by Mr. MANIKARAN
SINGAL, Certified Financial Planner
Distribute wealth among
family members to reduce tax liabilities
Intelligently planning
your estate can help save a lot of tax for your successors and also result in
better money management.
No clubbing Income..!
Creating separate tax
files in the names of different family members may not be possible during your
lifetime, as it may attract income tax clubbing provisions.
But, distributing
your wealth or estate after your passing away can be a tax-efficient
proposition for your heirs. For example, if you create a fixed deposit in your
grandchild’s name, this will not reduce your tax liability.
Whatever interest that
fixed deposit generates will be clubbed with your income and taxed as per your
income tax slab.
But, if your grandchild receives these fixed deposits as
inheritance through your will, then the interest income will be treated as your
grandchild’s income. There would be no clubbing with anyone else’s income.
Similarly, if you gift
money to your daughter-in-law or your spouse during your lifetime and they
invest this money and earn returns, the income generated out of these
investments will be clubbed in your income and taxed accordingly.
But if they
receive this money through a will, then this is counted as their personal
wealth. If you bequeath your entire estate to a single person - be it your son
or / spouse the entire wealth will go into their personal
estate. The complete tax liability on the returns generated from that wealth
falls on that single person.
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| MANIKARAN SINGAL, CFP. |
But if the wealth gets
distributed across the family, every one of them can take the benefit of a
minimum Rs. 4 lakh each (Rs. 2.50 lakh under income tax slab, plus Rs. 1.50 lakh
of Section 80C savings).
This transaction is of great help when most of the
members to whom you are bequeathing wealth, have no other income.
HUFs & Private
Trusts..!
You can also create a
Hindu Undivided Family (HUF) or private trust through your will and bequeath
your assets to these entities.
These will be treated
as separate tax entities. HUF tax calculations would be similar to an
individual and thus, it can also take advantage of basic exemption limits and
tax deductions available to all taxpayers.
Generally HUF is used
for taking care of joint family property. A private trust is formed when you
don’t have confidence in the capability of your successors.
For instance, if you
want to bequeath to your wife but are not sure that if she would be able to
manage the finances well and also wants to protect her future. In that case,
you can either form a private trust in your life time or through a will.
This trust can have
your wife as beneficiary & some trustworthy person as trustees to manage
the wealth and support your family in accordance with the conditions laid down
in the trust deed. You can bequeath the amount to the trust.
A private trust is a
legally-accepted entity with the tax structure of an individual.
About the author..
The writer is a
certified financial planner, registered as an investment adviser with SEBI.
Web Site:http://goodmoneying.com
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