Lawyers are generally very conservative – so it may sound a bit alarmist to hear us say “the world is ending!” At the time of writing, India is coming to grips with the terrifying ‘Severe Acute Respiratory Syndrome Coronavirus-2 (“COVID-19”)’ virus. There is something primal and scary about an airborne threat that can kill you – from something as simple as coming close to an infected person, or touching a door handle, etc. It makes us think about the fragility of life, and the need to protect our loved ones. Some people may believe the steps being taken at present are an overreaction – but are they?
As per the WHO, COVID-19 appears to target the elderly and individuals having underlying illnesses. The WHO mission to China found that 78% of the cases reported as of February 20, 2020 were in individuals between ages 30 and 69. In a matter of barely three months, COVID-19 has infected over 185,000 individuals, resulting in nearly 7,200 deaths, covering 157 countries and territories around the world. The Diamond Princess cruise ship harbored in Yokohama, Japan— was among the lone case involving an international vessel. In India, at the time of writing, 110+ individuals tested positive for the virus, with three fatalities. The virus knows no boundaries, gender or net worth, targeting poor and rich alike. Pandemics are an equalizer in society.
COVID-19 is a clear and present danger, and the next few weeks will be critical to determine if India has been able to successfully contain it. However, the outbreak represents a terrifying truth. Our lives continue to remain vulnerable to threats such as these, and many other equally scary ones. This is our uncomfortable reality. Steve Jobs famously stated “death is the destination we all share, and no one has ever escaped it.”
The ongoing crisis requires us to ‘socially distance’ ourselves, not to stagnate! Many of us will ‘Work From Home’ in the coming weeks. This downtime presents you with a unique opportunity to think about your estate plan and discuss the same with your family, who are likely to be home with you. Thinking about your death and world destruction is not the recipe for a fun afternoon, but it is critical that you don’t ignore it either. Taking the time to think about and implement your estate plan is not something only for the elderly or ill. No matter an individual’s age, the time to start planning is NOW. When your time does finally come, you can make life simpler for your family by having taken proper steps when you were alive.
So what does this mean? What do you need to do, to start your succession planning?
The curse of intestacy
The first step you must consider is writing your Will. This is the simplest and most basic level of planning for anyone, regardless of networth or age. Procrastination and the unwillingness to accept death as part of life are common reasons for not having a Will. Sometimes the realization that you needed a Will comes too late. If you were to die from being infected from the virus, your family should be financially secure and insulated. A Will can make that happen.
Your Will is a legal document that outlines what happens with your estate, setting out guardianship arrangements of your minor children (if applicable) and helps mitigates future disputes / legal challenges between the family. Without a valid Will, your estate will devolve as per the laws of intestacy, which can often result in an undesirable outcome.
To illustrate some of the complexities involved in intestate succession, set out below are the rules of intestate succession applicable for a Hindu male, as per the provisions of the Hindu Succession Act, 1956 (“HSA”) (which is applicable to intestacy in Hindus, Buddhists, Jains and Sikhs):
As per Section 8 of the HSA, the property of a male dying intestate will devolve upon his legal heirs as classified in Schedule I of the HSA in a pre-determined proportion (Section 10 and 11 of the HSA). The Class I legal heirs inherit the estate simultaneously, and to the exclusion of all other heirs, whereas Class II heirs inherit the estate sequentially.
Accordingly, if your intent was to bequeath a particular asset from your estate to a specific member of your family, a best friend, a charity or a domestic help, you need to do so clearly in your Will – the default provisions above are not desirable.
How to make your Will ?
Executing a proper and valid Will allows you to control how your estate is handled. It’s possible to draft up a simple Will on your own, but it’s always better to speak (remotely, given social distancing) to your attorney and get the task done properly. Whilst trying to save costs, any misstep by a self-made Will could jeopardize your entire estate plan and ruin your legacy. You must be careful in clearly identifying your legatees (with personal identification details) and the assets you wish to bequeath.
Making a Will is straightforward. It need NOT be on legal / stamp paper – a simple plain sheet of paper(s) is all you need. After writing out by hand or printing out the Will, it needs to be signed by you in the presence of two independent witnesses. That’s all! Some individuals choose to register their Will with the registrar. However, a Will is not a compulsorily registerable document under Section 17 of the Registration Act, 1908. Non-registration of a Will does not lead to any inference against its genuineness. Speak with your attorney on circumstances when you should consider registering it.
You are also required to nominate an executor in your Will. The executor has the honor and duty of carrying out your wishes as per your Will, and is granted legal power to administer the estate. Careful consideration is required when appointing the executor. It is recommended you discuss the appointment with that person prior to making the Will. By way of suggestion, your spouse and/or your eldest child are typical options – but every family and situation is different, so think carefully. Please click here to access our recent article in LiveMint on the importance of taking legal help if your Will / estate is complex.
By way of some practical tips, if your estate and the needs of your family are fairly basic, direct bequests to individual legatees (i.e. your spouse, kids, servants / staff, friends etc.) / charitable organizations (e.g. WWF India (https://www.wwfindia.org/)) may be preferable. However, if you believe certain assets from your estate such as your promoter shareholding in the family business, your family home, real estate investments, etc. need to be handled more carefully (maybe because other family members are involved with them, having their own ownership stakes), you may consider transferring them to a private trust, either during your lifetime (which avoids the hassles of a probate or contested Will) or via a testamentary trust, which comes into existence upon your demise. Such decisions require discussions with your attorney.
It is also important to note that your last Will and Testament is aligned with any nomination(s) you have made during your lifetime. Our detailed analysis on this is available here.
By way of a summary, please find below a typical lifecycle of a Will signed in Mumbai (where Probate is compulsory):
*The lifecycle of a Will can be categorized into three different stages: the planning stage, the execution stage and post-demise stage. The most procedurally taxing stage begins upon your demise and therefore, it is critical that you carefully select your executor. Your executor will bear significant responsibility in ensuring your estate devolves as per your wishes.
*Your executor will be responsible for obtaining Probate of your Will. A Probate is granted under the seal of a court of a competent jurisdiction only to the executor appointed by the Will. It is conclusive evidence of the validity and due execution of the Will and of the testamentary capacity of the testator. It is compulsory to obtain Probate for a Will by Hindus, Parsis, Buddhists, Sikhs or Jains, executed in the cities of Chennai, Kolkata and Mumbai. In case the Will is executed outside these territories, but for assets situated inside, it would still require Probate.
Other lifetime tools
A Will has its limitations. Nothing happens till you die, the timing of which is uncertain to say the least. It can never address any sudden lifetime contingencies. To plan for such circumstances, you may consider the following to supplement your succession plan:
Establish a private trust
A trust is one of the most sophisticated tools for effective, long term succession and governance planning. Trusts, irrevocable discretionary trusts in particular, are very flexible in terms of management and distribution of assets. It is commonly used by promoters of family business, especially when they wish to retain a fair amount of discretion in terms of distributions, control etc. The convenience of trusts is that they are bespoke, customizable for the unique circumstances of each family. By carefully selecting the best trustees, trust assets (including operating businesses) can be managed efficiently, with minimal burden on family members (but without effectively losing control over such assets). Assets transferred into a trust have an additional layer of protection from creditor claims, and can also help isolate the assets from divorce claims from a disgruntled spouse (chances of which may be high, given the amount of time spouses may spend together during Work From Home!). With large business houses in India being family-owned, these features make trusts attractive.
Outlined below is a short summary of the nuances of the trusts and the relevant parties involved, but speak to your attorney to see how to prepare a bespoke trust for yourself:
Execute a ‘Power of Attorney’
The prospect of being quarantined is a reality today. Your business interests, bank accounts, etc., will remain in limbo until you are deemed fit to be released. To ensure things function smoothly in your absence, you may consider executing a suitable Power of Attorney (“PoA”). You can consider a special PoA, which is restrictive in nature to specified tasks and/or assets, and remains in force until the specified act is completed. The PoA creates an agent-principal relationship under the Indian Contract Act, 1872 and can serve as effective lifetime estate planning tool.
However, depending on the scope of the PoA, the person you choose will be able to take control of your financial affairs. This is a significant risk, so one must choose the recipient of such power with care and due consideration. Your spouse may be a wise choice, however, think about this carefully. This tool can also be effectively implemented by non-resident Indians, who can make a PoA (subject to following certain procedures) despite residing outside India; and effectively delegate powers over Indian properties and Indian banking transactions to a suitable person(s) in India. This significantly reduces the burden of traveling to India for administrative reasons, which is anyway difficult given the virus.
Don’t let fear and panic stop your succession planning
As medical professionals tirelessly endeavor to battle COVID-19 on a war footing, we, as individuals must act prudently and secure the future of our loved ones. The above article is but a short summary of the complexities and nuances of succession planning. We would strongly recommend the downtime be used wisely to discuss this with your loved ones, and then contact your attorney to help execute and plan your estate. Always keep in mind that the end beneficiary of your planning will be your spouse, kids and grandkids; so always keep their wellbeing at heart. The pandemic will hopefully soon abate, but your succession planning will have multi-generational ramifications. Don’t let fear cloud your judgement. Plan sensibly.
For the latest updates on COVID -19 and, please visit the Ministry of Health and Family Welfare’s website: https://www.mohfw.gov.in/