Why Succession Planning? 

From the epic inheritance tales of the Mahabharata to the 21st century courtroom dramas—contention on inheritance has always disrupted families and their legacies. In India, almost 78%1 of the 1,09,93,516 pending civil cases are a subject of inheritance dispute. The underlying issue is that most people do not even consider succession planning to begin with. The absence of a plan, rather a clear plan can lead to fragmented families and eroded wealth. According to Fortune India 20212, 70% of wealth created by the wealth-making generation is lost when transferred to the second generation, and 90% by the third, reinforcing the urgent need for a thought-through succession planning. Otherwise, disputes will not only erode wealth but also fracture relationships, leaving legacies in shreds. 

Emerging Trends

The Indian socio-economic landscape is transforming at a pace. With the rising influence from the west and the mammoth surge in globalisation, joint family setting is collapsing in India—increasing the need for succession planning, now more than ever. Fragmentation in joint families into nuclear families is also shredding away the passage of traditional values to the posterity. In a country where family-owned businesses drive over 75% of the GDP (projected 80–85% by 20473) lack of efficient succession planning disrupts both the legacy and the wealth. Despite covering 80% of Indian corporate landscape, mere 21% family-owned businesses have formal succession plan4.  The trend of family business succession planning is upward yet steady.  

Related Read: Registering a Will in India: Know about Securing Your Legacy

Scenarios in family-owned businesses are changing too—especially as women increasingly take centre stage, with 40% of family businesses boosting female ownership and 55% featuring women in management roles5. The classic conventional patterns of family business succession planning are now irrelevant and need to be replaced with a more gender inclusive one. While India is expected to hit the goalpost of USD 5 trillion GDP by 20286—efficient succession planning does not just account for a plan that strategizes its wealth, but also its values, legacy and business continuity for generations. 

Debunking Myths

Succession planning is utterly misconceived among Indian masses. The conventional perception of succession to be planned by the elderly, or by the affluent wealthy—substantially persists. Starting early provides for flexibility and thorough thought moving ahead. Disputes are not only packaged for affluents but can even knock the doors of modest estate-holders. With gender biases fading away, succession plans do not only include male descendants now, but also females. Succession is also not a one-time task as one expects it to be—it requires gradual and subsequent updates to align with changing landscapes of family needs and wealth. By debunking these myths, families can embrace succession planning proactively to protect their future legacy, not just wealth. 

Related Read: Will vs Family Trust: What’s The Difference?

Options Available

Effective succession planning involves several legal tools to ensure smooth wealth transfer and family harmony.  

  1. Wills: A Will is a simple tool for succession planning. It is a traditional and legally binding document that states how assets should be distributed and amongst whom after the maker’s death. It prevents intestate succession, where statutory laws (like the Hindu Succession Act, 1956, or Indian Succession Act, 1925) dictate distribution, often misaligning with the deceased’s wishes or his family’s landscape. To ensure the clarity of the Will, it must be attested by two witnesses and backed by a medical certificate to confirm the testator’s mental capacity. 
  2. Private Trusts: Trusts are a powerful tool for high-net-worth families in succession planning. They offer flexibility and ringfencing of assets. They allow assets to be transferred during the settlor’s lifetime, reducing disputes and shielding wealth from creditors or litigious family members. Trusts also provide structured management for generational continuity and may mitigate future inheritance tax risks. 
  3. Power of Attorney: A Power of Attorney (PoA) in India is a legal document authorizing a person to act on behalf of another in specific matters, such as property or financial decisions. It can only be executed by a mentally sound individual for his/her succession planning. The PoA ceases upon the principal’s death or incapacity, unless specified as durable.  
  4. Nominations: A process where an individual designates a person (nominee) to receive assets, such as bank accounts or investments, upon their death, simplifying transfer without legal proceedings. A nomination does not confer ownership but facilitates asset transfer to the nominee, who holds assets as a trustee for legal heirs under applicable succession laws. Nomination can be a medium of succession planning, but not a comprehensive tool per se.  
  5. Family Settlement Agreements: A Family Settlement Agreement (FSA) is another tool for succession planning. FSA in India is a legally binding arrangement among family members to resolve disputes or distribute assets amicably. FSAs require mutual consent, and can cover property, business, or inheritance matters. FSAs help avoid litigation and are recognized by courts if executed voluntarily. 
  6. Advanced Medical Directives: An Advance Medical Directive (AMD) in India is a legal document specifying a person’s preferences for medical treatment in case they become incapacitated. It guides healthcare decisions, such as life support or palliative care, ensuring the individual’s wishes are respected. It must be signed, witnessed, and preferably notarized for validity. AMD as a tool for succession planning is yet a budding concept in India.  

Out of a plethora of tools available, Wills and Trusts have been the primary most-used tools of succession planning. Wills are the most practiced conventional tool, but it has not stood the test of time and the test of modern challenges. Trusts on the other hand have been a promising solution to the challenges that Wills don’t solve.  

Key Takeaways for Effective Succession Planning

To secure your family’s legacy, keep these principles in mind: 

Related Read: Assignment of Leasehold Rights on Land – Critical analysis

  1. Start Early: Begin your succession planning now, regardless of age or wealth. Early planning minimizes risks and allows for adjustments over time. 
  2. Reflect Family Values: A good plan aligns with your family’s ethos, ensuring wealth and traditions are preserved across generations. 
  3. Combine Tools: Use a mix of Wills, Trusts, and other tools like Family Constitutions or Settlement Agreements for comprehensive governance. For instance, families like GMR and Dabur use Family Constitutions to define roles and values, ensuring business continuity. 

Succession planning is not just a legal necessity—it is a commitment to preserving wealth, relationships, and legacy. With India’s wealth expected to grow to USD 5 trillion by 2028, and family businesses driving the economy, the stakes are high. A well-crafted plan, blending legal tools and family values, ensures your legacy endures. Start succession planning today, involve your family, and build a future that honours your past. 

Why InCorp Global?

At InCorp, our experienced consultants deeply understand your family’s unique needs and aspirations. We craft personalized succession plans tailored to your specific family dynamics and wealth landscape. As your comprehensive advisor, InCorp seamlessly guides you from strategic planning to flawless execution, ensuring your legacy is preserved with precision and care. If you have any questions or require assistance regarding our process, please write to us at info@incorpadvisory.in or reach out to us at (+91) 77380 66622. 

References

1 National Judicial Data grid statistics. 

2 ‘Emergence of estate and succession planning in India’ by Fortune India 2021 

3 ‘Five differentiators of outperforming family-owned businesses in India’ by McKinsey  

4 ‘Indian business families have grappled with succession’ by The Print. 

5 ‘State of Family Business report’ by SPJIMR 

6 Mint article on Morgan Stanley’s projection. 

Authored by:
Megha Gala | Family Office

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