Estate planning is the process of making plans for the transfer of your estate after your death. Your cash, clothes, jewellery, cars, land, retirement, savings accounts, etc. are all covered under this. Apart from ensuring that your estate is entrusted to the right beneficiaries, estate planning also talks about the payment of taxes on the estate.
While many of you are likely to appoint a lawyer to do all paperwork for you, it is still good to be aware and informed of the process. This article highlights some things you probably never knew about estate planning.
10 Facts About Estate Planning You Need to Know Today
- Absence of a Will
If the owner of an estate dies without a will, the laws of the nation decide who gets the land. If you are a Hindu, the Hindu Succession Act (1956) is followed. Similarly, Christians and Muslims follow their respective laws. If no one claims the estate, the government becomes the owner.
- Digital Settlements
As per the IT Act (2008) and the Indian Evidence Act, electronic records, including data, sound, image generated or recorded and sent/received in electronic form can be used as evidence. So, video-taping of one’s will can be produced in court as proof of estate planning.
- Taxation on Real Estate
In India, there is no separate tax you have to pay for simply inheriting real estate, but you have to pay the GST rate. The rules regarding GST on real estate state that different types of properties have different tax slabs. The tax rate is 5% without ITC benefits for properties under construction, 1% without ITC benefits for houses worth less than INR 45 lakhs, and 12% with ITC benefits for commercial properties. The tax rates can also change depending on the city and locality of the estate.
- Use of Real Estate
If you have a business and you plan to use inherited land or commercial property for the same, you need to notify the tax authorities. They can keep track of your business by using your GST number format on the GST portal, which also includes the address and other business details.
- Some Exceptions for Inheritance Tax
Although there’s no explicit inheritance tax system in India, there are some cases when you may have to pay. Situations include you or your spouse being a citizen of another country, you being employed abroad, or you passing on your estate to someone abroad. Moreover, if you sell an inherited property, you have to pay capital gains tax on the amount you get – long-term capital gains (LTCG) are taxed at 20.8%.
- Digital Assets
Digital assets include digital documents, media, emails, login IDs and so on, which are also considered in estate planning. Creating a digital asset plan helps your family get any information from your accounts, determine if any digital property can be sold for money, and prevent online identity theft. Any value associated with the digital property is also taxable.
- Ancestral vs Inherited Property
Not all properties that you inherit can be termed as ancestral property. The latter includes those that you inherit only from either your father, grandfather, or great grandfather, according to the Income-tax Act, 1961. From 2005 onward, women also enjoy equal rights over ancestral property.
- Tax Benefits
If you sell inherited property, you can reinvest the gains in another property. If the LTCG is less than two crores, you can avoid taxes by reinvesting the profits across one or two (not more) new residential properties in India. If it is more than two crores, you can reinvest in only one property.
- Can be Done Any Time
Estate planning need not be done only when you are in your final stages. It can be done at any time when you are in a “sound mental state”, so you can plan accordingly and discuss with your family about your estates.
- Role of an Attorney
Though it is not mandatory, it is good to have an attorney for estate planning. Apart from preparing the will, attorneys also help you find ways to minimise estate tax, keep your assets safe and avoid guardianship issues. They also resolve related conflicts that may last even after your death.
So, if someone close to you is thinking of bequeathing their estate to their children or family, you are now in a position to offer some assistance with the knowledge you have.
Jeff Morgan is currently associated with NetworksGrid as a technical content writer. Through his long years of experience in the IT industry, he has mastered the art of writing quality, engaging and unique content related to IT solutions used by businesses.