What is Succession Planning and Its Importance | HDFC MF

As said by Robert Kiyosaki It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.

For Instance Mr. Bharadwaj, a successful businessman, passed away unexpectedly. Without a succession plan, his finances were in disarray. Since there was no will, by law, his two minor children, wife and mother had an equal share in his estate. Amid grief and shock, the family had a tough time transferring the assets among themselves. They were also unsure about how to handle his liabilities, legal considerations and taxation matters. If there had been a succession plan, the financial aspect of this untoward event could have been smoother for his family.

What is succession planning?

A succession plan is a strategy to preserve, grow and transfer the family wealth to the next generation in an orderly manner. It involves measures to control finances, ensure financial stability for the family and increase the family's wealth over a period of time.

Why do you need succession planning?

Creating wealth and protecting it is a challenging task. It requires knowledge, time and effort. It often tends to sit on the backburner in the face of seemingly urgent tasks. But succession planning is critical for various reasons. Some of them are as follows:

• To ensure that the immediate family remains financially independent and protected against any unfavourable events.
• Investment Horizon and Asset Allocation: When you approach your wealth with a mindset of succession planning, you can maximize returns and generate more wealth. Normally, older investors allocate lower weight to equities or completely avoid them due to their shorter investment horizon. However, succession planning enables them to have a longer time horizon, a part of the portfolio can be invested to allow for a higher Risk-Reward ratio. This part of wealth earmarked for grandchildren are preferably advised to be invested in equity mutual funds.
• It protects the family wealth, multiplies it and helps to leave a legacy for the next generation based on a shared understanding and common set of values.
• It enables efficient management of taxes.
• One can avoid family disputes and long-drawn court litigations with a detailed succession plan.
• Moreover, it helps protect your wealth from fraud, misuse and wastage.

How can I go about succession planning?

How to create a Will?

A Will is a legal document that allows you to decide on how your wealth, property and assets are to be distributed after your death. Any adult of sound mind can create a Will either by themselves or by using the services of a legal professional or wealth professional. The Will must have details of all assets and how they have to be distributed among beneficiaries. It should also name the executor of the Will. Two witnesses must sign on all the pages of the Will. They must witness the signature of the person making the Will on all pages. This document becomes a Legal Will. It is easier to execute a Will if it is registered. If there are investments or assets not mentioned in the Will they will be divided as per the Succession Laws, based on the deceased person’s religion.

How to create a Private Trust?

An individual can draft a Trust Deed whereby the assets can be moved to a Trust. This document can have details on who the trustees are and how they can manage the assets during the person’s lifetime, and how to deal with or distribute the assets after the individual’s death.

Apart from these tools, here are a few other steps to be taken:

• Decide on criteria like control of wealth, your comfort in giving up control and how to transfer the wealth.
• Enumerate your long-term goals on growing wealth, distributing it and the philanthropic projects you wish to contribute to.
• Make a list of key beneficiaries and initiate conversations with them. Get an understanding of their interests and long-term financial goals to suitably incorporate them into your plan.
• Learn about the legalities and tax implications involved in succession planning.
• Finalize the plan, review it regularly and revise it as required.

The quantum of wealth is not the determining factor in creating a Succession Plan. Instead, the goal is to ensure asset preservation and growth. Talk to an expert soon to know in the detail the process of making a will. A well thought out succession plan can be customized to your financial goals and the next generation’s perspectives.

Note: Readers should seek professional advice before taking any investment related decisions and alone shall be responsible.

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.