Succession planning: Need of the hour to secure wealth and business before uncertainty hits

By Gautami Gavankar

In these uncertain times, even as we face the reality of the pandemic and get our finances in order, one part of the financial puzzle that is often overlooked is the need for an effective succession plan. While the complexity of the exercise may differ depending on a number of factors such as the size and type of assets, the number of beneficiaries etc, what is irrefutable is that Succession Planning is for everyone and is a must to ensure the seamless transmission of personal wealth as well as safeguard the smooth functioning of one’s business. 

Succession Planning is the need of the hour and ensuring that one takes the time to plan how one’s personal estate and business will be bequeathed is the most important thing that we can do for our family and employees right now. Putting in place a plan, will ensure the seamless transmission of assets in a hindrance free and amicable manner while ensuring that dependent family members are taken care of as per one’s wishes and that the business and legacy is also safeguarded. 

Of late, we have seen many clients approach us to complete their succession plan. Families are feeling the need to ensure that their estate is settled and they have a plan in place. And rightly so. Let me share the importance of succession planning with a couple of examples. 

Mr Gupta*did not have a Will or a Trust; in fact he had ignored this aspect of financial planning for a long time. He suddenly and unexpectedly passed away in 2020. Since he passed away without a Will, under law, his two minor children, his mother, and his wife had equal share in his estate. His wife faced a lot of difficulty at such a tough time, having to go to court to take care of transmission of assets, and trying to manage the estate which passed in a manner not in keeping with the family intentions. It can take up to two years, even with simple assets, to ensure that all assets are passed on to the next of kin in the absence of a will or trust.

It is extremely important to take the time and to plan for one’s succession, whether it is personal assets, or business assets. Wills are necessary and every individual must have a basic Will to ensure that his/her assets are bequeathed as per his/her intentions. Without a basic Will, asset succession could get greatly delayed and more complicated than necessary. The family may have to go to court to have an administrator appointed for the estate.

It is also important to think beyond basic succession and ask tough questions. Is my spouse going to be able to handle financial decisions? Are my children at an age where they can handle large amounts coming to them as an inheritance if something goes wrong? Do I wish to ensure that my family’s interests are protected but they are not burdened by financial decision-making and administration? Do I want to make sure I have created a nest egg for my family? If the answer to any of these questions is yes, it is time to consider the creation of a private trust. 

While a Will can ensure basic succession and is very important for every person, a trust can take care of more holistic planning. A private trust can ensure that the interests of one’s family are protected, succession is smooth and unhindered, assets are ring-fenced from future uncertainties, and if a professional trustee is appointed, the administration and operational aspects of the trust can also be taken care of in a systematic manner. 

Mr Mehta*, a first generation entrepreneur and promoter of what is now a big business, passed away suddenly. He was the one stop shop for all decision-making as well as all signatures in his company. He personally managed everything of any importance in his company and his next in line was fairly junior. He had a spouse who had never worried about financial matters and his children were still in their late teens. Not only did this situation lead to a tragic personal loss but also gave rise to a lot of issues relating to the management and future of the company, which wasn’t equipped to survive without its key promoter.

It is important for promoters, entrepreneurs and business leaders to think about their key leadership and whether there is a plan for the succession of their decision-making roles. This can help protect the future of the company as well as its employees. It is important to make a plan and train the members next in line to take up this role in case something were to go wrong.

Succession Planning can help mitigate the risk of sudden leadership changes, continuity planning can help maintain board & shareholder trust and, most importantly, it helps creates clear communication to all relevant members of the business and family about the company’s future vision and plan. This is vital for ensuring the continued success of any business. 

A sudden death is traumatic and the loss of a loved one cannot be replaced. But well-crafted legacy planning can at least help families secure their hard-earned wealth and enable businesses to survive and grow. 

*name changed to protect privacy.

(Gautami Gavankar is the CEO – Estate Planning & Trusteeship and Head – Family Office, Kotak Mahindra Group. The Views expressed are the author’s own. Please consult your financial advisor before investing)