All you need to know how to ensure tax-efficient inheritance

Back in 1789, American statesman Benjamin Franklin famously said, “In this world, nothing can be said to be certain, except death and taxes.” However, one thing that most of us can do, and should do, is that death does not lead to inheritance that is tax-inefficient. That is where tax-efficient estate planning comes in handy. Estate planning refers to ascertaining ownership and tax issues of assets to be inherited and distributed.

Building blocks of tax-efficient estate planning

Most people equate estate planning with writing and registering a will, but that is just one part. For larger estates, you must create family trust structures, assign Power of Attorney (POA) to the right member, and engage in succession planning.

Estate planning 101 — know the basics

Like in any financial planning, even estate planning begins with making an assessment and evaluation of the assets and liabilities and arriving at net worth. The second step is to identify the beneficiaries. Money earned by the family head during their lifetime has a different set of rules, as compared to inherited property. Hence, needs like education and maintenance have to be prioritised. Thirdly, an estate preamble must lay down the goals and objectives, which include needs, lifestyle, and charity. Having set the rules of the game, it is now time to get to the action plan.

This includes creating the family trust, appointing nominees, assigning POA to execute, agreeing on distribution of assets etc. It is always better to have these discussions with family members in the presence of the lawyer to get buy-in. The final step is to give a legal shape to the estate plan. This includes drafting the will, getting it vetted, registering the will for legal sanctity, giving necessary authorisations for POA, minor care etc. Obviously, this process must be done at the earliest, so that one can also review and update the will at regular intervals.

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