Science 7 - LAND and SEA BREEZE and its Characteristics
Why & How to create a WILL
1. Volume 2, Issue 1
Jan 2013
Why & How should one
create a WILL?
Six months back, supersedes all earlier owned by testator. He
Praveen Hazare died wills. must indicate where
due to heart attack Steps to construct these documents are
when he was 65 years stored.
Declaration in the be-
old. He was staying in Details of ownership:
ginning: While making
Thane with his spouse At the end of the will,
a will, one has to de-
and two married sons. testator should mention
clare that he is of sound
He had a flat in Mum- who should inherit
mind and free from any
bai and a flat in Banga- which assets and in
kind of pressure. Then
lore. He died without what proportion. If
testator needs to men-
making a will. After his assets are meant for
tion his name, address,
death, there were dis- minor(s), it should be
age, etc at the time of
Prudent Planning
putes on sharing of clearly mentioned
properties. The so in the will. The
PRUDENT FINANCIAL PLANNERS—NEWSLETTER
dispute now has to name of the guard-
be decided by the ian also should be
court as per the mentioned. The
Succession Act guardian will use
which will take a the assets for the
very long time. minor as intended
This could have by the testator.
P L A N N E R S — N E W S L E T T E R
been avoided had he Signing the Will: After
writing the will. He
made a will. completing the Will,
needs to appoint an
Who can create? one must sign the will
executor for executing
along with two wit-
Any person who is the will after his death
nesses. The date and
above 21 years of age otherwise court will
place must be indicated
and is of sound mind appoint one.
clearly at the bottom of
can make a Will. But it Details of Property
the will. It is necessary
will come in to effect and Documents: The
that the witnesses
only after the death of next step is to provide
should sign all the
the person who makes list of items and their
F I N A N C I A L
pages of the will. It is
it (testator). The Will current values, like
advisable for the two
can be revocable at any house, land, bank fixed
witnesses to be a doctor
time during one’s life deposit, postal invest-
time. When testator ments, mutual funds, and an attorney.
makes a new will, it s h ar e c er t i f i c at es Cont… Page 6
A B C
Financial Focus
Inside this issue:
Financial Gyan
Should I hire a Financial Planner or DIY ? 2 Meeting life goals requires consistent, com-
mitted, disciplined approach towards one’s
Spreading the income-golden rule of Save tax 3
finances. Contrary to popular wisdom,
Spreading the income—continued 4 modest savings build a huge cash-pile and
helps meet goals, which seem impossible,
Sending your child abroad is not that difficult 5 at first glance.
Sample WILL 6 Suresh K Narula, CFPCM
2. Should you hire a Financial Planner or DIY?
Be it gymming, dieting, curing simple health problems, are earning more than Rs. 6 lakhs a year or have an in-
building a house, tax filing or money management – there vestment portfolio of Rs. 5 lakhs and above, you should
are two ways of getting them done, either hire a profes- be in a comfortable position to pay up the fees. You can
sional for guidance or do it yourself (DIY). In each case, use this as a benchmark for deciding whether to hire a
the decision to hire a professional is based on many fac- FP or DIY. It’s a simple tradeoff – you pay fee to save
tors which vary for every individual. Like for example if your time, efforts and get professional advice, but let
you are building a house on a plot, you may decide to this not be the only deciding factor.
hire an architect based on the size of the project, what Availability: This may be a non-factor after some
kind of interiors you want, your budget, etc. Else you years, but as of now it is huge factor. Currently more
may simply give briefing to a local contractor and super- than 1,500 are qualified as Certified Financial Planners
vise the construction yourself. in India out which not more than 200 are practicing.
Financial Planning is combination of financial strategies, With growth in demand from consumers, this situation
few calculations and most importantly discipline. You is changing fast. So if a qualified and practicing FP is
may not have a written plan and a second opinion given available and is offering the services which you re-
by a professional financial planner, but can still do fine quire, you may think of hiring one. Also check on the
doing it yourself if the following five factors are in your background, fee structure, references etc. It’s better to
favour and you are disciplined & self-motivated to take DIY if planner’s offering doesn’t suit your requirement.
charge of your money. Knowledge: There are a number of questions which
Time: You have to commit ‘time’ if you want to man- you should be able to answer by yourself. How much
age money successfully. You will first need to start by corpus do I need for a comfortable retirement? What
educating yourself with personal finance matters and are various tax benefits available? Am I saving enough
products. The best way to do this is by reading money or spending too much? Should I be taking home on
magazines or money sections of your daily newspaper. loan or is it better to rent for some more time? How to
You may also spend time watching TV shows or surf the invest in equity markets? How will be impact of infla-
internet. There is too much of information floating tion on my finances? You should also be able under-
around, you need to get used to terminologies and prod- stand present value and future value of money.
ucts on insurance, investments, banking, taxation etc. This knowledge is currently made available by print,
You will also need ‘time’ to understand your needs, set TV and web media in abundance. So it’s not difficult to
financial goals, learn to use financial calculators (most of find answers to these questions. You just need to take
them are available on internet), compare products, take a time out from your busy schedule and have an inclina-
decision and execute it. Getting a grip over your money is tion to go through it.
a continuous affair and doesn’t happen overnight; it will Complications: And finally the decision can de-
take at least 2-3 years. Spending 6-9 hours a month. pend on the complications in your financial affairs. Is
If you are not able to make this commitment, it’s a good your income from single source or multiple sources like
idea to hire financial planner who will do the handhold- double salary, rent, investments etc? How is your cur-
ing, advice and maybe even execute the plan. Even in this rent portfolio spread out – if you have been investing in
case you will have to spend 2-3 hours month in meeting mutual funds, stocks and insurance policies on an ad-
the planner, understanding the plan, executing and re- hoc basis the chances are your portfolio is widely scat-
viewing the plan. tered and needs to be consolidated. If you are in such a
Affordability: Hiring experienced & professional fi- situation a professional can give you a holistic view
nancial planner costs money. In India currently, CFP and help bring harmony in your investments and map
practitioners charge anywhere between Rs. 10,000 to them to future goals. If things are simple, take charge
30,000 to make plan, execute & monitor it. It’s no point of it yourself.
having a plan done from self-proclaimed planners who After evaluating all the above factors, you may decide
are actually insurance agents or mutual fund distributors and try to do it yourself or seek a planners help. Alter-
doing it for free and in the end recommending the prod- natively you may try yourself for sometime before turn-
ucts they want to sell. ing on for external help. But, start somewhere & take
‘Willingness to pay’ is best left to you. But ‘ability to the first step towards having a plan in place!
pay’ can be quantified to some extent. In general if you
V O L U M E 2, I S S U E 1 Page 2
3. Spreading the income – Golden Rule to save tax
Saving Taxes has always been a priority area for any tax If you are in business, you may take loan from other
payer. Even from a Financial Planning perspective, taxes family members and take benefit of interest payment by
are treated as a hole in Investors pocket which increase showing it as business expense.
the outflow thus reducing the surplus. But good news is
that a lot of tax saving is possible through proper tax Understand the Gift tax provisions.
planning, within the provisions of tax laws. Please re- Gift tax is governed by income tax act u/s 56(2). As per
member that tax planning does not mean Tax evasion this act any gift above the value Rs 50000 in the form
where the tax payer conceals some part of his income to of cash , valuable artifacts, shares, valuable drawings,
avoid tax payments, which is illegal. jewellery, paintings or sculptures or even property
where stamp duty
This article highlights a specific tax planning technique would be over Rs
which if used judiciously can help in saving lot of tax. 50,000 would be You may take Housing loan
taxable in the from other family members
Spread your income among your Family hands of recipient.
members. This is applicable and take benefit of interest
Create as many tax files as you can in your family , so only in the case of payment u/s 24.
that each one of them become independent tax payers. Individuals or
This does not reduce the tax outgo of your salary/ HUFs. Thus any
business income but will help in reducing the taxes gen- gift received by Trust or Association of person does not
erated out of the income earned on investment of the sur- get covered under this act and thus are non taxable.
pluses. I know that it is not possible to arbitrarily divide
one’s income to different family members and then pay Exceptions:
lower tax on that, but this goal can be achieved with the The gifts received from the following people or in fol-
help of Gifts and settlement provisions. lowing circumstances will be tax free in the hands of
receiver.
Advantages of creating different tax files :
1. You may distribute the further income generated out 1. Gifts by relatives which includes Spouse, Siblings &
of the investments made which otherwise would have their spouses (self and spouse ), Parents and their Sib-
been added in your total income and taxed accordingly. lings ( self and spouse)
For e.g doing 10 lakh of FD in your name @ 8% rate of
interest will increase your taxable income with Rs Any Lineal ascendant or descendant ( Self & Spouse)
80,000/- and tax with Rs 24000/- (assuming tax rate 2. On the occasion of Marriage (this excludes the gifts
30%). With spreading income you could be able to save received by Son in law from parents in Law)
this tax.
3. As inheritance through WILL.
2. You may take Housing loan from other family mem-
bers and take benefit of interest payment u/s 24. This Cont… Page 4 (Clubbing Provision)
benefit is not possible if total savings are in your name.
V O L U M E 2, I S S U E 1 Page 3
4. Cont. Page 3—Spreading the income
Clubbing provisions: ate their tax files. If you follow a financial planning
Now it might be looking very easy to create different tax approach which says that come out of risky instruments
files by gifting amounts to family members, but the gift say equity at least 3 years before the goal. One of your
tax provisions has to be read in conjunction with the goal is Children education and marriage. So once your
clubbing provisions which are detailed u/s 60-64 of in- kids become major shift the portion of your savings
come tax act 1961. These sections deal with the cases meant for them in their name to reduce your tax outgo
where tax payers make an attempt to reduce the tax liabil- in the last 3 years, also do future savings for them
ity by transferring / gifting their assets in favour of family through their file only.
members or by arranging their sources of income in such
a manner that tax incidence falls on others, but in actual 4. If you don’t Tax Evasion is illegal, but
the benefit of income enjoyed by them. Some of the in- have Major kids
stances it covers are, then you may cre- tax planning within the
ate a Specific
• Investing in the name of non earning spouse/daughter Beneficiary non- scope of different tax laws
in law. revocable trust in
favour of your mi- is completely legal.
• Investing in the name of minor children nor child and save
for his future
Giving salary to the spouse out of business where the
spouse actually doesn’t have any technical knowledge or through that trust. Money transferred to that trust will
experience. not be treated as gift but the income earned by that trust
will be taxable as per the individual tax slab.
Mainly these clubbing provisions are applicable on the
immediate family members. This says that any income 5. You can also create a good tax file in the name of
generated by Spouse, daughter in law or minor child your Daughter-in-law by compiling all cash gifts re-
(more than Rs 1500) out of gifted amount will be clubbed ceived at the time of marriage.
with the income of transferor and taxed as per the income
6. You may create a Tax file by starting off with your
tax slab he/she falls in.
HUF (Hindu Undivided Family)
How to create different Tax files through
Gifting and avoid clubbing
7. Create different tax files through WILL and do tax
planning for your successors.
1. To avoid clubbing you have to be sure that you
should not gift or invest anything directly to your spouse, Tax Evasion is illegal, but tax planning within the
daughter in law or Minor child. scope of different tax laws is completely legal So one
should make the best use of it and should not in-
2. You may gift to your parents if they fall in lower tax
dulge in evasion activity.
slab than yours.
3. You may gift any amount to your major kids and cre-
V O L U M E 2, I S S U E 1 Page 4
5. Sending your child abroad is not that difficult…
She was born a year ago. You named her Pari. And she
turned out to be just that. She filled your home with hap-
piness and laughter and lit up your life. Life is great now.
You want to do your best for the apple of your eye. But,
the education cost is worrying you… especially since all
your friends are making plans to send their sons and
daughters abroad, for higher education.
Education as such, is costly today… foreign education,
more so. But, you need not break into a sweat if you were
to break up the problem – it won’t look so daunting. Let
us see how.
Firstly, much depends on the choice of country where the
education is to be pursued. If it is US or UK, the cost per
annum could vary between Rs.20-30 Lakhs. If the educa-
tion is in Singapore, Russia, China, it would be much Funding by the parent – Funding by the parent is
less. one source too. It is not the only source as is assumed
Secondly, even if it is in the US, there are ivy league col- by many. Parents could look to fund anything from 30-
leges which are sought after. The fees here would be 50% of the expenses, which could by itself come to
much higher than many other colleges. However, there quite a packet. But if one starts off early, reaching a
are many colleges which are in the second rung which decent corpus should not be a problem. Much depends
would offer good quality education for far less money. on whether the entire college education is to be done
The amount one would need to spend in such colleges abroad or only the post- graduation portion.
can come down by almost 25%. That is another option Portfolio to take care of education funding-
available if one wants to send their children abroad, but Putting together a long-term plan is essential. Starting
want to keep the cost within manageable limits. early always helps. For accumulating a good corpus,
Now comes the interesting part. The funding by the par- one could start a PPF account for the child. Another
ent need not be to the full extent of the course fee & liv- good long-term savings mechanism is by investing
ing expenses. The funding abroad has four components. monthly in equity oriented Mutual Funds. Other good
They are – Loan, scholarship, self-funding by the student instruments available are tax-free bonds. These are
& your funding. available today for 10 & 15 year tenures and offering
Loans – Today, loans are available upto Rs.20 Lakhs 8% plus post-tax returns. Some may also want to stick
from banks. They of course ask for collateral, guarantors with FDs, for a portion of their investment. This may
etc. The student can pay the loan after completing the be a low-risk route but the corpus may not grow as de-
course and land a job. Hence, this is definitely one source sired. Hence, this portion should be limited to 20-25%
of funding. of the portfolio.
Scholarship – Many colleges offer scholarships to The other viable options are debt MF schemes which
international students, depending on the course and the offer good post-tax returns. Debt MF Schemes are sub-
scores obtained in the relevant examination like SAT, ject to special long-term capital gains tax. Based on the
GMAT etc. Again, different colleges offer scholarships in current inflation figures, the effective tax would come
specific streams, where they want to attract talent. The to just 5-6%.
scholarship on the tuition fees can be substantial – upto To hedge the portfolio, one could also go for MF
even 50% of the tuition fee. That could ease the burden a schemes which invest in companies operating globally,
lot. to give a currency hedge.
Self-funding by the student – Children studying Hence, if one starts doing these things early and invests
abroad, routinely do part-time jobs to defray their ex- in a bouquet of products, the goal of sending the child
penses abroad. Teaching assignments, research assistance abroad for education can be achieved, without much of
work, working in restaurants etc. are some of the self- a problem. Pari would have no problem going abroad,
employment options available. This will take care of their if her father invests as outlined. Done right, that would
living expenses to an extent. be true for every pari in every home.
V O L U M E 2, I S S U E 1 Page 5
