Most people do not take estate planning seriously. Their basic approach towards money management is one-dimensional - earn it and see it grow. For many, the happiness lies in just counting the numbers.
Very few give any serious thought about passing on this accumulated wealth to the next generation smoothly. Of course, the intention is not to make life troublesome for the family. In fact, most would admit that they find a lot of happiness in the fact that they have accumulated enough for their future generations. However, the basic problem is that they are unable to devote any serious time to the issue of redistribution.
Take the example of Rajan Desai (name changed), a businessman. His prime focus was growing his business quickly. He worked hard to achieve these goals and managed to build a strong business over time.
However, owing to a very harsh work schedule, he suffered a sudden cardiac arrest. This left his wife and two children in a very dire state, not just emotionally but financially as well.
And it was mainly because Desai's wife had absolutely no clue about his wealth. The initial few months were spent collecting all his business and other financial documents. While she was aware of a few bank accounts, insurance policies and investments, she had no idea about how his business functioned.
After a while, she figured out that Desai had lent huge sums of cash to a few businessmen without any documentation. Most of these people were unwilling to pay now. In fact, some even refused to acknowledge the loans. Since these people were his business partners in many ways, Desai had lent this money in good faith. But lack of paperwork meant that his wife did not have any evidence to track the money.
There was also a double whammy when she realised that there were vendors who had to be paid. Not just this, there were several life and business insurance policies that were untraceable.
Finding themselves in a serious financial stress, the family took the help of a family lawyer and sold the business. Once all the vendors' bills were settled, Desai wife and children went to stay with her parents.
The fact was that the family had considerable wealth, but lost it because of bad planning on Desai's part.
This scenario is quite common. Often people, in their zeal to make money and grow, forget the essentials. While things might be a bit easier for the salaried, entrepreneurs often get into a lot of cash deals with fellow businessmen, primarily to save on taxes. And as in Desai's case, much of this unaccounted money is untraceable for the family, when they need it the most.
It is important to remember that while creation and preservation of wealth are important objectives, but it must also be followed by proper planning for distribution. Your overall financial plan must consider distribution of wealth as a key objective to help smooth transition. This is a big help in avoiding any conflict, and financial struggle for the family.
Here are some of the questions that you should be asking yourself:
Keeping these things in mind, one has to make sure that there is a clear distinction between making money and ensuring proper distribution of wealth.
Estate planning is the process of transferring all your assets (collectively referred to as your estate) to your beneficiaries, according to your wishes. This can also include the medical care that you wish to receive, in case you are unable to take decisions for yourself.
There are several areas of estate planning such as:
Estate Planning is not a simplistic exercise and requires a lot of introspection by the individual or together as a couple. It becomes a little more complex if there are minor children involved. One must start thinking about estate planning from the moment one starts working and has dependents.
Even if you do not have dependents, making sure that your assets would be properly distributed helps to ensure fewer conflicts.
The writer is director, MyFinancial Advisor.