Succession Planning: 3 Tools to Achieve It

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By Jitendra PS Solanki


In India, many businesses, big or small, are on the verge of succession. The generation which has set up and managed their business with a lot of hard work is now retiring and surely the reins are going to pass on to the hands of next generation. But succession planning is easier said than done. There are always probabilities of disputes due to the dissatisfaction of one or more legal heirs. We have witnessed numerous examples of legal fights among large business houses, celebrities, politicians, which tell you that succession planning is not well thought out. The large corporate houses have enough financial muscle to sail through it. But it’s the smaller businesses where any gaps in succession planning can jeopardize the family future.

One of the reasons for the above situation is unawareness on these matters. There are different ways under which a succession can be considered, but which way/means should be adopted depends on the situation what it demands.
Here I will look into three tools available for implementing an effective succession plan:

1. Will

A will is a basic document for implementing any estate plan. Through will, you can decide among your legal heirs who are going to inherit and what. This is also the document where you disinherit any legal heir but need to ensure you have valid reasons. In today’s scenario, it’s advisable that a will is registered so that misuse can be reduced. Although a will, especially registered, reduces changes of legal hurdles it still can be disputed in the court. But this should not deter you from making a proper will laying down your wishes for your wealth distribution. Having said that, a will is executed only at the death of the testator, i.e., the person making the will. One can bequeath all the assets which are in ownership or will be owned in the future. These include real estate, FDs, money and bank accounts, securities, bonds, insurance policies, retirement benefits, and precious metals like gold. Even your goodwill, digital assets, Intellectual Property Rights, etc., can be willed. This document is most critical for smaller firms especially proprietorship or partnership as their business is no different than themselves. Since most of the assets used in their businesses are owned personally, a will is highly important to bequeath the same to the next generation as per their wish.

2. Trust

There are family situations which demand protection of personal asset or continuity of businesses. Sometimes the next generation is not mature enough or is incapable of shouldering the responsibilities or family have a doubt that they will not be able to run the business. In other situation, the family has a disabled dependent and so the reins cannot be pass on to his/her hands. In all these situations there is a need to bring a structure where the assets or business is not in the control of any individual but the next generation derives the benefits from it. A trust is a viable structure here. It’s a separate legal entity where the trustee manages the affairs of the trust which includes the properties and business. The assets under a trust are not owned by any individual but by the trust and any income derived from them are distributed to the listed beneficiaries as per the trust structure. The trust can be funded in the settlor’s lifetime or even through a will. The Tata Group is one of the best examples of businesses under a trust structure.

3. Family Settlement

Many times the solution to any dispute lies within the family. A family settlement is an arrangement wherein family members come to an arrangement of compromising on ownership or legacy of assets for consideration or other legacies. This kind of arrangement is legally enforceable in Indian courts. What required is a clear description of the arrangement, the ownership of pre and post the arrangement and consent of all the members’ party to it. This settlement is most beneficial when there is a dispute among the legal heirs on the manner of wealth distributed or there is a need to rearrange the distribution to equalize the ownership. One can argue whether it supersedes a will or not. Ideally, both the documents are executable at different instances and so there are rare chances of disputes. However, a family arrangement may have more legal application then a will since it has the consent of all legal heirs.

There are other tools like power of attorney but they have limited application. An effective succession plan requires a proper strategy and consent of all members to be free of any litigation now or in future. What it requires is to sit down with your estate planner, pen down your wish and see what suits your situation. A well-drawn succession plan can resolve many years of court battles.

Author Disclaimer:  I am an estate planner but not a legal expert. The article touches upon the benefits of these tools but is not advice. Since all these tools require legal expertise you should hire a professional for seeking any advice. 

Source:; July 2017 | All views, thoughts and opinions expressed belong solely to the author. 

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Jitendra PS Solanki

Jitendra PS Solanki

Jitendra P.S. Solanki is a financial planning expert who has spent 15 years advising families on their financial well-being, with a specialisation in advising families with special needs dependents. Jitendra is a post graduate from IIT Roorkee, a Certified Financial Planner (CFP), a Chartered Trust and Estate Planner (CTEP), and a Member of The Chartered Institute of Securities & Investments, U.K. View Profile

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