NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2)

Basics of Estate Planning: formula sheet

Full chapter guide

Key formulas

Estate (net): Net estate = Total assets − Total liabilities; Use this to judge what is actually available to pass on and whether liquidity is enough for liabilities.
Stages of the process (sequence): Gather facts → Set objectives → Analyse gaps → Design plan → Implement → Review; Remember the order. Review comes last and repeats when circumstances change. Exact stage names may vary slightly by workbook wording, so focus on the logic.
Core objectives: Transfer, Continuity, Liquidity, Protection of dependents, Dispute avoidance, Tax and cost efficiency; These are the typical aims. A question asking for an objective will usually match one of these.
Net estate: Net estate = Total value of assets − Total liabilities; Use this to size the estate and to check whether liquidity is enough to pay debts and expenses.
Order of the process: Objectives → Information → Assets and liabilities → Gap analysis → Draft plan → Implement → Review; Exam options often jumble this order. Drafting always comes after gap analysis; review comes last and repeats.
Adviser's role: Adviser = coordinator, not lawyer; Legal drafting of wills, trust deeds and similar documents is done by a legal professional.
Net estate: Net estate = Total assets − Total liabilities; Value assets at current market or fair value on the same date as the liabilities.
Testate succession: Valid will exists → property passes as per the will; The will must be valid. An invalid will leads to intestacy.
Intestate succession: No valid will → property passes as per applicable personal law; Law depends on the person's religion and personal law, not on the adviser's choice.
Liquid vs illiquid: Liquidity = how quickly an asset converts to cash without big loss; Estates rich in illiquid assets may struggle to pay debts and expenses.
When each tool takes effect: Will → on death | Gift → immediately | Trust → during life or on death | Nomination → on death of the holder | Power of attorney → during life only; Most MCQs test timing. Match the tool to the moment it starts and ends. A trust's effect follows its deed, and probate rules for wills vary by place and by the religion of the person making the will.
Roles in a trust: Settlor creates → Trustee manages → Beneficiary benefits; Do not mix the three. The trustee holds and manages; the beneficiary enjoys the benefit.
Nominee vs legal heir: Demat shares / MF units → nominee is entitled to receive or transmit the securities; position against legal heirs depends on governing law and case law | Insurance → nominee who is a specified close relative (such as spouse, child or parent) is beneficial owner under Section 39 | Bank deposit and other assets → in general principle, nominee receives the money and holds it for those entitled under the will or succession law; The answer depends on the asset and governing law. Identify the asset before deciding who has the final claim.
Will changes: Will revocable during life | Codicil = change to a will | Latest valid will prevails; A will does nothing until death.
Power of attorney ends: POA ends on death of the giver; POA cannot be used to carry out wishes after death.
Risk-to-tool mapping: disputes: Dispute risk → clear, valid will + executor + open family communication; A will reduces ambiguity but does not remove the possibility of challenge.
Risk-to-tool mapping: no documentation: No will (intestate) → succession under the personal law applicable to the person; Outcome may differ from the client's wishes.
Risk-to-tool mapping: incapacity: Incapacity → power of attorney / trust / planned access to funds; A power of attorney is for the lifetime of the person; it does not operate as a will.
Risk-to-tool mapping: liquidity and leakage: Liquidity gap → insurance, liquid assets, asset inventory; Avoids forced sale of assets by heirs.
Nomination caution: Nominee ≠ automatically the final owner in every case; Nomination is mainly a mechanism to receive and hold; study the rules for each asset type and the role of the will.

Quick revision

Estate planning arranges how assets are managed and passed on, during life and after death.
The estate is what the client owns minus what the client owes, so liabilities matter.
The adviser gathers facts, sets objectives, recommends a plan, helps implement it and reviews it.
A will takes effect only after death.
A will can be changed or revoked by its maker during life.
A trust separates legal ownership held by the trustee from benefit enjoyed by the beneficiary.
A gift transfers ownership during the donor's life.
Nomination names a person to receive the asset on death. Check what the nominee's role is under the relevant law and workbook.
Different assets may need different tools, so one document rarely covers everything.
Plans must be reviewed after life events such as marriage, birth or a change in assets.
Disputes, unclear documents and outdated plans are major risks.
Advisers should recommend legal and tax professionals for legal drafting rather than act as lawyers.

Common mistakes

Treating estate planning as only writing a will. Fix: Remember a will is one tool. Estate planning also covers incapacity, liquidity, trusts, nomination and review.
Thinking estate planning is only for the wealthy. Fix: Any person with assets, dependents or liabilities has an estate and a need for a plan.
Putting drafting before gap analysis. Fix: Remember that you first find gaps between the current position and the client's wishes, then draft the solution.
Ignoring liabilities when sizing the estate. Fix: Always use net estate. Loans reduce what heirs get and create a liquidity need.
Treating net estate as total assets. Fix: Always subtract liabilities before stating what heirs can receive.
Calling a person's death without a will testate. Fix: Remember: testate has a valid will, intestate has none or an invalid one.
Assuming a nominee is always the full owner, or never the owner Fix: Check the asset. For demat securities and mutual fund units, the nominee is entitled to receive or transmit them, and the position against legal heirs depends on governing law. A close-relative nominee on insurance, such as a spouse, child or parent, is the beneficial owner under Section 39. For a bank deposit and many other assets, the nominee holds the money for the legal heirs.
Thinking a will works while the person is alive Fix: A will operates only on death and can be changed until then.
Treating a will as a guarantee against disputes. Fix: A will reduces ambiguity but can still be challenged. Choose 'reduces' over 'eliminates'.
Using power of attorney as a substitute for a will. Fix: A power of attorney works while the person is alive. A will works after death.

Exam tips

Expect direct definition and objective questions. Learn the objectives list in your own words.
Watch for options with 'only' or 'always'. They are usually wrong.
Know the process order and be ready to place a given action at its stage.
Remember liabilities and liquidity. A question may test that debts reduce the net estate.
Read each option fully. Negative marking applies in X-B, so skip a question rather than guess blindly if you cannot narrow it down.
Learn the order of stages cold. Sequence questions are common and options are shuffled.
For role questions, the safe answer is coordinator and facilitator, with legal drafting referred to a lawyer.
Watch for options that ignore liabilities, confidentiality or client consent. They are usually wrong.