Wills, Partitions & Successions Jairam Chandnani LEXIM ASSOCIATES 05th January, 2008

Hindu Succession Act

Succession Law LEXIM ASSOCIATES

HSA Application Applies when a Hindu dies intestate 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 LEXIM ASSOCIATES.

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 LEXIM ASSOCIATES

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 LEXIM ASSOCIATES

Female Intestate Firstly Secondly Thirdly Fourthly Lastly Children, Children of pre-deceased Children, Husband Secondly Husband’s Heirs Thirdly Her Parents Fourthly Her Father’s Heirs Lastly Her Mother’s Heirs LEXIM ASSOCIATES

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 LEXIM ASSOCIATES

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. LEXIM ASSOCIATES

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 LEXIM ASSOCIATES

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? LEXIM ASSOCIATES

Wills

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 LEXIM ASSOCIATES

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 LEXIM ASSOCIATES

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 LEXIM ASSOCIATES

Wills - Terms Testator Beneficiary/Legatee Estate Executor/Executrix Bequest Bequeath Witnesses Life-interest beneficiary Codicil LEXIM ASSOCIATES

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? LEXIM ASSOCIATES

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

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? LEXIM ASSOCIATES

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? LEXIM ASSOCIATES

Types of Bequests Conditional Specific v General Legacy Precedent Subsequent Specific v General Legacy Distinguishable from other assets Specific gets priority if estate inadequate for all LEXIM ASSOCIATES

Executors Selection Criteria: Duties 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 LEXIM ASSOCIATES

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 LEXIM ASSOCIATES

Wills Wills & Other Laws: Is Stamp Duty payable? Is Registration a must? Are Takeover Regulations applicable? LEXIM ASSOCIATES

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? LEXIM ASSOCIATES

Revocation Irrevocable only after death Revokes by marriage? By making a new will / codicil By destroying existing will LEXIM ASSOCIATES

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? LEXIM ASSOCIATES

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? LEXIM ASSOCIATES

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 LEXIM ASSOCIATES

Wills - Probate Why required? What is it? Probate - Process 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? LEXIM ASSOCIATES

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) LEXIM ASSOCIATES

HUF Partition

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 LEXIM ASSOCIATES

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 LEXIM ASSOCIATES

HUF Partition Manner of Partition: Oral Partition By a Suit By an Agreement or Deed of partition By an Arbitration Award LEXIM ASSOCIATES

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 LEXIM ASSOCIATES

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 LEXIM ASSOCIATES

Family Arrangement

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. LEXIM ASSOCIATES

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 LEXIM ASSOCIATES

Family Arrangement Disputes under FA Who gets what Manner of Division Disputes over Valuation Disputes over Allocation of Assets Disputes over Payment Schedule, Instalment Facility, Interest on Deferred Payments LEXIM ASSOCIATES

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 LEXIM ASSOCIATES

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 LEXIM ASSOCIATES

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 LEXIM ASSOCIATES

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 LEXIM ASSOCIATES

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 LEXIM ASSOCIATES

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 LEXIM ASSOCIATES

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 LEXIM ASSOCIATES

Release Deed

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 LEXIM ASSOCIATES

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 LEXIM ASSOCIATES

Gifts

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 LEXIM ASSOCIATES

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

Immovable Property Gift of Immovable Property must be: By a written Gift Deed Registered Attested Invalid - If 3 conditions not met Under Mohammedan Law? LEXIM ASSOCIATES

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? LEXIM ASSOCIATES

Transfer of Property 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? LEXIM ASSOCIATES

Contract Act Ex nudo pacti non oritur action Exceptions: 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 LEXIM ASSOCIATES

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? LEXIM ASSOCIATES

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? LEXIM ASSOCIATES

Stamp Duty Stamp Duty : Same as Conveyance Misconception: 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 LEXIM ASSOCIATES

Stamp Duty Gifts to Family : SD @ 2% of FMV of the property gifted Family definition: Spouse Sibling Lineal Ascendant / Descendant of the Donor Definitions? LEXIM ASSOCIATES

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? LEXIM ASSOCIATES

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 LEXIM ASSOCIATES

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 LEXIM ASSOCIATES

Company Law Can a Company make a Gift? Can Company receive a Gift? No express provision / case Donation permitted Can Company receive a Gift? DCA’s view LEXIM ASSOCIATES

Company Law Example 1 Example 2 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%? LEXIM ASSOCIATES

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) LEXIM ASSOCIATES

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 LEXIM ASSOCIATES

FEMA Gift of shares by R to NR Gift of foreign securities by NR to R Not on Automatic Route of RBI Prior permission required Gift of foreign securities by NR to R General permission of RBI LEXIM ASSOCIATES

FEMA Gift of Indian Imm. Property Gift of Imm. Property abroad to R General permission of RBI Gift of Imm. Property abroad to R RBI’s General Permission if Donor is LEXIM ASSOCIATES

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 LEXIM ASSOCIATES

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 LEXIM ASSOCIATES

Guardianship

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? LEXIM ASSOCIATES

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? LEXIM ASSOCIATES

Thank You !! LEXIM ASSOCIATES