Dear readers,
This is the final instalment in the personal finance series. We have seen in previous articles, the importance of Investing and Protection in personal finance. To complete the IPL trio, we shall now discuss the often-forgotten facet of personal finance: Legacy Planning.
Let’s start by answering “Why legacy planning?” with a metaphor: think of an ideal financial plan as a 3 legged stool, the three legs being our IPL trio (Investment, Protection, Legacy). Now, understand that Legacy planning is that leg, without which the stool (financial plan) will not immediately fall apart. However, as time goes by, and the weight on the stool (financial burden) builds up, the third leg, i.e. legacy, becomes increasingly important.
For instance: Aman, a 30-year old, self-employed man with a family of 4, is assessing his financial plan. He has been prudently investing, and has built up a robust cashflow purely as passive income. He is also well insured for his life, health and business. He believes that he has successfully become financially independent, and can now devote all his time and effort in work and leisure.
Kahani me twist: Aman has a jealous step-brother named Naman, who is a lazy, wasteful person, who is incapable of earning a living himself. He has always been dependent on Aman, and is constantly eyeing his possessions.
One day, calamity strikes, and Aman dies in a road accident. While emotionally torn, the family at least has the comfort of Aman’s passive income, and his protection plans, which will now provide for the family’s living expenses. But is that so?
Well, Aman never made a will. He believed that wills are a boring old document written by old men on their death beds, and a fit, 30-year-old financially independent man like himself had no need of one. Even so, the wife being the heir apparent, should ideally inherit all of Aman’s assets. But the cruel step-brother Naman, now stakes claim to a large part of the assets, due to which the transmission to the wife is halted, and the matter goes into litigation. Needless to say, the long and cumbersome process is going to cause a lot of mental toll on Aman’s family. And that’s what we mean by Aman’s 3-legged stool crumbling apart, even though it had 2 very strong legs.
By simply creating a will, Aman could have strengthened the only weak leg of his “stool”, and made his financial plan truly fool-proof. If we want to get philosophical about it, we can say that a will is not much different from an insurance policy. It ensures the successor’s peace of mind, and smooth transmission of assets in case of unfortunate demise of the “insured”.
That’s the “why”. Now let’s talk about the “how”. This is the process flow of legacy planning:
i. Take stock of your assets: Includes movable, immovable, intellectual, and all kinds of property in your name.
ii. Decide who gets what part of your property (nominees) after your death, and who will execute the will (executor). Obviously, these need to be trustworthy individuals.
iii. Have the will drafted. This can be done by self, or outsourced for a fee. However, as in everything related to personal finance, it is highly advisable to seek professional counsel.
iv. An individual has the right to change or cancel their will any time, with proper signature.
Bro tip: While registering the will is not mandatory, it comes with its own merits and demerits. On the positive side, a registered will holds more weight in a court of law compared to an unregistered will. But in case of any changes, a registered will is a lot more cumbersome to change. One must decide their priority and act accordingly
The will must be safely stored in a place that is accessible to the executor after one’s death. The executor shall then obtain the probate from the court, and begin to enforce the will by distributing the deceased’s possessions to the nominees.
Finally, let’s talk about “when”.
The answer to this, is NOW. How old you are does not matter. Every person must have a will to their name, to ensure that their worldly possessions and assets are effectively transmitted to their successors. Also, no matter how big or small one’s assets are, having a will, or some kind of legacy planning strategy is an absolute necessity. There is no avoiding this vital facet of financial planning!
To end, I’d like to say that I thoroughly enjoyed writing about these personal finance topics from the experience I have had working in the space. I hope these articles have, in some small way, helped you realize the vitality of personal finance, and broadened your view on the possibilities in planning for the future. I would be happy to address queries/ assist in advising upon any of the points that I have covered in these articles, so do feel free to reach out.
Stay safe, and happy planning!
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