Inheriting Wealth or Mess

Investoshashtra !!!📜📜📜
ईन्वेस्टोशाष्त्र !!!📜📜📜

When we born we were like tender flower.But in zest of living life unknowingly we accumulate so much of trash (for others) which becomes difficult to manage for next generation.

Recently, I come across couple of cases where children's have settled down abroad and parents are no more. 

Parents had bank account with multiple banks, investments in all possible instruments like LIC, Bank FD, Postal Schemes,MF,Shares, SCSS etc etc.. and cherry on the top had several real estate.

Misery is now kids themselves doesn't know about what they have inherited whether it is a wealth or mess.

More than grief of losing parents they are worried about sorting out this mess in little time they have.

In Gujarat this is the story of most of the  families and will grow bigger as migration of next generation is increasing more and more.

So if you are one of such parents try consolidating holdings and limit it to financial assets as you grow older, which will ease transmission. 

Most important - Create will. If you fail to do so you become a reason for dispute amongst your own children's who had harmonious relationship when you were alive.

Try and *inherit memories, values together with wealth, but not the mess.*

A must list, before I die...

We wish all our reader's a healthy and peaceful long life. But we all know we have to die one day.

Have you ever thought why it is only me, who knows about all the investments, deposits, assets and liabilities. May be for convenience we would be accessing bank accounts and password of entire family. But is it not necessary to update atleast one of the family member about it.

Recently a report was published in the news paper that almost 64000 Crore is lying unclaimed in bank, post office, insurance company and EPFO for more then 10 years.

It suggests that there were people who invested this amount and have not passed on details to their heirs, who can claim it.

It take lot of efforts and hard work to earn, save and create wealth. Being Indian parents we always wish that we should pass on our legacy to next generation. But only wish doesn't work.It needs to be planned.

In today's fast moving technological world everything is either stored on our laptop,computer or mobile and have been saved with the password which only we know.

There was a recent case in which a client had updated his spouse about all the investments and name of the files stored in the computer. But when he died and her wife tried to access the details she was surprised to note that computer was locked with an password, which he didn't shared.

Remember in case of sudden death. Family has to bear 2 kind of losses one is emotional and other is financial loss. No one can fill the emotional gap only time can heal it up. But together with it if they have to go through financial problem then it is unbearable, that too when enough resources were planned.

Just assume that YUM DOOT has come to your dream and given you notice of 1 day. I think first thing you would do is provide with all your financial details to your family member.

For your ease trying to put down list of things you must prepare, update and give it to your family members :

• Will : Prepare a will. It is a simple statement mentioning how you wish your wealth should be distributed to your heirs. It is perceived that it requires lot of legal and technical hassles. But let me tell you that you may create it on a simple piece of paper which needs to be signed by 2 witnesses.

• Bank account details with login and passwords.

• E-mail account login and password, only in case there is no confidential details which you have even hided from your family and don't want them to know even after death

• Laptop and smart phone login/password

• Debit and credit card pin

• Nominee : Ensure all you investments have a nominee. Legally nominee is not the owner of the asset but just an authority to receive proceeds. If your one son as nominee and you die without making a will your another son,daughter or even your cousin can challenge it in court.  

• Details of Saving Bank Account,Locker, Fixed Deposit, Demat, PF, EPF, Insurance (Life and non Life).

• Details of all your investment like Mutual Fund, Stocks,Physical Gold, Silver, Real Estate.

• List of outstanding loans.

• Money given or taken from friends and relatives.

Remember only providing the details will not solve the purpose it needs to be updated at regular interval. Your birth date or anniversay date can be a good reminder to update the list.

Great Investment opportunity for lower tax bracket or no tax individuals

Great news specially for senior citizens who are facing really hard time with their retirement funds because of high CPI inflation of almost 10%/Yr. for last 3 years and low interest rates.

RBI has atlast launched the much awaited Inflation Indexed National Savings Securities - Cumulative (IINSS-C) as promised. It is in continuation of Inflation indexed bonds (IIB) launched earlier. 

IIB's were targeted at large investors, so the markup- the additional payment over and above the inflation rate or the real coupon (interest) was arrived at via competitive bidding. RBI plans to pay this real Coupon on regular basis, then inflation component will be added to the principal and paid only at the time of redemption.

In a way it offers twin benefit first it protects the principal from inflation and you get the real value at maturity and second is an increase in cash inflow every year even when the real coupon rate remain constant.e.g. If Rs.1 Lakh invested in IIB and real coupon raet is 1.5% and the Whole sale price Inflation for 1st year is 5% then real payour for first year would be Rs.1500(1.5% of Rs.1 Lakh) and that for the 2nd year will be Rs.1575(1.5% of 1.05 Lakh).

But as the IIB were linked with WPI (Wholesale Price Index) it could not interest retail investors. As historically investors are more affected by CPI (Consumer Price Index) which is much above WPI. Like WPI for November was 7.52% whereas CPI was 11.24% i.e. a difference of 3.72%.

Now RBI has realised the same in the benefit of retail investors and has come up with IINSS-C (Inflation Indexed National Savings Securities - Cumulative) which is linked with combined CPI .Rbi has also avoided competitive bidding and markup fixed of 1.5% over CPI.

Obviously it is going to be a great instrument for the people who are in lower tax bracket or with non taxable income. I think they are the one who needs real protection from falling interest rates and rising inflation.

Appending below the scenario and benefits to investors :

IINSS-C Returns for difference tax Bracket Considering markup of 1.5% on base rate Tax Slab NIL Inflation Rate 8.00% 9% 10% Interest Rate 9.50% 10.50% 11.50% Effective Rate 8.00% 9.00% 10.00% Effective Rate due to half yly compounding 9.73% 10.78% 11.83% Tax Slab 10.30% Inflation Rate 8.00% 9% 10% Interest Rate 9.50% 10.50% 11.50% Effective Rate due to half yly compounding 8.73% 9.67% 10.61% Tax Slab 20.60% Inflation Rate 8.00% 9% 10% Interest Rate 9.50% 10.50% 11.50% Effective Rate 7.73% 8.56% 9.39% Tax Slab 30.90% Inflation Rate 8.00% 9% 10% Interest Rate 9.50% 10.50% 11.50% Effective Rate 6.72% 7.45% 8.17%

Now lets look at negative side - Interest is accrued and compounded every six months. Hence even though you do not receive interest tax has to be paid in each financial year.Looking at above calculation the IINSS will still not be that attractive for retail investors in higher tax bracket and also for senior citizen who requires regular income should avoid IINSS-C.

Instead of that it is better to invest in Tax free bonds, although it doesn't carry guarantee of Central bank.But with good credit rated bonds you have much better returns net of tax annually with much lower risk.

Save your wealth from going into wrong hands...

Recently I came across a study that shows 80% of the pending cases in High Court are related to property. Todays' newspaper shows banks are sitting on a pile of FD's amount to Rs.3600.00 Crore which are unclaimed for more then 10 years after maturity.

In most of the cases reason might be that the FD holder might have died and his successor doesn't know about it or proper nominations were not done.

Why is it so that the same brother and sister who used to live as family suddenly becomes enemy after their parents death, it doesn't end there but is followed by unending process of court cases/litigation and high expenses.

We can stop this from happening in our family or friends by just preparing a small one or two page statement called as will or Estate Plan. 

Contrary to perception, it is not necessary to write will on stamp paper or even get it registered. You can write a will on plain paper and it will be as legally valid as one prepared by a lawyer.

It's a myth that only super rich need to write wills. The fact is that everyone who owns a asset in any form should write a will so that his heirs do not face problems in accessing what is rightfully theirs and avoid disputes among them.The assets can be anything - Property, Jewellery, Painting, Cash, Bank FD's, Shares, Mutual Funds ,Insurance Policies, etc...

For most people, will making is do it yourself exercise. the only requirement is that the will should be legible. However, if your assets and ownership are a little complicated , you may seek help of a legal professional to draft the will.

Essential clauses of Will

1. Name - The name and description like age, religion etc...of person making the will.
2. Revocation of earlier wills : A declaration that the present will is his last will and he revokes all other earlier wills.
3. Appointment of executors : A executor is a person who has been confided with the job of execution of will.
4. Mention that you are not under any influence or duress while making the will. The witness must also attest the same at bottom.
5. Give clear details of Assets and how it should be distributed.
6. Residue Clause - It helps to include any other asset you may have left out inadvertently while enumeration your net wealth.
7. Mention full name of beneficiaries clearly with address.

Points you should know :

•  Preparation of will does not require any specific language
• Will need not be stamped
• Registration of will is not mandatory
• Will can be revoked by testator (Person making will) anytime during his lifetime.
• It is important to note that the attesting witnesses need not know the content of the will
• Review your will at regular intervals for the changes in your assets  or due to change in circumstances (Like beneficiary or executor mentioned in will dies).]

Consult your financial planner as Estate planning is an integral part of Financial planning.

By sparing five minutes in a year you can avoid lot of litigation within your family member and also save them from lot of expenses and mental agony.