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Curious Case of Succession Planning: Why only a Few get it Right in Succession Planning?
India, with its long-standing line of rich history and heritage, is not new to the tales of battle for inheritances. From stories of feuds and struggles between two groups of cousins to win their ancestral legacies as recited in the 9th BCE Mahabharata to the father-son duo fight in the Raymond case, this explains how only a few get it right in succession planning.
A Peek into History
India witnessed one of the worst economic crisis in 1991. To mitigate the aftermath of the war, the Indian government had embarked on a new journey to raise the economy from scratch. The resulting rapid increase in growth opportunities has resulted in a better economy and standard of living for the people.
Later, with the advent of industrialization, the investment mentality of people changed, escalating the nature and status of the economy. As the process continued, the batons were passed to the next generation, who took the pace of their predecessors and ancestors, leading to individual and national-level change. But as the creation of wealth became the sole concentration, the future and security of the assets became a huge question mark.
Current Scenario
As per the Indian Wealth Report, 55% of the individual wealth of Indians is in financial assets, while physical assets account only for 45%. As people get more concentrated on accumulating wealth, few think about the nature of the fate these hard-earned assets face in their absence.
According to a 2013 Financial Times analysis, Asian families experience a greater deal of difficulty when it comes to discussing succession. Though the investments are made for the betterment and security of their family and younger generation, the patriarchs are reluctant to provide clarity on succession and asset details to the younger generation for several reasons, most importantly the loss of control the patriarch holds and the you-are-not-ready-to-know attitude. Such reluctance shown by the patriarchs is more likely to create a possibility for an Indian family to fall into troubled waters in the event of the patriarch’s death by entering into a disagreement of authority and assets ending up in the wrong hands, resulting in intergenerational friction, family forays, long running legal disputes, and draining valuable resources that could have been put to better use.
Succession Planning
Succession planning is not just meant for the elite but for every person who wants to safeguard their hard-earned assets, irrespective of the amount of wealth they make. It is also to make sure that the assets are transferred properly to their legal heirs of their choice.
Based on the existence of the Will, succession of a person can be classified into two: Testamentary succession and Intestate succession.
A testamentary succession is when a person’s properties pass to the legal heirs of his choice as named in the Will left by the deceased. If the deceased has left a legally valid Will, it ensures that the assets reach the right hands, as the person who receives the assets, i.e. the “Beneficiary” of the Will, is determined by the Testator.
In the event wherein the deceased has not left any Will or any other form of testamentary disposition such as a Gift or a Trust, the asset distribution takes place in accordance with the succession laws of the land, this type of succession is called Intestate Succession, and he or she is called as an “Intestate”.
In India, the laws governing the intestate succession are complex and depend on the religion of the intestate. Succession laws of Hindus, Jain, Sikh, and Buddhists are governed under the Hindu Succession Act, 1956, for Christian, Parsis, and Jews, the Indian Succession Act, 1925 is applied and in case of Muslims, Muslim Sharia Laws are considered.
Need for Succession planning: Explained through an illustration
To understand the need for succession planning in today’s era, let’s take the following example:
“Vinod, a hindu, got married at the age of 26 and has worked hard to build his family. Between the ages of 28 and 32, he and his wife had two children. He made diligent plans and worked continuously to secure their future, and by the time he crossed his 50s, he had made investments and savings for the welfare of his wife and children. In his mid-50s, Vinod passed away unexpectedly. Vinod, in order to safeguard his family from the stress of his investments, had not shared the details of his investments and other assets with his wife and children.”
Here, Vinod had not left a Will or any other document about the whereabouts of the assets, and his family did not know where to find these documents as they could not recover much from Vinod’s office study or files. Due to the uncertainties, his family will never know if they have recovered Vinod’s assets. The absence of Will also results in succession taking place as per the laws of succession, determined as per the religion Vinod follows at the time of his death. Here, the assets of Vinod will be transferred to the legal heirs in the manner recognized and stated under the Hindu Succession Act, 1956 which means that under the Act, the wife and children of Vinod are not the only ones entitled to his assets. As the law recognizes the mother of a deceased Hindu male as one of the first preference legal heirs along with his wife and children who is entitled to a portion of the assets of the deceased, the assets earned by the deceased for the welfare of his wife and children will now have to be divided.
In short, the importance of succession planning cannot be more overstated. Whether you are a business owner, property holder or is someone who is concerned about the future well being of your loved ones, a comprehensive succession planning is essential to address the legal complexities, and to ensure that the assets and your beneficiaries are protected and to keep the family dynamics secured.