Exploring Estate Planning Essentials: Tax Benefits Revealed

Everyone wants to reach a millionaire or billionaire milestone in today's busy era. But with that said, we don't know how long we will live. It also impacts the estate you created until now. Without a proper will or planning, your estate (or wealth) will eventually erode. At this point, estate planning comes to your rescue.

In this blog, we will understand what is estate planning, how it is planned, the tax benefits available, and which mistakes you can avoid. Keep reading!

What Is Estate Planning?

Estate Tax Planning Explained: How To Perform?

Estate planning helps transfer assets and the owner's estate to the designated beneficiaries or heirs. It is like creating a plan that decides what will be received by the next generation as per the owner's wish. Earlier, a will was sufficient to execute this entire process. However, this planning is much more than just will creation. You can now find estate tax planning, how expenses will be handled, and legal considerations (like disputes). Estate planners draft an approach that is feasible from a tax perspective.

If you want to initiate estate planning in India, some steps are involved. Each step helps you understand the purpose and successfully execute your desires. Also, there is equal protection for the financial legacy passed on. The process starts with:

• Drafting a list of assets
• Considering your wishes
• Identifying and deciding the beneficiary
• Selecting guardians for children
• Understanding the tax laws
• Draft your last will
• Establish a Power of Attorney (POA) and Healthcare Directive
• Set up family trusts if required
• Store your documents properly

Key Tax Benefits of Estate Planning

There are certain tax benefits available with estate tax planning services. It includes:

No Inheritance or Estate Tax

In India, no inheritance or estate tax is applicable. This means that any estate or assets received from parents are subject to nil tax. However, prior to 1985 (before abolition), the beneficiaries had to pay estate tax and duties.

Capital Gains considerations

Inherited assets – When the assets are received via will, no immediate tax is applicable. However, if the person (beneficiary) sells the asset, it will be taxed as capital gains.

Tax exemptions – Now, considering the case where you sell the property but reinvest the sale proceeds into residential property, capital gains tax is exempt under Section 54 of the Income Tax Act.

Tax-free insurance payments

Under Section 10(10D), any payments from life insurance are tax-free up to a premium of 2.5 lakh p.a. Above this yearly premium, the insurance proceeds are taxable.

Gifts

If you plan to transfer your estate strategically, Gifts is a suitable option. While there is no prescribed gift format, you can decide to give a part of your estate to relatives (or beneficiaries). However, the maximum limit is ₹50,000.

Advantages of Taking Estate Planning Services

The following are the benefits you can get from taking estate tax planning services:

• Tax optimization and exemptions
• Avoidance of legal and financial disputes
• Efficient asset (estate) distribution
• Protection of beneficiaries
• Business continuity
• Advance healthcare planning

Common Pitfalls in Estate Tax Planning

Now that tax and estate planning have some benefits, there are certain mistakes (or pitfalls) people often make. It includes:

• Failure to update the will or healthcare directive
• Not planning for disability, assuming estate planning for death
• Avoiding approaching a trust, planner, or estate planning services
• Not communicating your estate plan to beneficiaries
• Ignoring the tax benefits available for you

Conclusion

Estate planning is no longer just a tool for the wealthy or HNIs. It is important for anyone looking to safeguard their assets, reduce tax liabilities, and ensure a smooth transfer of wealth. And this exploration of estate planning does bring in tax benefits for individuals. Whether planning for your dependents or family members, securing your business succession, or simply wanting peace of mind, a well-executed estate plan offers clarity and control. With professional help, you can make decisions that can benefit future generations.