FINANCE TIP OF THE DAY
Can you afford your loan?!
Know the quantity of loan you can afford. The banks may sanction loan based on your income but you should look at your monthly expenditure and see if you can afford the maximum that banks offer. As a thumb rule, remember not to let your credit exceed 40% of your income!
Wealth – Passing it along!
Almost all of us in this world are so focused in creating wealth that we hardly get the time to think about how our loved ones will get the wealth created by us if we are not there. This has landed many a loved one in trouble – starting from high cost of getting what is truly theirs to decades of time and money spent at courts. So is there a way to pass along wealth and ensure that our dependents do not have to sweat it out to get the fruits of our hard work?
Where there is a Will there is a Way
A written WILL, will, take care of most of the problems related to passing on wealth. A Will is a wish list of the owner of any wealth (real estate, shares, paintings, goodwill, patents, copyright, pets – almost anything of value) on how he/she wants it to be split up among his/her family members, relatives, employees, charity, or anyone else after his /her passing away.
To write a Will one has to be of ‘sound’ mind and not be under the influence of anyone or anything (drugs, alcohol, etc), so, having a lawyer and/or a doctor as witness while writing one will be of use. A Will can be registered or unregistered. However registering a Will is always a better idea.
Any Will has to have the option to be changed later. An unchangeable Will in fact is a void Will. This is because at any point in time the owner of the wealth can have a change of mind and will need to change his/her Will.
Importance of a WILL
The importance of a will cannot be stressed enough for Indians – what with lakhs of civil cases pending in various courts of law for ages. However, the importance of a will was realized by many only after two very high profile wars among some of the richest families in the country – the Ambanis and the Birlas.
The first was the case with the absence of a will, the second was the case with the will bequeathing all of Rs.5,000 crores to a third person (a chartered accountant).
A Nomination will Not DO
Many think that by nominating a person in a life insurance policy or in a bank account, they are passing on their wealth. Unfortunately, this is not so. A nominee is only a person who is authorized to receive the money from a bank/a life insurance company / a mutual fund/any other source. The presence of a nominee helps the financial institution to relieve themselves of their duties. The nominee is then supposed to hand it over to the rightful Legal Heir/s of the wealth.
The person mentioned in the Will to receive the monies from a life insurance policy supersedes the nominee. In the absence of a Will, the legal heir/s supersedes the nominee. However, the nominee can be the beneficiary of the will and/or be a legal heir too.
Why a nomination then?
In the absence of a nomination, the financial institution will be left without instructions on how to manage the money and to whom to give away the money. This creates serious complications for the financial institutions. The presence of a nomination makes work easy for them in releasing the money to the nominee.
Can a Power of Attorney Substitute for a Will?
No a Power of Attorney is to help with a transaction when the owner of the wealth himself/herself could not be physically present, because they are travelling or because of their poor health condition. The power of attorney (POA) essentially has to be given only for a specific activity and only for a specific asset. It is also better to mention the period for which the POA is valid.
It is a bad idea to give a POA which authorizes the Power Agent to do any /and all activities related to an asset. There are umpteen cases where the Power Agent has sold off/pledged an asset without the intent or consent of the owners.
So if one is travelling abroad for 6 months and wants their power agent to let out a property on rent. Then the POA should mention the right of the Power Agent to be only to identify a tenant and to sign the rental agreement. In addition, the POA should be mentioned to be valid only for the period for which the owners are travelling abroad. Customizing a ‘standard’ POA document to the exact needs of the moment is not a choice but is essential.
A registered will is the best way to pass on the wealth that one has created. A Nomination or a POA are for other purposes and will not serve the purpose of passing on wealth in the intended manner. As a society, we need to have greater awareness about these aspects.