Legal Will: How it works and it's Importance
Created on 07 Apr 2020
Wraps up in 6 Min
Read by 1.6k people
Updated on 01 Oct 2020
In Italy, the doctors have been unofficially told to write their ‘will’. A ‘will’ is a ‘deed’ that declares who will own the assets of the person after they die. Though the concept of will is not new to India, it is unpopular. Will is largely considered a taboo as it is interpreted as a trust deficit between parents and children, or just amongst children. In India, familial ties are considered sacred and hence, the concept of will goes against the moral structure of the society. However, with time it is important to be sensible and practical enough to declare a will. If done properly, it can also help in tax savings for the beneficiaries, which mostly happen to be the family members.
Why do you need a Will
People tend to create and accumulate assets in their life. However, they would die leaving all these assets. Currently in India, some laws would anyways help in dividing the assets but they have certain genuine problems. Any deceased person will leave all their assets and ownership in the name of their spouse. In case the spouse is dead, the assets would be equally divided amongst all the children. If there is an asset that was inherited by the deceased person from his ancestors, the spouse, all the children, and their descendants would have an equal share. Now this is where the problem comes. It is easy to divide the liquid assets like cash and gold, but how will one divide immovable properties like land or house? Even if a person has two flats for two children, they would run the court for the ownership of the more valuable property.
Therefore, a will is needed so that the process of inheritance is smooth. This will benefit the beneficiaries of the ‘will’ as they will not keep running to the courts for years to come. The assets will be put to good use rather than getting stuck in the case and rather no one able to use it. In most cases, it proves to hold the relations together as there is less bitterness if boundaries are demarcated. One should not think that I do not have so many assets so why should I worry. The courts have cases of assets as low as ₹50000.
How to create a Will
One can simply write the will on a piece of paper and sign it. It would be better if you could get at least two witnesses to sign the will as well. You can also get the will registered in the court through a lawyer. This is a recommended way of getting the will prepared. The person who creates the will is called the ‘testator’. The will can be changed an endless number of times. The one who has the responsibility of executing the will after the death of the ‘testator’ is called the ‘executor’. The executor should be the one who is a neutral person and he should not be the beneficiary of the will. Most lawyers are good at this. The will gets executed only at the demise of the testator.
Suggestions for a proper Will
Few things one should always keep in mind and mention in the will. The date should be put, better if in words. It should declare your sound mental health. You may attach a doctor’s certificate too. It should declare all previous wills as ‘null and void’. One should write it beneficiary by beneficiary rather than an asset by asset. Mention your relation for each beneficiary. Then you can add what all they are allowed to partake from your wealth. Mention the assets. If you want to give stocks, mention each company and share given correctly. If you own assets in more than one country, the will and the distribution of each country should be in conformance with the laws of each country. You may have a separate will for assets in each country. Two witnesses would sign certifying your sound health and that the will is authentic. These two witnesses should not be beneficiaries of the will. Such small precautions would make you will foolproof. Even if it is challenged in the court, it would not stand.
Tax Benefits of a Will
A will can provide several tax exemptions for the beneficiaries if properly planned. Although India has no inheritance tax laws, it has certain laws in income tax that we can use to exempt tax through the will. Gift of any amount attracts no ‘Gift Tax’ as long is given to blood relations. However, it attracts income tax or ‘capital gains tax’ for the amount you earned that you now transfer as a gift.
For instance, if you transfer some assets to your wife, even as a gift, you will have to pay the income tax or capital gains tax on the amount. Instead, if you name it in the will, the assets could be transferred in her name without anyone paying the tax. Similarly, it can be beneficial for minor grandchildren. Any income earned by a minor (less than 18 years) is taxed in the name of parents or legal guardians. However, if assets are transferred through the will, their parents need not pay any tax on it.
Since the asset can be transferred as a ‘gift’ only to blood relations, it leaves out some other important relations like daughter-in-law or son-in-law. If you would transfer some assets to some person other than blood relation, not only you have to pay the income tax or capital gains tax but also the beneficiary will have to pay 30% ‘Gift Tax’ on the amount received over ₹20000. However, if the assets are transferred through the will, everyone is happy, as India has no inheritance tax. Neither you nor the beneficiary will be taxed for it.
Assume a testator had three assets. He divides one asset each in the name of his child, spouse of his child, and his grandchild. This makes them a ‘Hindu Undivided Family’ (HUF) if they were not yet declared that way. A HUF gets similar income tax exemptions as an individual. This is a good way if someone has assets like a house that generates regular income like rent. Any business trust in India is taxed at the highest rate of 30%. However, if such a trust is created through a will mentioning that the profits of the business would be exclusively used for the benefit of the dependents, then the trust is taxed at the slab rate. Just that, only one such trust can be created through the will. Consider an example. You declare a trust in the will that will take over certain business assets. You will name the trustees. Profits from the business (run by the trust) will be given to your wife ensuring her wellbeing. Now, if the trust created through the will earns only ₹5 lakhs in FY 2020, it would pay zero tax. Had it not been created through the will, the trust would have to pay 30% tax on ₹5 lakhs, which is ₹1.5 lakhs.
The Final Word
Even when India was a poor country, people had assets like their farmland. 80% of the population is now above the poverty level and has accumulated assets ranging from a small two-wheeler to conglomerates. The times have changed. A clear and unambiguous will can help your family steer their lives after you are gone. It can also help you plan taxes for your family after you are gone. Since it was you who earned those assets in your lifetime, no one else knows better than who should take what. Will holds the utmost importance in our lives just like educating our children. It is the last responsibility you should fulfill.
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