The traditional joint family system has been disintegrating into nuclear families. Now, the concept of nuclear family structure is also changing. Being child-free is a conscious choice, and there is an increase in the number of DINKs (double income, no kids) and SINKs (single income, no kids), with variations such as DINKWADs, SINKWADs, DINKWACs, SINKWACs (DINKs/SINKs with a dog/cat), etc. emerging.
The question arises whether succession planning is relevant for DINKs and SINKs. Absolutely, and the planning considerations are unique as their goals are different. Aspects that need to be borne in mind include:
Identify objectives: Spending vs saving
Financial freedom is far more prevalent for child-free individuals as they don’t need to plan for their children’s education and future. With higher disposable income, there is a risk of ‘living in the moment’ and overspending. For example, a child-free couple in their mid-40s with no active employment monetized all rent-yielding ancestral properties without thinking through how such funds would sustain them for the rest of their lives—and the average life expectancy in India is ~71 years.
Financial priorities are very different, and planning for the short, medium, and long term is prudent. It is important to bucket priorities into the present and the future and plan for lifestyle, providing for surviving spouse, healthcare, retirement, disability, and incapacity, particularly for long-term care and assisted living (as they don’t have the support system that traditional and nuclear families may provide).
Right succession planning tool: What, when, who, how?
Careful planning is required for child-free individuals and couples. Otherwise, there is a risk that assets may pass on to unintended beneficiaries. One needs to consider various aspects while planning for succession.
In case of incapacity, who will administer the assets?
Who should be the intended beneficiaries: partner, spouse, parents, siblings, nephews, nieces, cousins, employees or even friends?
Care of pets.
Supporting charities or alma mater.
Timing of transfer—during lifetime through gift, post-lifetime through a will or through structures such as trusts?
Tax is also an essential consideration. While bequeathing assets through wills is tax-exempt irrespective of who the beneficiary is, in the case of gifts and trusts, the intended beneficiaries should be ‘relatives’ as defined under tax laws. Else, there is a tax liability in the hands of the recipient. In one instance, a couple wanted to set-up a trust for the benefit of their nieces, however this was not possible as nephews and nieces are not ‘relatives’ in the context of a trust set up for their benefit. However, any direct gift or bequeathing the assets to the nieces would have been tax-exempt. Worthwhile to consider whether tax and succession laws should be re-looked at from the perspective of evolving family structures.
In another case, an individual had taken insurance for their nephew and was paying premiums for the policy. What happens if the individual passes away? Who will pay the premiums? An appropriate structure or mechanism must be put in place to service such obligations.
Choosing administrators
The partner/spouse would typically be the immediate choice for administering one’s wishes, whether it be administering the estate or making decisions in case of disability or incapacity. In a traditional family setting, the natural choice is typically the children.
However, for DINKs and SINKs, identifying the right person(s) to act as executor, trustee, or power of attorney for financial and medical decisions becomes critical. Otherwise, they could be taken advantage of. In one instance, an aged lady bequeathed assets to certain relatives with the condition that they monetize and, in-turn, bequeath the proceeds to charities. Given the ambiguity in the way the will was drafted and the challenge in implementing conditional bequests, the relatives (who were also executors) wanted to interpret the will in a manner that would benefit themselves. If not planned carefully, unscrupulous elements may attempt to take over properties and harass the persons who are supposed to be benefiting.
When it comes to providing advance medical directive, living wills are becoming popular and capture the wishes regarding medical treatment in case of terminal illness. Here as well, identifying the nominated representative is critical.
Business succession
While ownership succession is important, equally relevant is business succession. For several DINKs and SINKs, career is one of the top priorities. While they invest their efforts in growing the business, they should also undertake contingency planning in case of death or incapacity. The choice could be grooming relatives, institutionalizing management through governance bodies or even monetizing the business at the opportune time.
Plan sooner than later
DINKs and SINKs may have the tendency to delay planning and might believe that planning is not required. However, they have the benefit of accelerating financial goals and retirement plans and can work backwards from the intended age of retirement. Concluding with the words of John F. Kennedy, “The time to repair the roof is when the sun is shining.” So, plan now!
The author is director, Khaitan & Co. The views expressed are personal.