Post-death Money Trail: What are we looking for and where

It helps to have a list of things we are searching for and know where to look

Photo by Anete Lusina on Pexels.com

We’re trying to reconstruct the money life of the person who is suddenly not there to look after all the things that needed to be done. In this piece, I discussed the seven important people to contact as the first step and in this one I listed out the seven digital footprints to follow to rebuild the financial life.

Today I will list out most of the documents you need to find and possible locations for them. You need personal identifiers, papers that show ownership of assets and debts. Documents such as certificates of death, succession and legal heir are to be got from the government departments, but to begin on that, you need to have some documents that you can show to prove that you are indeed the legal heir or beneficiary.

Remember that this work is tedious enough, but this is just the beginning. Even for people with most of these in place, dealing with a multitude of government agencies and financial service providers is going to prove exhausting. Mentally prepare for a long haul on this money trail.

Personal Identifiers

You will need documents that prove the identity of the deceased and your own identity and relation with him or her. To be a legal heir you need to have a Will that gives you the assets. In the absence of that, you will need a legal heir certificate and a succession certificate. Google on how to get these – there are plenty of resources that take you through this process.

• Will. The family financial planner or lawyer are the first two people who might have this document. It may also be in the locker in the bank or at home.
• Passport. Most families have one location for all passports. Find it there.
• Aadhaar card. The wallet or a box that has all the important cards is the usual place for this. It can also be downloaded from here.
• Driving license. Wallet is the usual place for this.
• Voter ID Card. Usually there is a box with all important cards.
• PAN card. People either carry it in the wallet or keep it in a safe box.
• Birth certificate. In the absence of a birth certificate, the class X mark sheet is used often to prove the date of birth.
• Marriage certificate. Some people don’t register their marriages. If the spouse’s name is on the passport, then that works to establish relationship.
• Any other document that establishes your status as an heir and beneficiary.

Tax and Bank

• Tax filing papers. Usually there is a file with the various years tax returns. Find the papers there hopefully. The tax filing site too has a lot of this data. You will need to access it using the PAN number plus mobile OTP.
• Bank statements. These will establish the inflow and outflow of money. You will get a fair idea of how much was getting saved and possibly where those savings were going. You will also find a list of the most important spends that need to continue.
• Cheque book stubs. Other than the regular income that comes via a bank transfer, sometimes there can be credits that are deposited through a cheque. Look at the stubs to see who paid and for what.

Assets

• Fixed deposit certificates. Some banks still issue physical FD certificates and others just give a digital copy.
• Corporate deposit certificates. These should have certificates. These are investments made in company bonds.
• Bonds. There could be government bonds or other tax saving bonds like 56 EC to offset profits of a previous real estate transaction. Some people buy them online now, so getting to the banker and broker will be crucial to find these bonds.
• Post office deposit certificates. Good old fashioned post office deposits will have certificates. Usually stored in a safe box or look for a digital copy.
• National Saving Certificates. Likewise, try and see if there are any certificates. Some banks offer online as well.
• Provident Fund, gratuity and other dues from the place of work. Locate the UAN number to access the PF. Or the office accountant will help.
• Public Provident Fund documents. Some banks still give physical certificates, others just give a digital copy and account statement.
• Home ownership papers. This is a fat bunch of papers. Will be hard to miss.
• National Pension Scheme (NPS) PRAN number. Both digital and physical documents should be there for the NPS account, if any.
• Combined Account Statement for mutual funds. The R&T agents Karvy and Cams give a combined account statement of all the mutual funds held. The Association of Mutual Funds in India (AMFI) tells you how to access it.
• Stock broker accounts. Mostly digital now, find clues on who is the service provider from emails and bank statements. It is crucial to find the assets listed with the broker account.
• NSDL monthly statements. The National Securities Depository Ltd gives a monthly statement of the stocks, mutual funds, bonds, gold bonds owned by a person. Look for emails from NSDL.
• Gold. The location of jewellery in the home is usually a shared piece of information with the close family members, but do look out for gold held through mutual funds and sovereign gold bonds.
• Car and other vehicle papers. Find the RC, the pollution certificate and now the FAST tag information.

Insurances

• Life. There might be a term plan. If you know about this, then it is crucial to find the policy because if you are the beneficiary, you will get the proceeds of the policy. There could be others like Ulips, endowment plans, money back plans and whole life policies. At this stage just collect the policy documents, we will figure out what to do with each later. The bank or agent should help.
• Some offices too insure their employees. Find out from the office if there is such a policy.
• Health. You might have already used the health cover, but it now important to rework the policy. Get hold of the agent who sold this policy.
• Vehicle. This is an annual renewal. Find the insurance papers. Usually a copy is in the dashboard of the car’s glove compartment.
• Home. If you have a home cover, that too will itemise the valuables that were insured. This too is an annual cover and will need to be updated.
• Annuities. This is a regular income and if there is such a policy, you will need to find the document and begin the process of getting it to start paying.

Liabilities

• Loan documents. Find out what you owe. This is important to keep the loan payments going or will help you to close the loans that you want to exit by prepaying them. Usually there is a home loan, a vehicle loan, gadget loans and personal loans. Find out from the credit rating agencies the list of all loans in his or her name. See more about this here.
• Credit and debit cards. You will need to find the cards and then begin the process of cancelling them.

Where to look

Locating these documents will be easy or impossible depending on how organised the deceased was. Most people have a system they use to store their paperwork. The well organised have files neatly labelled stores in file managers or cupboards that too have lables. These kind of people put a label on a label maker! But these are rare. You will most probably need to look in a variety of places to collect all these documents. Look in:

• Bank lockers. The location and number of the locker and code will be crucial to accessing the locker after the bank has done the legal formalities and allows you to access the locker.
• Office. Check with the boss or assistant so that all personal files and documents from the office can be shipped to you. Some people keep documents in office where they are most likely to do the work of updating and maintaining.
• Locker at home. The good old Godrej cupboards have a safe. I’m sure that is the first place you would have checked in any case.
• Document cupboards at home. If there is a study, look there. If the dining room is used as the mini office, then search the cabinets in that room for files.
• Some people maintain registers or notebooks where they document the financial details. You might strike lucky and find a list of passwords for various account in such a register.

We are still just collecting all the documents and papers. The work of putting them to work is still to be done. Next time I will write on how negotiate the few months post the death and build a plan for the future.

Tax democracy, more money to spend and a deep discount bond is my wish list from Budget 2021

When thousands of tractors run amok over the roads of Delhi, battering public goods and public servants because the demand of a section of ‘farmers’ for repeal of farm laws is not met, it is a good time to ask some questions. Who are these people and how is it that they drive in SUVs, ride tractors and seem to have a lavish lifestyle, pay no income taxes, yet want subsidies and state guarantees to continue?

In fact, it is a good time, just ahead of Budget 2021, to ask, why just 1.5 crore people out of 130 crore Indians pay income tax? And why is it that the small fraction of people under the tax net continues to be pressed harder and harder each budget with cesses and surcharges that add to the tax burden. There are between nine and 11 tax categories (depending whether you choose the old tax system where you claim deductions or the new tax system introduced in Budget 2020) with the highest surcharge reaching 37% for incomes beyond Rs 5 crore, giving India a very high marginal income tax rate of 42.7%. With the personal income tax to GDP ratio a tiny 2.5% (France does 9.5% and Germany 10.4%), India’s state capacity to fund infrastructure, health and education is seriously impaired. 

Budget 2021 is being seen as the bounce back budget that will trigger growth. I want Budget 2021 to do three specific things, in addition to finding that magic path between fiscal prudence and growth.

One, bring tax democracy – find ways to get those who have escaped paying taxes for decades into the tax net. Income from agriculture is given a free pass, but this provision has been used to launder non-agriculture income and has allowed rich farmers to get away without paying their share. Although it is a state subject, some way to tax this income must be found.

The other cohort that evades taxes are the self-employed who report far lower incomes than their lifestyle or assets support. The government has been toying with the idea of pre-filled tax forms where it collates the big data of spending and assets and puts down the tax due from the PAN holder. This will not only reduce costs of compliance but also put the onus on the tax payer to deny that the spends and the assets are indeed hers.

Two, India needs a consumption spending push to deepen the profit-led growth so far, but we simply do not have the fiscal room to do the kind of doles seen in the US, UK and mainland Europe. A possible way out could be to allow those earning above Rs 15,000 a month an option to not contribute their part of the Employees Provident Fund (EPF) money for a year. The law makes a 12% contribution mandatory only to people earning upto Rs 15,000 a month of income, however in most offices make it a mandatory cut. The government can advise firms to offer this option to eligible employees. However, the employer’s contribution continues. The government can decide if it is a retrospective return of money collected for FY 21 or a prospective benefit for FY 22. This puts money directly in the hands of the category of people not that badly hit by Covid to spend.

And three, the government needs to spend on building infrastructure, but again there is limited fiscal space. The disinvestment road is already there, and I am hoping that there is movement on both Air India and the LIC stock sale, but there is another route to get long-term funds for infra projects. This is to use the Indian household’s love for government guarantees to offer them a deep discount bond. This is a zero-coupon bond that does not give periodic interest, but the investor gets a defined amount back after a number of years. Make it tax free – exempt, exempt, exempt – and lock-in the money for 15 or 20 years. Household money is very sticky, other than HNI investors, most retail investors stay invested for years and they like certainty of the future value and date of maturity of their investment. The government should use this investor preference for government guarantees to find a way to directly sell the bond to them.

India needs innovative solutions to the age-old problems of too few people pulling the income tax burden and pockets of beneficiaries cornering the government spends. 

Monika writes on household finance, policy and regulation.

Opinion | The FM needed to go beyond just good intentions. They are not enough

A too-long budget speech that was abruptly cut short, budget proposals that disappointed markets and income tax paying Indians. A fatigue with more good intentions rather than a big push for real change. That’s the story of Budget 2020.

The 35 million Indians who bear the disproportionate burden on income tax in India were waiting to get something from this budget. The dual tax system announced by the FM looks at a lower tax regime for those who are willing to give up on the deductions and exemptions. People with incomes up to ₹15 lakh a year benefit if they give up on their tax breaks and pay a lower rate. The FM said that they will gain up to ₹78,000 a year. Though if you add the common deductions, this number changes to the negative. It gets worse for those with incomes over ₹15 lakh if they move to the new tax regime. According to the FM, the state is letting go of about ₹40,000 crore of revenue due to this—or this is the money in the hands of the people if everybody migrates to the new system. But it does not seem that everybody will move since the benefits are not clear at all. It does look like the government has not thought this proposal through and not counted all the deductions that an average household avails. Start adding the others and the move to the new tax regime is not recommended because it leaves you worse off.

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Opinion | Where has all the money gone from the system?

What’s happened to the Indian economy? From an aspiring 10% growth, we are struggling to do half of that. The mood is down. Consumers are not buying. Household savings are at a low. Corporates are not investing. Gold prices have fallen. Real estate is still comatose. Just the stock market has the steam to keep rising higher. Clearly, there is something deeper to this story—what’s going on with the Indian consumers, savers, investors and entrepreneurs? And why is the market up, when data on consumption, spending, confidence, jobs and growth shows only gloom. On one side, the reasons for this skid off the growth path are said to do with demonetization, a botched GST, the persistent bank NPA problems, the shadow banking mess and hardening of rules. The other argument looks at this being a result of an attempt to switch the Indian business model towards formalization. Whatever may be the reason for the skid, the result right now is a slump in the mood of the economic participants.

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Opinion | The FM should extend the tax nudge to personal income tax too

Putting at rest months of post-budget gloom, the Indian markets roared back on Friday as the finance minister announced a reduction in corporate income tax. In an unexpected move, the dismissed-as-a-newbie to finance,Nirmala Sitharaman used a smart nudge to get the existing firms to on-board a lower tax regime, while she announced the reduction of the tax rate for new firms. Firms incorporated on or after 1 October 2019, that do not avail any tax break, will now pay 15% (effective rate is 17.01% post surcharge and cess) as corporate income tax, down from the existing top marginal rate of 34.94% for firms of turnover over ₹400 crore.

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Opinion | Why real estate makes a poor emergency fund

A friend who runs a small business was hit by a series of events post the North Atlantic financial crisis of 2008. The crisis wiped out a large chunk of the overseas market, hitting his business badly. Next, a series of poor business decisions and external events prevented him from recovering in the next few years. Just as he was getting it back together, GST (goods and services tax) compliance and bribes for refunds dealt the next blow. Thinking that the end was around the next quarter for many years, he got into a debt trap with unpaid dues to banks, suppliers, family and friends. The only way out of this tight financial corner was to sell some land bought more than a decade ago, the price of which had gone up exponentially, with lakhs now worth crores. The sale will more than clear the debt and then leave some capital for restarting the business or just retiring. But one year later, he remains in the market looking to liquidate the land. This story is a text-book example of why real estate is such a clunky, and sometimes dangerous, asset to own, maintain and dispose, and why it is a poor asset for an emergency bail-out situation.

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Opinion | Using the Singapore nudge in Indian tax law

Many years ago, on a vacation in Singapore, I was surprised to see the number of babies all over town. It looked like a baby boom in the city state. Cute, chubby babies everywhere. You can take the journalist out of the office on a holiday but you cannot take the office out of the journalist. So I dug deeper, asked people we knew, spoke to some locals and found that the government was worried about the falling population numbers and used taxes to solve this problem. The Parenthood Tax Rebate is a tax break given to tax residents to nudge them into making babies.

India’s new finance minister is crowdsourcing ideas for the budget and I want to suggest reworking the capital gains tax structure to nudge Indians into making the right choice in their asset allocation and product choices. The current tax matrix does not follow a first principle approach and is the result of annual tinkering with the rates and rules. There are two parts to this argument. First, the definition of what asset becomes “long-term” is crucial from a financial planning point of view. India has this definition backwards where we call a one-year holding period for equity as long-term, real estate goes long-term at two years and debt profits at three years. Unfortunately, tax policy has been made by people who sat on defined benefit pensions and had no personal understanding of market-linked financial products. They relied on theoretical models and academic versions of what households do. The result is the current mess. Financial planning 101 is that you use bonds and fixed income for either generating current income, for example, for the retired or for short- and medium-term money needs like a down payment of a home in two years or a college fee fund in the next three years. Long-term on this asset class should kick in after one year and not three.

Equity went “long-term” at year one, but this is an asset that is part of the long-term holding of a household and builds wealth. Long-term should kick in on, or after, the seventh year, given the data that a seven-year holding period for a broad market index in equity reduces the risk of volatility. There is a gradual slide down to a zero long-term capital gains status at the end of year seven. Tax equity profits as short-term till the seventh year. Have the rates slide down over the short-term tenure such that rates are high in year one and go down towards zero over the seven-year period. Real estate should go long-term from two years to at least 10 years, the current two-year holding period defies logic. Again use a sliding scale of short-term rates towards a lower long-term capital gains tax. If the policy direction is towards financialization, then tax long-term capital gains from real estate at 10% at the end of 10 years to give the equity culture a boost.

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Two, switches within an asset class need to have the same rules. Today the lack of logic in the free switches allowed within asset classes is driving money towards certain products. For example, profits from long-term capital gains in real estate can be invested in certain bonds to go tax-free. Or they can be invested into another property to go untaxed. There is no tax on switching in insurance products. But each time you punish a poorly performing equity fund manager to redeem and buy another better performing fund, or in a debt fund, you have to pay capital gains tax. Use a first principle approach to solve the problem of thinking about switches and then apply to the various asset classes, rather than perpetuate a flawed system.

Back-of-the-envelope calculations say that capital gains revenue is just 3% of the total income tax revenue that’s collected from individual taxpayers. The wonks in the ministry of finance should do some modelling to see what this new system will deliver and what this will do to the financialization of the economy. Just tinkering with tenure and rates will not give the deep foundation needed to take India to a tax-buoyant $5 trillion economy in the next five years.

Monika Halan is consulting editor at Mint and writes on household finance, policy and regulation

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Capital Gains TaxFinance MinisterBudget Ideas Crowdsourcing

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Money with Monika Season 2, Episode 3: How debt mutual funds work

 

In this episode of Money With Monika, personal finance expert Monika Halan delves into the importance of having debt mutual funds in your investment portfolio. Debt funds are flexible, she says, and are good for various shorter term goals but can be difficult to understand. ‘You can choose to invest in a conservative balanced fund if you want the safety of bonds with a flavour of equity,’ she adds. Monika Halan is consulting editor of Mint and author of ‘Let’s Talk Money’

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If I can port my mobile number why not my mutual fund?

A tweet from @TheMFGuy started the debate on social media a few weeks back. The tweet read: “Like wallets @SEBI_India should now make rules for mutual fund portability allowing to switch from one fund house to another.” Portability in a service is the option to move your business to another service provider without losing the identification number (as in a telephone number), or losing the history your account has built up (as in a medical insurance policy where a no-claims-bonus builds up for every claim-free year) or having a tax implication when an investment is switched rather than redeemed.

What does portability in a mutual fund mean? There are four kinds of portability that we need to understand in a mutual fund. First, between asset classes, for example, between stocks and bonds. Second, between schemes, for example, from the large-cap to a multi-cap fund of the same fund house. Third, between fund houses, for example, from the mid-cap fund of one fund house to the mid-cap fund of another fund house. Fourth, between various options in a scheme—for example, switching between growth and dividend or between regular and direct.

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