Why a succession plan is important

It can help in the smooth transition of family businesses from one generation to another

Indians generally like to pass on their self-built as well as legacy property and business to their children. When you end up inheriting the family business, it is essential that a smooth transition takes place as the business will pass on from one generation to another.

HNIs (high net worth individuals) and industrialist families have to do succession planning much in advance — decide who will inherit the property or assets and in what capacity.

Additionally, factors such as kith and kin’s inclination toward expansion of business and business acumen are also considered significantly.

While the leadership of the family business has to be with someone who is strong enough with a vision for the company, the division of other assets and immovable properties in the family can be planned in an equitable and judicious manner.

Making a will

A will is an important step to decide as to who will inherit the assets as well as the liabilities in the family business and personal assets post the death of the patriarch or matriarch. The person responsible for making the will, the testator, can modify the will as per circumstances or the changing equations in relations, even after the document is made.

If you have made a will stating that your son and daughter will get equal assets in terms of personal property and proprietorship in the family business, it is considered an undisputed will. However, the same scenario can cause a rift within the family if there is an ambiguity in the will. The process thereafter will be cumbersome as it can take years to resolve this dispute as many families opt for court proceedings and intervention in such circumstances. Liabilities such as debt, unpaid bank loans and mortgaged properties should also be mentioned in the will. The clarity on the liabilities stated in the will can keep your successors aware about the financial status of the family.

Moreover, the will has to be executed in front of two witnesses with proper signatures and it needs to be registered, stating that the testator was in a sound state of mind and not coerced by anyone under any circumstances.

Setting up of trusts

There are three parties involved while setting up a trust — the trust has to be executed by a settlor who then decides upon the trustees who will manage the trust so that the property/assets go to the right set of beneficiaries. Unlike a will, which is executed post the testator’s lifetime, a trust can be set up during his/her lifetime. The settlor, a spouse or a reliable person close to the settlor/author can be made the trustee. If required, the trust can be made in a way that it could be revoked anytime as per the wish of the settlor.

Under a trust, property can be distributed within weeks after the death of the settlor, while a will might take several months to a few years given the legal intervention it may require. The trust structure also gives more freedom depending on the objectives; the roles can be flexible in a trust structure.

Better late than never

If you have multiple sets of assets and a flourishing business, you need to decide upon the kind of safety you want to create for your coming generations and dependents.

The writer is Head of Wealth Planning, Sanctum Wealth Management

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