Wills, Partitions & Successions

-Jairam Chandnani-LEXIM ASSOCIATES

05th January, 2008

Hindu Succession Act

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Succession Law

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HSA

Application Hindus, Jains, Sikhs, Buddhists Not to Muslims, Christians, Parsis, Jews Overrides all Customs, Traditions, etc.

Applies when a Hindu dies intestate Without making a valid will Succession to property then fixed by HSA and not

by his wish / will Therefore, advisable to make a Will

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Intestate Male Firstly – Class I Heirs

Secondly – if no Class I, then upon Class II Heirs Thirdly – if no Class II, then Agnates Lastly – upon Cognates

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Female Intestate Foll. property absolute property

Inheritance Partition In lieu of maintenance By gift Own skill By purchase

She can deal with this property as she likes Can will it away to whomever she likes Exception

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Female Intestate Firstly

Children, Children of pre-deceased Children, Husband

Secondly Husband’s Heirs

Thirdly Her Parents

Fourthly Her Father’s Heirs

Lastly Her Mother’s Heirs

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Female Intestate

Exception – s.15(2) If property inherited from her parents &

She dies w/o any children

Property Father’s Heirs & not to her Husband /his Heirs

If she leaves behind a child

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HSA

Share in HUF Can be willed away Else devolves on surviving members

Not as per HAS Rules but by survivorship

E.g. HUF has 4 members. Karta dies. Share of other 3 members increases by survivorship.

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HSA

Amendment in 2005 Amdt. Introduced in Central Act Daughter of a co-parcener shall:

by birth become a co-parcener in her own right as a son; have same rights in HUF as a son; be subject to same liabilities in respect of HUF property have a share equal to a Son

Daughters can now become a Karta? What happens after her marriage?

Date of Amendment: 9 Sept 2005

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HSA Amendment in 2005

Does amended section apply to: Daughters born after this date?

Daughters married after this date?

All daughters, married or unmarried, but living as on this

date?

Mah State Amdt provided similar benefits But only to daughters married before 22 June 1994

Same position applicable after Central Act?

Wills

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Wills-Definition

A wish, desire, choice, etc of a person as regards

disposition of his property after his death

ISA, 1925: Legal declaration of testator’s intention

with respect to his property which he desires to be

carried into effect after his death

General Clauses Act: A codicil and every writing

making a voluntary posthumous disposition of

property

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Characteristics

Legal declaration of Testator’s Intention As regards his property Manifests only after the testator’s death

Will not valid till testator is alive Speaks from the Grave

Can be revoked at any time and end number of times by the testator in his lifetime

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Why make a Will?

Have complete discretion on distribution of property after death to persons of your choice

Reduces succession disputes Good way to reward someone by willing a part

of your wealth to him post your death Better to make a will at an early age due to

uncertainty of life- No limit on number of revisions to a will

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Wills - Terms

Testator Beneficiary/Legatee Estate Executor/Executrix Bequest

Bequeath

Witnesses

Life-interest beneficiary

Codicil

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Who can Make?

Major person- of sound mind Male as well as Female

An intoxicated person / one who does not understand what he is doing?

Deaf / Dumb / Blind? Ordinarily Insane?

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How to Make?

Write / type Signature / thumb mark of Testator 2 Witnesses to signature of Testator Appoint Executors Date the will Designate legatees / beneficiaries

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What can be Bequeathed?

Any Property- land, bldg., flats, shares, bonds,

money, personal effects, cars, prized

possessions etc. Must be legally transferable Tenanted Premises? Property must be owned by Testator Share in HUF property?

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Who can be a Beneficiary / Legatee?

Any one –relative/friend/employee/servant?

Minor/lunatic?

Co. can be made a Beneficiary under a Will?

Animals can be made a Legatee under a Will?

If legatee dies before testator?

If 2 legatees ~ 1 dies?

Joint death of testator & legatee?

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Types of Bequests Conditional

Precedent

Subsequent

Specific v General Legacy

Distinguishable from other assets

Specific gets priority if estate inadequate for all

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Executors

Selection Criteria:

Someone close to testator

Should be willing to be an executor

Better to check with him beforehand Duties

Provide for all funeral expenses of the testator Pay off all debts Cannot refuse to act once accepted

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Witness

Should be attested by 2 or more witnesses Witness should have seen the testator

sign/affix mark Must receive a personal acknowledgement of

the testator’s signature WHO?- Need not know contents of will

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Wills

Wills & Other Laws: Is Stamp Duty payable?

Is Registration a must?

Are Takeover Regulations applicable?

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Nomination

Wills v Nomination ~ What Prevails? Always Wills Nominee

Only a stop-gap arrangement till Estate executed & bequests made

Plugs gap between Death of a Person and Bequest to a person

Once Will executed, nomination automatically ends

Exception?

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Revocation

Irrevocable only after death

Revokes by marriage?

By making a new will / codicil

By destroying existing will

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Wills - FAQs

Is a person legally required to make a Will?

What happens if a person dies without a Will?

Is a Will final forever?

What is the Legal Format for a Will?

Can one distribute everything in his lifetime?

Can an illiterate make a Will?

Should every page of a Will be signed?

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Wills - FAQs

Can one Will away everything to Charity? Can a Muslim make a Will? Can one exclude close family and select

distant relatives / friends? What happens if more than Will is

produced? Should every property be mentioned?

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Wills & Tax

CGT on Transfer of asset under a will

COA of Legatee

Period of holding of Legatee

Indexation

Taxation of Income of deceased

Executor entitled to recover the tax paid from the

estate of the deceased

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Wills - Probate What is it?

Copy of the will certified by Court seal Establishes authenticity/finality and validates all

acts of executors

Probate - Process Application to Court Will copy Court fees

Why required?

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Wills - Probate Onus of proving genuineness of Will is on one who

claims it to be genuine He must also dispel all suspicious circumstances Court expects all legitimate suspicion to be removed

before accepting the Will as genuine. K Laxmann (SC) Shashikumar Banerjee (SC)

Court to consider genuineness & expln. of all suspicious circumstances

Lalitaben J Popat, (SC)

HUF Partition

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HUF Partition

HUF consists of lineal male descendants from a common ancestor + their wives

Now even Daughters are included

Partition: Defining of the shares of coparceners in Joint

Property Division of Joint Family by a definite + unequivocal

indication to separate

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HUF Partition

Hindu Law recognises Total & Partial Partition IT / WT recognises only Total Partition

Partition defn. (IT) : Physical division, if so capable

or else such division as property admits – mere

severance of status is not a partition Partial Partition defn. (IT) : Partial as regards HUF

property or Members of the HUF or both

If Tax not an issue, can have Partial Partition

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HUF Partition

Manner of Partition: Oral Partition

By a Suit

By an Agreement or Deed of partition

By an Arbitration Award

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Stamp Duty

Duty under various Articles Instrument of Partition :

2% on the Market value of the Separated Share of the Property

Value on which Stamp duty is leviable:

Total FMV of Property less the Largest Share

partitioned

If all Shares are equal, then deduct any one Share

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Registration of Agr.

Sardar Singh / Kashinath Sa (SC) If it creates right, title & interest in Imm. Prop. then

compulsorily Registration If a mere declaration of a pre-existing right or

reference to past partition & not creating right in praesenti – then No Registration

Unregistered Agr. inadmissible as evidence It is a Valid Agr. not a Waste Paper Creates rights & obligations between parties

Family Arrangement

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Family Arrangement

Meaning & Relevance Maximum disputes take place within Family

Members rather than among Strangers FA is one of the oldest ADR mechanisms Scope of FA is extremely wide – even

recognised in English Law Instances : Ambanis, Bajajs, Modis, Ranbaxy,

Mafatlals, etc.

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Family Arrangement

Actual Example Father & 3 Sons Several Properties, Firms, Cos., all owned by

1 / 2 / 3 / 4 members Disputes - One brother wants to separate Is FA possible? Yes Process

Valuation of Properties + Business Comm’l Understanding of division

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Family Arrangement Who gets what Manner of Division

Disputes under FA Disputes over Valuation Disputes over Allocation of Assets Disputes over

Payment Schedule, Instalment Facility, Interest on Deferred Payments

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Family Arrangement

What is a Family Arrangement?

– Kale v. Dy. Director (SC) is an arrangement between members of the same

family

for the benefit of the family

by compromising doubtful or disputed rights or

by preserving family property or peace & security

by avoiding litigation or by saving its honour

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Family Arrangement

Courts generally lean in favour of FA Essential that it is a “valid FA” Entire law is based on Case law Important Concepts & Principles of FA:

Courts would make every attempt to sustain a FA

rather than avoid it Criteria applied for FA - different from those for

strangers – broadest view possible – Halsbury’s

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Family Arrangement Important Principles

FA is not a Transfer No Gift-tax on FA (in the past) No Capital Gains Tax on FA No Stamp Duty on FA Award as on a Conveyance

If there is an antecedent title of some sort in the

parties and Agr acknowledges and defines this title

– no Conveyance – assumed that title claimed

always resided in him

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Family Arrangement MOU merely records what had been agreed +

prepared after FA arrived at – No Registration

Only when FA is brought about by MOU – If it

creates rights in immovable property - it would

require Registration & SD

Distinction between Document containing Terms

and Recitals of a FA and a mere recording of what

has already taken place

MOU must be signed by all intended to be covered

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Family Arrangement

Recording of past oral FA is not a Conveyance MOU itself creates new interest in land &

contemplates execution of other documents - not

exempt from SD as on a Conveyance Compromise creating fresh rights in land- not a

declaration of pre-existing rights, is a Conveyance Plea of practical inconvenience can’t be raised at

implementation stage Proper Drafting of MOU is Paramount

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Family Arrangement

Even married daughters can be made a party to FA If she surrenders shares held by her pursuant to a

FA, then it would not be a taxable transfer Cos. cannot transfer assets under a FA and say

that CG is exempt since it is part of a FA

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Family Arrangement

Maintenance Would Maintenance paid under FA Award be

allowed as a Deduction to Payer? Yes : If Award creates a Charge on Properties

received – Diversification at Source

No : If not a Charge - mere Application of Income

Release Deed

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Release

In restructuring of family owned and run businesses

execution of a Release Deed was a popular mode One co-owner renounces his share in favour of

another co-owner Share of other co-owners in the property enlarged Stamp duty friendly

Earlier SD of Rs. 200 only Lesser SD compared to a Gift Deed

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Release

Bom HC Decisions Asha K Bajaj (Bom) – 2001 Shailesh Harilal Poonatar (Bom) – 2004

To plug this loophole – Amendments in 2005 &

2006 to Art.52: SD @ 5% on MV of property released If release of ancestral property to siblings / parents

/ spouse / children / grand-children / their legal heirs – SD of Rs. 200 only

Gifts

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Transfer of Property

Gift - definition: Transfer of existing movable or immovable

property Made voluntarily & without consideration From Donor (Transferor) to Donee

(Transferee) Accepted by or on behalf of Donee Gift must be accepted in Donor’s lifetime

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Gift must be voluntary Total absence of consideration No man can gift to himself Donor & Donee

Transfer of Property

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Gift of Immovable Property must be: By a written Gift Deed Registered Attested

Invalid - If 3 conditions not met Under Mohammedan Law?

Immovable Property

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Transfer of Property

Acceptance by Donee is a Must If Donee dies without accepting Gift?

Gift made to 2 or more Donees jointly 1 Donee refuses to accept Does the entire Gift fail?

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Gift could be conditional If conditions not met?

Condition not dependent on mere wish of Donor If condition is illegal or immoral or opposed to

public policy?

Transfer of Property

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Contract Act

Ex nudo pacti non oritur action Contracts made without consideration are

void ab initio

Exceptions: Made out of natural love & affection Agreement in writing Registered

Gift given out of natural love – valid contract

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Contract Act

Matter of fact Does nearness of relationship prove

natural love? Agreement to Gift to spouse after filing for

separation? Is it on account of natural love & affection?

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Contract Act

Inadequacy of consideration in a contract Deemed Gift?

Can consideration flow from 3rd party? If not, would it be a Deemed Gift?

Can consideration flow to a 3rd party?

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Stamp Duty Stamp Duty : Same as Conveyance

3% on FMV of movables 5% on FMV of immovable

Concessional Rate for Flat in CHS

Misconception: SD can be paid on the basis of Gift-tax Valuation

of Property Payable on FMV of Property – Ready Reckoner

Value for Immovable Property

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Stamp Duty Gifts to Family : SD @ 2% of FMV of the

property gifted

Family definition: Spouse

Sibling

Lineal Ascendant / Descendant of the Donor Definitions?

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Stamp Duty

Instrument of Gift includes a Declaration

recording making or acceptance of Oral Gift

If No Gift Deed – No SD Receipt issued by Donee for gift of movables

received – Is it an Instrument?

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Stamp Duty

Doc. Recording Gift of movables Gift of movables does not require instruments Document recording past gift

Whether to be stamped? Document does not make the gift – it only records

what has happened No stamp duty payable

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Stamp Duty

Duty as on value of property in Deed:

Other states – Duty on FMV of property

SD on Gift of shares? SD is on Value of Shares

Even though consideration Nil in T/D?

No SD if gift of shares in demat form

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Company Law

Can a Company make a Gift? No express provision / case Donation permitted

Can Company receive a Gift? DCA’s view

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Company Law

Example 1 Private Co. with 5 Brothers as SH owns a flat Gift of flat by Co. to 1 Brother Stamp Duty @ 2% or 5%?

Example 2 Gift of shares by 4 brothers to 5th brother Stamp duty @ 2% or 0.25%?

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Company Law

Gift of shares in a Company Complete when shares are handed over to Donee

with signed T/D Non-recording of transfer by Co. does not

invalidate Gift Co. would recognise Donee only after transfer

registered But Donee is legal owner of shares He has a legal right to get transfer registered

Sheila Devi v. Tara Chand (Cal)

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FEMA Gift of money by a Resident to NR

Earlier limit of $5,000 per annum Now subsumed under liberalised

remittance scheme

Gift of money by a NR to Resident No prohibition in FEMA Gift must be Genuine

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FEMA Gift of shares by R to NR

Not on Automatic Route of RBI Prior permission required

Gift of foreign securities by NR to R General permission of RBI

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FEMA

Gift of Indian Imm. Property General permission of RBI

Gift of Imm. Property abroad to R RBI’s General Permission if Donor is

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Income-tax

No tax on Individual / HUF Donee if Gift of money received: From specified Relatives by an Ind. On marriage Gifts in contemplation of Death of Donor Aggregate of Rs. 50,000 in a PY

No Gift Tax on Donor Deemed Gifts u/s. 60-64

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Income-tax

Gift not regarded as Transfer u/s. 47 Cost to Donee is cost to Donor Period of holding of Donee includes

period of holding of Donor Indexation from which date

Acquisition by Donor Receipt of Gift by Donee

Guardianship

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Guardianship of Hindu Minors Hindu Minority & Guardianship Act Applies to? Deals with powers & duties of Guardians:

Natural Guardians Guardian appointed by Court Appointed under a Will of minor’s parents

Who can be a Natural Guardian?

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Powers of Natural Guardian

Can do all acts necessary / reasonable for minor’s benefit

Can’t bind minor by a personal covenant Transactions of Imm. Prop. of Minor Court’s permission needed?

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