Estate and succession planning is gaining significant importance among various families, not just the elite, as they strive to create a structured plan for managing and transferring their assets after death. This planning is crucial to ensure the future financial stability of the family.
Swati Saxena, the Founder & CEO of 4 Thoughts Finance, highlights that people opt for estate planning due to early financial gains, as it helps manage and transfer their assets through a Will or Family Trust. The process aids in anticipating potential future challenges for family members, such as disputes among relatives or managing wealth effectively.
Ring-fencing is an essential tool in estate planning that helps safeguard assets from various threats, ensuring the smooth transfer of wealth according to one’s wishes. By ring-fencing specific assets, families can protect their wealth from creditors’ claims, legal judgments, divorce settlements, business liabilities, bankruptcy claims, and fraudulent claims. Furthermore, protection also extends to medical or long-term care costs if structured properly.
Trusts are widely used to ring-fence assets, providing protection and allowing for the differentiation of economic interests and management. Trusts can include conditions to safeguard against scenarios like remarriage. They are an effective tool for protecting assets and providing security, but it’s essential to set them up as a precaution rather than as a measure to defraud creditors.
Insolvency is another aspect where ring-fencing can be beneficial. In the corporate insolvency context, the existing process in India only applies to corporations and individuals who have given personal guarantees. However, personal insolvency or bankruptcy protection extends to insurance policies, pension funds, unencumbered houses, personal ornaments, vehicles, assets held in trust on behalf of a third party, and assets that are not vulnerable to clawback as a fraudulent transfer.
In the event of a divorce, ring-fencing can help safeguard a family’s assets. Matrimonial laws in India prohibit a wife from claiming ownership of her husband’s property. To safeguard assets, families can opt for methods like clearly spelling out the extent of ownership in joint assets, creating a family settlement, or placing assets under an HUF.
For families with dependent children, ring-fencing can provide financial security. A private family trust can be used to hold and control the family’s assets through trustees, while placing assets under an HUF allows for shared control and protection against individual family members transferring their undivided share in the property.
In conclusion, estate and succession planning, particularly ring-fencing, can offer several benefits such as protecting assets, reducing estate and inheritance taxes, and ensuring that wealth is passed on smoothly according to one’s wishes. It is essential to engage in proper structuring and planning to optimize tax benefits and ensure compliance with tax regulations.
