Estate Planning

Estate planning refers to the systematic arrangement of a person’s assets, liabilities, and personal wishes so that wealth is transferred efficiently to intended beneficiaries after death or during incapacity.

In the Indian context, it involves drafting wills, setting up trusts, making nominations for financial products, and appointing powers of attorney. The process also considers tax efficiency, family dynamics and regulatory compliance under SEBI guidelines for advisers.

For the NISM exam, you will be tested on the definitions, the purpose of each instrument, and the adviser’s role in ensuring that the client’s plan aligns with legal requirements and the client’s risk profile.

• Estate planning reduces disputes among heirs.
• It can minimise estate‑related taxes and administrative costs.

The four pillars of a typical Indian estate plan are a Will, a Trust, a Nomination and a Power of Attorney (PoA). Each serves a distinct purpose and together they provide comprehensive coverage.

A Will is a legal document that specifies how assets should be distributed after death. It must be executed according to the Indian Succession Act, 1925, and is subject to probate.

A Trust, often a family or revocable trust, holds assets during the settlor’s lifetime and can continue after death, bypassing probate and providing greater privacy. Nomination is a simpler mechanism, primarily for financial instruments like mutual funds, life insurance and bank accounts, allowing the nominee to receive proceeds without going through probate. A PoA authorises another person to act on the client’s behalf in financial or personal matters if the client becomes incapacitated.

Will: Must be signed by the testator and two witnesses. It can be revoked or altered anytime before death. In India, a will does not automatically transfer assets; the executor must obtain a probate order from the court.

Trust: Created by a settlor, managed by a trustee, and benefits the beneficiaries. Trusts can be revocable (modifiable) or irrevocable (once created, cannot be changed). They are useful for protecting assets from creditors and for minor beneficiaries.

Nomination: A simple declaration made on the account opening form or policy document. The nominee receives the proceeds without any legal contest, but the nomination does not override a Will.

Power of Attorney: Can be general or specific, and durable (continues after incapacity). Under the Indian Power of Attorney Act, 1882, the PoA must be registered if it deals with immovable property.

Step 1 – Asset Inventory: List all movable and immovable assets, liabilities, and existing legal documents. Accurate valuation is essential for calculating the net estate.

Step 2 – Define Beneficiary Objectives: Understand the client’s wishes regarding distribution, charitable goals, and protection of minor heirs. This aligns with the adviser’s suitability assessment.

Step 3 – Choose Appropriate Instruments: Based on the client’s objectives, decide whether a will, trust, nomination or PoA (or a combination) is required. Draft the documents with legal counsel.

Step 4 – Review Tax Implications: Although estate tax has been abolished in India, capital gains tax on the transfer of assets and stamp duty on property conveyance must be considered.

Step 5 – Execution and Registration: Ensure proper signing, witnessing, and registration (especially for PoA and certain trusts). Finally, store the originals securely and communicate copies to trusted parties.

India abolished estate duty in 1985, so there is no direct estate tax on the transfer of wealth after death. However, advisers must be aware of indirect tax consequences.

When assets are transferred, capital gains tax may arise if the assets have appreciated in value. For example, the sale of a residential property inherited by a beneficiary may trigger capital gains tax based on the cost of acquisition of the previous owner.

Stamp duty and registration charges apply when immovable property is transferred through a will or trust. These are state‑specific percentages and must be factored into the net estate calculation.

An investment adviser must integrate estate planning into the overall financial plan. This includes assessing the client’s risk tolerance, liquidity needs and succession goals.

Advisers should recommend suitable instruments, explain the tax and probate implications, and ensure that the client’s portfolio is structured to facilitate smooth transfer (e.g., using joint accounts, demat holdings with clear nomination).

Compliance with SEBI (Investment Advisers) Regulations, 2017 mandates that advisers disclose any conflict of interest, obtain informed consent, and maintain records of the client’s estate planning instructions.

SEBI (Investment Advisers) Regulations, 2017 require advisers to maintain a written record of the client’s estate planning instructions, including copies of wills, trusts and nominations.

Advisers must also perform a suitability assessment under SEBI’s Know Your Customer (KYC) norms, ensuring that the chosen instruments align with the client’s financial goals, risk profile and family situation.

Failure to disclose conflicts of interest or to keep proper documentation can attract penalties up to ₹5,00,000 or suspension of registration, as per SEBI’s enforcement powers.

Mistake 1 – Assuming a nomination overrides a will. In reality, a will can revoke a nomination if the testator expressly states so.

Mistake 2 – Ignoring the need for probate. Many candidates forget that assets held solely in a will require probate, which can delay distribution.

Mistake 3 – Not updating the estate plan after major life events. This leads to unintended beneficiaries or tax inefficiencies.

Mistake 4 – Overlooking state‑specific stamp duty rates on property transfer, which can affect the net estate value.