NISM XB Short Notes – Part 13: Tools for Estate Planning – Will, Trust, Power of Attorney (Chapter 15)

NISM Series X-B Investment Adviser Level 2 | Estate Planning Tools | PassNISM.in

Part 13 of the NISM XB short notes series covers Chapter 15: Tools for Estate Planning. This chapter explains the legal instruments available to plan, protect, and transfer an estate — both during a person's lifetime and after death.

👉 Read Part 12: Basics of Estate Planning first

Overview: When Do Estate Planning Tools Apply?

Tool	During Lifetime	After Death
Will	No	Yes
Nomination	No	Yes
Family Settlement	Yes	No
Trust / Joint Holding	Yes	Depends
Gift	Yes	No
Power of Attorney	Yes	No (lapses on death)
Mutation	Yes	Yes

1. Will — The Most Important Estate Planning Document Legal Definition

A Will is defined under Section 2(h) of the Indian Succession Act, 1925 as the legal declaration of the intention of the testator (the person making the Will) with respect to their property, which they desire to be carried into effect after their death.

Key Parties

Testator: The person making the Will. The Will takes effect only after the testator's death.
Legatee: The person named in the Will to receive a portion of the estate.
Executor: The person named in the Will to administer the estate as per the testator's instructions (defined under Section 2(c) of the Indian Succession Act).

Types of Will

Conditional or Contingent Will: Takes effect only if a specified condition or event occurs. If the condition is not met, the Will has no legal force.
Joint Will: A single Will made jointly by two or more persons. Under Indian law, a joint Will is treated as two separate Wills and comes into effect after the death of both testators.
Duplicate Will: A copy of the Will kept for safety, signed and attested just like the original. Usually kept with the executor or trustee.
Holograph Will: A Will entirely handwritten by the testator. Valid in India if properly signed.
Concurrent Will: When a testator owns property in two different countries, they may make two separate Wills — one for property in each country.
Sham Will: A document executed with all formalities of a Will but where the testator had no real testamentary intent — it is a nullity (invalid).
Privileged Will: A Will made by a soldier engaged in actual warfare, an airman, or a mariner at sea — these individuals may make an oral Will before two witnesses. All others are unprivileged Wills and must be in writing.

Registration of Will

Section 17 of the Registration Act, 1908 does not require compulsory registration of Wills.
Section 18 states that registration is optional.
An unregistered Will is perfectly valid. However, registration provides an extra layer of authenticity and reduces the risk of fraud or disputes.

Revocation of Will

A Will is revocable at any time during the testator's competent lifetime (Section 62, Indian Succession Act).
The testator can alter or revoke the Will whenever they are capable of doing so.
A Will is automatically revoked upon the marriage of the testator (for non-Muslims).

Codicil

A codicil is a supplementary document to a Will used to make minor changes or additions. It must be executed and attested in the same manner as the original Will. For major changes, a fresh Will (revoking the earlier one) is preferable.

Probate

Probate is defined under Section 2(f) of the Indian Succession Act as a certified copy of a Will, certified under the seal of a court of competent jurisdiction. It is a court-issued certificate that proves the Will is valid and legally enforceable. Probate is granted only to the executor named in the Will. If no executor is named, the court grants a Letter of Administration.

Role of the Executor

Administers the estate strictly as per the Will's instructions.
A beneficiary can also be the executor.
The law permits multiple executors, but courts generally do not grant probate to more than four simultaneously.

Featured Snippet Answer: A Will is a legal declaration of a person's wishes regarding their property, effective after death. A codicil makes minor amendments to it, while probate is the court-certified copy that validates the Will's legal authority. 2. Gifts, Joint Holding, and Nomination Gift

A gift is a voluntary, gratuitous transfer of movable or immovable property — made without any consideration (payment).
The donor (giver) must be legally competent; the donee (receiver) must accept.
A gift is generally irrevocable once made, unless the donee agrees to return it.

Joint Holding

Property or an account held jointly by two or more persons.
Modes of operation: "jointly" (all must consent), "either or survivor" (any one can operate), "anyone or survivor."
In Joint Tenancy: On the death of one joint holder, their share passes to the surviving holders (right of survivorship). Commonly used for bank accounts and investments.
In Tenancy in Common: Each holder has a defined undivided share. On death, their share passes as per their Will or succession law — not automatically to co-holders.

Nomination

Nomination authorises a named person (the nominee) to receive the asset upon the account holder's death.
The nominee is a custodian, not the legal owner. In case of a dispute among legal heirs, the nominee must hand the assets over to the rightful heir as determined by succession law.

3. Family Settlement

A family settlement is a negotiated agreement among family members to resolve disputes or competing claims over property. Requirements:

Must involve members of the same family with genuine claims on the property.
Must be entered into voluntarily, in good faith, and with the intent to maintain family harmony.

Forms of Property Transfer Among Family Members

Joint Ownership
Gifting
Will / Inheritance

Family Business Valuation Methods

Capitalisation of Earnings
Projected Earnings
Market Approach (comparable businesses)
Net Asset Value

4. Asset Protection

Asset protection involves strategies and legal structures to shield personal and business assets from potential creditors or claimants. Tactics include:

Using trusts to separate legal ownership from beneficial ownership.
Choosing appropriate business structures (LLP, private limited company) to limit personal liability.
Strategic use of insurance and joint ownership.

5. Trust — Structure and Regulation

The Indian Trusts Act, 1882 governs trusts in India. A trust separates the legal owner (trustee) from the beneficial owner (beneficiary), providing privacy and continuity.

Classification of Trusts

Revocable Trust: The settlor reserves the right to revoke or amend the trust during their lifetime.
Irrevocable Trust: Once created, cannot be amended or revoked until the trust's purposes are fulfilled. Provides strong asset protection.
Simple Trust: Trustee has no active management duties; beneficiary has the right to receive the trust property directly.
Specific Trust: Created for a particular purpose; trustee actively works to fulfil the settlor's intentions.
Discretionary Trust: Trustees have full discretion over how to apply income and corpus among beneficiaries.
Determinate (Specific) Trust: Beneficiaries and their shares are clearly defined in the trust deed.

Public vs Private Trust

Public Trust: Created for the benefit of the general public or a section of it (e.g., charitable, religious trusts). Eligible for tax exemptions.
Private Trust: Created for the benefit of identified individuals. The settlor vests property in trustees for the benefit of specified beneficiaries.
Public-cum-Private Trust: Part of the income for public benefit; part for private individuals. The private portion is assessable as a private trust.

Parties to a Trust

Settlor (Author): The person who creates the trust and transfers property into it.
Trustee: Manages the trust assets in accordance with the trust deed.
Beneficiary: The person for whose benefit the trust is created.

Trust Perpetuities

Under Indian law, a trust cannot be perpetual — property held in trust must vest in a beneficiary within the prescribed perpetuity period. The period is generally limited to the lifetime of a living person plus the minority of a future beneficiary (up to age 18).

Offshore Trusts

Trusts formed outside India under foreign laws, with beneficiaries, trustees, or settlors who may be in different countries. Used by wealthy individuals with international assets or family members in multiple countries.

Distributable Net Income (DNI)

DNI is a key concept for trust taxation:

DNI = Taxable income of trust − Capital gains + Tax exemptions

If there is a capital loss, it is added instead of subtracted. DNI determines the maximum amount that can be deducted by the trust and taxed in the beneficiary's hands.

Quick Revision Checklist — Estate Planning Tools (NISM XB)

☑ Will: testator, legatee, executor; effective only after death
☑ 7 types of Will: conditional, joint, duplicate, holograph, concurrent, sham, privileged
☑ Registration optional; unregistered Will is valid
☑ Codicil: minor changes; probate: court-certified Will
☑ Nomination: custodian, not legal owner
☑ Joint Tenancy: survivorship right; Tenancy in Common: individual transferable share
☑ Trust parties: settlor, trustee, beneficiary
☑ Revocable vs Irrevocable; Discretionary vs Determinate trust
☑ DNI = Taxable income − Capital gains + Tax exemptions

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