With the Indian economy booming over the last two decades, the number of High New Worth Individuals (HNIs) in the country has grown significantly. However, despite the fact that individuals are able to generate a sizable amount of wealth, not many are able to fully utilize or manage it adequately enough for it to benefit them and their families. As your wealth grows, you cannot handle your money like you used to. With more money comes more responsibility and it is imperative that you take this seriously. You need to make sure that in your absence, this wealth is distributed properly and is benefiting the people it is supposed to benefit.

This is where estate planning or in broader terms, succession planning comes into the picture. While financial planning focuses more on allocating money and assets into suitable investment vehicles, succession planning and estate planning focus more on securing such assets for the future of the investor and their loved ones.

Why Is Succession Planning Necessary?

For HNIs and Nuclear Families

Succession planning has become even more important now as the number of nuclear families is rising steadily. With the increase in population, the divorce rates have also increased as expected, which leads to a lot of financial and emotional stress when wealth has to be divided. Many firms have entire teams and departments handling only family succession planning.

As important as it is to create wealth, it’s also important to make sure that the right people don’t have to struggle to reap its benefits.

If you have accumulated a significant amount of wealth and are looking to retire soon, you should get in touch with a certified financial advisor or wealth management firm that deals with succession planning. They will help you put together a will that clearly elucidates exactly how your assets are to be distributed and utilized in your absence. Make sure that you take stock of all your properties and assets while making your will.

For Business Owners

It’s doubly important that you start succession planning if you are a business owner. This is because the implications of not planning your exit properly will fall on your company and your personal life as well.

While succession plans are necessary when you retire, they also help keep the business stable during your tenure, i.e, in case something happens to you or a co-owner, a succession plan will clearly define what needs to be done in such a situation. They significantly reduce financial and operational stress on the business during these crucial periods of transition.

How Can You Create A Succession Plan?

If you have accumulated a significant amount of wealth and want to secure it for the future, you should get in touch with a certified financial advisor or wealth management firm that deals with succession planning. They will help you put together a will that clearly elucidates exactly how your assets are to be distributed and utilised in your absence.

Start by listing all the beneficiaries you’d like to add to your will. Then make sure that you take stock of all your properties and assets while making your will. Once you have all your assets accounted for, you can also check with your financial advisor about setting up a trust. The difference between a trust and a will is that the trust can be made functional in your presence, while a will is only executed upon death. A will is also easier to set up, and in most cases, less expensive than setting up a trust. A trust works better for businessmen or people who have a large value of assets or a more complicated wealth distribution structure as is commonly seen in businesses.

Business owners also need not necessarily set up a trust. There are other ways of transferring ownership and control of your company –

• To A Co-Owner – If you started the business with a co-owner you can easily transfer control and set up a clause where either of you agrees to buy their business interest from the nearest kin in case of untimely death or disability.

• To A Family Member – Works best for business people with family working in the organisation. You can choose a successor from your family to take over your responsibilities and assets.

• To Key Staff Member – You may also transfer control onto a key member of your employed staff. This works well when you do not have a co-owner or an heir that you can transfer the business to.

• To A Third-Party – You may reach a mutual agreement with a competitor, investor, or entrepreneur to purchase your business. If you have a turn-key operation it is quite easy to sell your business when you no longer want to have that responsibility.

• To The Company – If you have co-owners, you can set up an entity purchase plan/stock redemption plan where the business utilizes the life insurance proceeds of a deceased co-owner to purchase their business interest, giving a large share to each co-owner.