents, ailments, upcoming major expenses etc.

4. List Different Asset Classes for Investing, considering your aptitude for that type of investment, risk profile and risk appetite

5. Calculate Your Retirement Corpus.

6. Getting the Money that you need for Retirement Corpus

And be prepared. To be well prepared in the future could mean reconsidering, reducing spending in the present. The exercise in self-assessment and fiscal discipline will make Wealth Planning an easier pursuit.

Wealth planning has a far broader ambit. The focus is NOT creation of wealth; rather it deals with every aspect of HOW to preserve wealth. The aim of Wealth Planning is:

Ø Protecting the wealth and value of all assets - including life;

Ø Avoiding tax leakage by making all our financial transactions tax-efficient; and

Ø Passing on the assets we created to the successor of our choice, and therefore ensuring that our wish is duly implemented.

All of the above go hand-in-hand with achieving our goals - while we are living and after us, all in a systematic manner. This is the true essence of wealth creation and progression.

To understand how Wealth Planning works, let’s break it down and get answers to the following questions:

Ø What is wealth planning?

Ø Why should one plan?

Ø Where can we invest to supplement income?

Ø How can we achieve the objectives of a wealth/financial plan?

One aspect that clearly distinguishes wealth planning from management of money is the focus on all the areas of personal financial needs of an individual. These include:

ü Need for protection of wealth, through insurance planning,

ü Optimising the returns on existing assets for the future through investment planning,

ü Planning for the ‘sunset’ years and thus covering the risk of outliving one's corpus through retirement planning and

ü Management of tax flow utilising the benefits provided by regulations through effective tax planning.

Most of us live in the present. At age 24 we may think marriage, children, buying a house are too far in the future. How can we possibly plan for these? We do not have a clear idea about our individual life goals. Goals like retirement, children’s education if ignored until too far ahead in our career or earning span will pose a challenge later

Financial planning

Financial planning is the process of outlining a financial roadmap for your personal milestones and more. To draw an outline for your financial planning, you need to make a clear, realistic assessment of:

A. your finances -income, assets, and liabilities,

B. your goals - current PLUS future financial needs, and

C. Your risk appetite - personal attitude to risk, your capacity for loss- & tolerance level. - Aggressive, Moderate or Conservative

It’s just like a diet plan - you assess your weaknesses, put down your targets, list what habits you need to change and follow through with discipline.

The greater clarity and thought you put into a personal financial plan, the better it will tell you how to use your money to achieve your goals - both short-term and long-term targets. It has to take into account inflation, real returns and taxes. For your financial plan to work effectively, YOU need to be systematic, and this in turn will help you ride out the shocks and surprises that are a part of all our lives.

Be prepared - a diet plan may forbid you too much chocolate; likewise your financial plan may require changes or cuts to present expenses in order to keep you safe in the years ahead.

Financial Planning is a process. So don’t put it down to a one time activity. The first round of, planning could feel tedious - time and thought consuming. The reward however is CLARITY. Clarity of what you want to achieve, what you CAN achieve and a far greater control of how to go about it. You must revisit it. Every six months to recheck, when things are going as per plan. More importantly, get back to it when there are events that affect your finances - increments or pay cuts, an inheritance received, sudden medical shocks etc. You might need to reset or alter allocations and asset classes.

Financial decision-making is a complex process. Most decisions in our adult lives have financial implications. A professional or expert can help you think through it more objectively, faster and with greater accuracy. He/she would be the voice of experience and reason. For example, it may be your dream to own a luxury car. Your current income may even support the purchase. However the investment it needs today would mean saving less, possibly compromising on health care or retirement obligations in the future. A little brainstorming with a professional and you will avoid that pitfall. You may get a set of wheels but those that will not derail your long term financial needs.

Prepping for the long-term includes figuring out who you would like to have your wealth after you. Succession is an important but often neglected component of financial planning. You must take care of succession through estate planning. After all it is your hard earned wealth and so you are entitled to say how it should be distributed.

Here too, professional advice can go a long way. A trusted professional by your side will hold you in good stead. In fact the longer your association with a particular professional the better they know your risk appetite, your finances, responsibilities etc. In addition, they are well versed with the nuances of different asset classes, the risks associated, each instrument of insurance and investment. Therefore they can look at the bigger picture - your aims and aspirations alongside the opportunities available for wealth management. Based on this, they guide you on how to steer your finances in the direction that achieves the goals you have in your comprehensive financial plan.

Succession Planning

The number of Indians who want a say in the disbursement of their legacy is steadily on the rise. Wealthier families are increasingly looking at succession planning with painstaking detail.

Not so long a person wrote a will, signed it in the presence of a witness or two and left it to be executed by a trusted family member or associate. Gradually more of us are searching the net for “Wills and Probate”. At its simplest, this means creating a will and authorising a person to carry it out.

In western society, especially the United States of America, Estate Planning is handled by legal experts. It is a well-accepted and evolved practice. There are Specialists who specialises in overseeing every detail of the transition of wealth from the “testator” or maker of the will to the successor or beneficiaries. Their expertise lies in ensuring that the transfer of assets is tax compliant, legally sound and speedily executed. Of course, this service draws most of its clients from High Net worth Individuals and wealthy families who have varied assets spread over different states and countries.

In India the trend is catching on. Business groups especially single promoter establishments; family managed businesses are seeing the benefit in succession planning. Conflict between successors does lead to wealth erosion. Legal cost, opportunity cost, absence of leadership in the business etc. could simply destroy decade’s worth of effort and asset. Succession planning ensures that complex conglomerates or single industry corporates can carry on functioning with little or no loss in value, generation after generation.

Estate planning

Estate planning is the process of figuring out who manages your assets in the event of your incapacitation or demise. It is a combo of financial and succession planning. It is done in consultation with experts who specialises in estate and tax law. The estate is the sum total of your movable and immovable assets. Estate Planning makes provisions for estate management, estate preservation and creating a legacy for the estate. It is done with the same intent as succession planning - least disruption in transfer and minimal tax liability. Estate planning can be done in one of several ways – through nomination, wills or trusts or a combination of all.

A vast majority of Indians tend to neglect estate planning. It is, at times, just complacency. At other times we don’t realise the tax benefits and how much better we can preserve our legacy. Hence there is no motivation for Estate Planning. It could also be avoiding conflict among beneficiaries since if our intent is in the open it may invite opposition and disagreement and leave us feeling vulnerable. This is in sharp contrast with countries such as the US and UK. where inheritance taxes are applicable. For example in western countries like USA, the estate tax is 40%on the inherited wealth. So people’s focus on estate planning is a part of planning their taxes.

Presently, in India estate planning is poorly understood, therefore hardly accepted. The fall out is that the intended beneficiaries do not receive their due. In the absence of a clear estate plan, there are legal wrangling, interpretations of what the creator intended and so the intent that the estate must pass on, in a timely and hassle-free manner, is defeated. We have all witnessed such bumpy, even bitter transitions among family, friends, business moguls and others.

Also there is noise of a likely re-introduction of Estate Duty Tax that can affect the inheritances.

All this makes a sound case for the estate planning.

What is estate planning?

We Indians have one of the highest per capita saving rates. On an average Indian saves 30-35% of their net income. The reasons for saving include lack of social support for

Senior citizen from government (in short, planning for our own retirement), habits (we have seen our parents saving extra pie for rainy days) and goal based saving (like for buying house, car, etc.) amongst others.

To sum up, Wealth and Estate Planning are intended to Propagate, Preserve and Pass on.

Why Planning?

We Indians have one of the highest per capita saving rates. On an average Indian saves 28% of GDP (gross domestic product). The reasons for saving include lack of social support for senior citizen from government (in short planning for our own retirement), habits (we have seen our parents saving extra pie for rainy days) and goal based saving (like for buying house, car, etc.) among others.


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