In India, individuals with Rs.200 crores worth of assets or more are considered Ultra High Net Worth Individuals or Ultra HNWIs.
What is Estate Planning for High-Net-Worth Individuals?
Estate planning might not be a part of your financial to-do list. But if you want your family to be taken care of and your assets passed on after you are gone, you must have solid estate planning. If you do not make a proper plan beforehand, the wealth you worked hard for your entire life can end up in undeserving hands.
Estate planning can be complex and tricky, especially if you are a high-net-worth individual with complex and multifaceted assets. This article serves as a quick guide to estate planning for high-net-worth individuals.
What is Considered High-Net-Worth?
There has been a rise in the number of high-net-worth individuals recently. In India, those with an investible surplus of more than Rs.5 crores are called high net worth individuals or HNIs or HNWIs. These individuals contribute to the growth of business opportunities, new-age entrepreneurs and foreign investments.
The HNI investment market in India is still growing and is yet to be explored fully. Many investment options exist for high net-worth individuals, like estate planning, fixed deposits, corporate bonds, treasury bonds, tax planning etc.
Benefits of Estate Planning for High-Net-Worth Individuals
One of the top benefits of estate planning is knowing that you have full authority over what happens to your properties after you are gone. If you do not set up estate planning, your assets will go to a probate court, and the court will decide what to do with them. The basic benefits of estate planning for high-net-worth individuals are:
- You can avoid probate
- The inheritors can bypass the costs associated with probate
- Your assets will be handed to the right hands
- The assets can be distributed quickly as per the decedent’s wish
- You can instruct on how you will be taken care of in your final years
Estate Planning Tips for High-Net-Worth Individuals
It is important to have a good estate plan in hand if you are a high-net-worth individual. Even if it seems difficult to combine all the plans, things will get more complicated after you are gone if you have a high net worth. Below are some tips for starting the estate planning for high-net-worth individuals:
Set Up a Trust
Creating trust is an essential step in protecting assets for high-net-worth individuals. Trusts offer a variety of benefits, including transferring your wealth to your loved ones. Establishing a trust will also help your inheritors to avoid probate court while distributing your properties.
Many types of trusts available are popular for high-net-worth estate planning strategies. Choose the right one based on your circumstances and needs. However, here are some of the popular trust categories:
- Revocable Trust
- Irrevocable Trust
- Qualified Personal Residence Trust
- Grantor-retained Annuity Trusts
Besides choosing the type of trust, you can also select when and how your assets will be distributed. You can also choose to distribute the assets in instalments over time.
Choose the Right Trustee
A trustee is a person who has the legal right to manage the trust. You can appoint someone as your trustee; you can be your trustee, and multiple people can also be trustees. Who acts as a trustee is up to you, but as a high-net-worth individual, hiring an expert professional is necessary to take the best care of your estate planning needs.
Unfortunately, some professionals only find ways to get the most income out of it rather than suggesting ways to reduce costs and guarantee that properties end up with the right beneficiaries. Conduct research, find a professional who will work for you, and discuss your estate planning goals with them.
One of the common goals of high-net-worth individuals is building wealth to leave their families and loved ones after their death. But it often comes with a price. There are taxes, which will consume a big part of your assets if you do not make the right choice. Especially while making an estate plan for high-net-worth individuals, you should consider every tax scenario. Here are some strategies to help you minimise the amount of tax that is chargeable to your assets.
- Gifting: This can be an effective way to reduce taxes against your estate. This is an effective strategy for high-net-worth individuals.
- Life Insurance: Life insurance can cover most of the taxes normally charged against these properties. So it is important to include properly structured life insurance while making a high net worth estate planning.
- Charitable Giving:. You can do this by establishing a charitable trust or listing a charity as one of your estate’s beneficiaries. Leaving a charity with a part of your wealth can reduce your estate tax and other taxes.
Plan for Incapacitation
While it may not be fun to think about, you should choose the right people to act on your behalf if you become incapacitated. If that happens because of your illness, accident, or ageing, you might want to make sure your family is not left to make tough decisions for you. You can consult a professional and make a plan to make sure that in your incapacitation:
- Appoint a trustee
- Ensure the proper management of your property
- Provide care for your dependents
- Specify your end-of-life treatment
People often put off making an estate plan, but the sooner you start, the better. Especially people with high net worth should have proper estate planning so that their families and loved ones do not have to go through difficulties once they are gone. Hopefully, this article about estate planning for high-net-worth individuals helped you understand how to make sure your estate is handled according to your wishes.
FAQs About Estate Planning for High-Net-Worth Individuals
You do not have to be a high net-worth individual to have trust. If you have some assets and want them passed on to your loved ones and your family, a trust can help avoid a lengthy probate process.
You should review and update your estate plans regularly, especially after major life events such as marriage, divorce, the birth of a child or grandchild, and significant changes in their financial situation. It is also important to review and update beneficiary designations and account titling to ensure that they align with your wishes and estate plan.
Important Guides related to Life Insurance
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.