INHERITANCE

& SUCCESSION PLANNING

Inmacs Law Offices

Plot No.32, First Floor, Sector 44,

Institutional Area

Gurgaon-122001

SCOPE OF PRESENTATION

S.

No.

Topic

1. Introduction

2. Legal Aspects of Inheritance

3. Business and Succession Planning

4. Trust

INTRODUCTION

In today storyline the most indispensable issue for business world, inparticular for India are as follows:

1. How to survive and sustain in the competitive, Open and transparentbusiness world i.e. structuring.

2. Angst of the Insolvency, as new Era of Insolvency regime Prevailin India.

3. Succession planning, last but not the least, turnout to be mostdraconian issue.

The expression Succession Planning shall be construed not only in letterrather in true spirit, which not only mean and refer to plans rather it ismore focused on development. Many titanic business houses fall into thetrap regarding Succession in spite of having fantastic plans in place forsuccession. They are very proud of their plans on paper, which includedetailed goals. However their execution was not impressive as planning,which leads them to the point very near to end. It’s a brainlessmisconception that the planning process is an end in itself.

LEGAL ASPECTS OF INHERITANCELAWS APPLICABLE TO INHERITANCE IN INDIA

Hindu Succession Act, 1956

Indian Succession Act, 1925

Muslim Personal Law (Shariat) Application Act, 1937

APPLICABILITY OF

SUCCESSION LAW

WHEN AN INDIVIDUAL

DIES

WHEN AN INDIVIDUAL

DIES

Without a Will

Without a Will

Hindu, Jain,

Sikh, Buddhist

Hindu, Jain,

Sikh, Buddhist

Hindu Succession Act, 1956

Hindu Succession Act, 1956

Christian, Parsi, Jew

Christian, Parsi, Jew

Indian Succession Act,

1925

Indian Succession Act,

1925

MuslimMuslim

Muslim Law (Shariat)

Muslim Law (Shariat)

After Making a Valid Will

After Making a Valid Will

Hindu, Jain,

Sikh, Buddhist,

Parsi, Christian,

Jew

Hindu, Jain,

Sikh, Buddhist,

Parsi, Christian,

Jew

Indian Succession Act,

1925

Indian Succession Act,

1925

MuslimMuslim

Muslim Law (Shariat)

Muslim Law (Shariat)

HINDU SUCCESSION ACT, 1956SECTION 3

1) Application of Act:

(a) To any person, who is a Hindu by religion in any of its forms or

developments, including a Virashaiva, a Lingayat or a follower of

the Brahmo, Prarthana or Arya Samaj;

(b) To any person who is a Buddhist, Jaina or Sikh by religion, and;

(c) To any other person who is not a Muslim, Christian, Parsi or Jew by

religion, unless it is proved that any such person would not have

been governed by the Hindu Law or by any custom or usage as part

of that law in respect of any of the matters dealt with herein if this

Act had not been passed.

3) The expression “Hindu” in any portion of this Act shall be construed

as if it included a person who, though not a Hindu by religion, is,

nevertheless, a person to whom this Act applies by virtue of the provisions

contained in this section.

HINDU SUCCESSION ACT, 1956DEFINITION CLAUSE

Agnate - one person is said to be an “agnate” of another if the

two are related by blood or adoption wholly through males.

Cognate - one person is said to be a “cognate” of another if

the two are related by blood or adoption but not wholly

through males

Full Blood - two persons are said to be related to each other

by full blood when they are descended from a common

ancestor by the same wife,

Half blood - when they are descended from a common

ancestor but by different wives;

Uterine Blood - two persons are said to be related to each

other by uterine blood when they are descended from a

common ancestress but by different husbands;

SITUATION PRIOR TO 2005

Section 6 provides for Intestate property:

Sons inherit the shares of the father’s

property and an independent share of the

HUF Property.

The Daughters were only allowed for

residence, not ownership or possession of

rights.

POST AMENDMENT

The daughter becomes a coparcener in the joint family

property.

A partition in the family would now mean equal division of

property amongst the father, mother, son and daughter.

Now the agricultural land is within the folds of the HSA. Babu

Ram vs. Santokh Singh [SC, Civil Appeal No. 2553 of 2019]

HINDU SUCCESSION ACT, 1956RULES OF SUCCESSION

As per the provisions of this Act, if a HINDU MALE dies the following persons can

make a claim:

First Claim: Class I legal heirs. They have equal rights to the assets. They are

mother, spouse and children. If any child has died, then their children and spouse

have an equal share;

Second Claim: In the absence of Class I heirs, the Class II heirs can make a claim.

They are, father, sibling, living children’s grandchildren, sibling’s children etc.;

Third Claim: In the absence of Class I and Class II heirs, the Agnates can make a

claim. Agnates can be defined as the distant blood relatives of male lineage

(fathers’ side).;

Fourth Claim: In the absence of Class I, Class II heirs and Agnates, the Cognates

can make a claim. Cognates can be defined as the distant blood relatives of female

lineage (mothers’ side).

HINDU SUCCESSION ACT, 1956RULES OF SUCCESSION

In the case of a HINDU FEMALE the following persons can make a claim:

First Claim: the sons and daughters and the husband can make a claim;

Second Claim: In the absence of the first claimants, the heirs of the husband

can make a claim;

Third Claim: In the absence of the first and second claimants, the mother and

father can make a claim;

Fourth Claim: In the absence of the above-mentioned claimants, the heirs of

the father;

Fifth Claim: And even in the absence of the heirs of the father, the heirs of the

mother can make a claim.

OTHER PROVISIONS

Escheat: If an intestate has left no heir qualified to succeed to his or

her property such property shall devolve on the Government. [Section

29 of HSA]

Testamentary Succession - Any Hindu may dispose of by will or

other testamentary disposition any property, which is capable of being

so disposed of by him or by her. [Section 30 of HSA]

INDIAN SUCCESSION ACT, 1925

The Indian Succession Act came into operation on

30th September 1925 and it seeks to consolidate all

Indian Laws relating to succession.

"Succession" means capable of comprehending

every kind of passing of property. (2004 (1) ALD

647)

Codicil means an instrument made in relation to a will, and

explaining, altering or adding to its dispositions, and shall be

deemed to form part of the will.

Privileged Wills - Any soldier being employed in an expedition or

engaged in actual warfare, may dispose of his property by a will

made in the manner provided in section 66.

INDIAN SUCCESSION ACT, 1925DEFINITIONS

INDIAN SUCCESSION ACT, 1925WILL

Will means the legal declaration of the intention

of a person with respect to his property, which he

desires to take effect after his death.

A minor, lunatic, a corporation, a Hindu deity or

any other juristic person can be a devisee.

The registration of a will is not compulsory,

however the same is advisable.

INDIAN SUCCESSION ACT, 1925WILL

Restrictions on transfer in case of will:

Bequest to person by particular description, who is not in existence

at testator's death. [Section 112]

Bequest to person not in existence at testator's death subject to prior

bequest. [Section 113]

Made to create perpetuity [Section 114]

Bequest to a class some of whom may come under rules in sections

113 and 114. [Section 115]

Bequest to take effect on failure of prior bequest. [Section 116]

Revocation of a Will: [Section 70]

No unprivileged will or codicil, nor any part thereof, shall be revoked

otherwise than by marriage, or by another will or codicil, or by some writing

declaring an intention to revoke the same and executed in the manner in which

an unprivileged will is hereinbefore required to be executed, or by the burning,

tearing, or otherwise destroying the same by the testator or by some person in

his presence and by his direction with the intention of revoking the same.

INDIAN SUCCESSION ACT, 1925WILL

INHERITANCE LAWNRI’S

Non-Resident Indians (NRIs) are eligible to inherit any

immovable property within India, which may include farm or

agricultural land subject to guidelines of the Foreign

Exchange Management Act (FEMA) that were in existence at

that time of the purchase of the said property.

WILL

Declaration of the

testator.

It undergoes probate

/ succession

certificate after the

demise of the

testator

TRUST

Legal arrangement.

It does not go

through probate.

CASE LAWS Ganduri Koteshwaramma & Anr. v. Chakiri Yanadi & Anr. [AIR 2012 SC 1693]

Prakash & Ors. v. Phulavati & Ors [(2016) 2 SCC 36]

Danamma @ Suman Surpur & Anr. v. Amar & ors [ SC, Civil Appeal No. 188 of 2018]

The daughter would hold property to which she is entitled as a coparcenary

property, which would be construed as property being capable of being disposed of

by her either by a will or any other testamentary disposition. That Section 6, as

amended, stipulates that on and from the commencement of the amended Act, 2005,

the daughter of a coparcener shall by birth become a coparcener in her own right in

the same manner as the son. It is apparent that the status conferred upon sons under

the old section and the old Hindu Law was to treat them as coparceners since birth.

The amended provision now statutorily recognizes the rights of coparceners of

daughters as well since birth. That both the sons and the daughters of a coparcener

have been conferred the right of becoming coparceners by birth. It is the very

factum of birth in a coparcenary that creates the coparcenary, therefore the sons and

daughters of a coparcener become coparceners by virtue of birth. That the right to

partition has not been abrogated. The right is inherent and can be availed of by any

coparcener, now even a daughter who is a coparcener.

On and from September 9, 2005, the daughter is entitled to a share in the ancestral

property and is a coparcener as if she had been a son.

Nayanaben Firozkhan Pathan v. Patel Shantaben Bhikhabhai.

[Guj HC, Special Civil Application No. 15825 of 2017]

“Hindu woman converting to Islam after marrying a Muslim

man does not lose her inheritance rights in her father’s

ancestral property. She is equally entitled in the property even

after converting to Islam as she was entitled before her

conversion.”

Balchand Jairamdas Lalwant v. Naazneen Khalid Qureshi

[Bom HC, Appeal from Order No. 1175 of 2014]

“A hindu who converted to other religion is not disqualified to

claim the property of his father who died intestate.”

CASE LAWS

Revanasiddappa Vs. Mallikharjun [(2011) 11 SCC 11]

“The relationship between the parents may not be sanctioned by law butthe birth of a child in such relationship has to be viewed independently ofthe relationship of the parents. A child born in such relationship isinnocent and is entitled to all the rights, which are given to other childrenborn in valid marriage. This is the crux of Section 16 (3) of HinduSuccession Act (Amendment), 2005.

Under Section 16 (1) and 16 (2), it was expressly declared that childrenborn in a void or voidable marriage, (viz. second marriage) should belegitimate. “If they were declared legitimate, then they cannot bediscriminated against and they will be on a par with other legitimatechildren and be entitled to all the rights in the property of their parents,both self-acquired and ancestral.”

“the prohibition contained in Section 16 (3) will apply to such childrenwith respect to property of any person other than their parents. We find itinteresting to note that the legislature has advisedly used the word‘property' and has not qualified it with either self-acquired property orancestral property. It has been kept broad and general.”

.”

CASE LAWS

Uttam Vs. Saubhag Singh [SC, Civil Appeal No. 2360 of 2016]

“On the application of Section 8 of the Act either by reason of the death of

a male Hindu leaving self-acquired property or by the application of

Section 6 proviso, such property would devolve only by intestacy and not

survivorship. On a conjoint reading of section 4, 8 and 19 of the Act, after

joint family property has been distributed in accordance with Section 8 on

principles of intestacy, the joint family property ceases to be joint family

property in the hands of the various persons who have succeeded to it as

they hold the property as tenants in common and not as joint tenants.”

CASE LAWS

Raddhamma vs. Muddukrishna [SC, Civil Appeal No. 7092

of 2010 ]

“Section 30 makes it clear that a Hindu testator may

dispose of any property which is capable of being

disposed of by him by Will or other testamentary

disposition in accordance with Indian Succession

Act of 1925.”

CASE LAWS

Babu Ram vs. Santokh Singh [SC, Civil Appeal No. 2553 of

2019]

“If the source of title or interest in agricultural land

of heirs, is purely through the succession conferred

by the provisions of the Act, the manner in which

said right can be exercised has also been specified

in Section 22 of the Act.”

CASE LAWS

Arshnoor Singh vs. Harpal Kaur [SC, Civil Appeal No. 5124 of

2019]

“Prior to the commencement of the Hindu Succession Act, 1956, the

parties would be governed by Mitakshara law.”

Doddamuniyappa vs Muniswamy [SC, Civil Appeal No. 7141

of 2008 ]

“The property inherited from the father by his sons becomes joint

family property in the hands of the sons.”

CASE LAWS

M.V. Krishna Murthy vs. Sri Arun C. [Kar HC, M.F.A. No. 9692

of 2018]

“Parents rather than the grand parents are the best guardians of a

minor child. The Court, which is considering a proceeding for

declaring the guardian of a minor, has to bear in mind the welfare of

the minor. The Court also has to take into consideration the age, sex

and religion of the minor; the character and capacity of the proposed

guardian and his nearness of kin to the minor; the wishes if any, of a

deceased parent; and any existing or previous relations of the

proposed guardian with the minor or his property. The Court may

also consider the preference of the minor and the Court cannot

appoint any guardian against the will of the minor child.”

CASE LAWS

Farooq Ahmed Shala vs. Marie Chanel Gilier [Delhi HC,

CRL.REV.P. 855 of 2018]

“Merely because Respondent – wife is earning, does not give

an excuse to the husband to avoid working or undertake the

responsibility of maintaining his children. It is the legal, social

and moral responsibility of the husband to not only maintain

his wife but also his children.”

CASE LAWS

SUCCESSION PLANNING

SUCCESSION PLANNING

The operational demands of running a family business or

other closely held enterprise can be all-consuming, but it’s

vital that business leaders take the time needed to assess

their organization’s business succession planning.

For private, owner-managed, or family-owned businesses,

a solid succession plan can drive the growth of the

business, reduce taxes, and set the stage for retirement.

Family-run businesses may benefit further by focusing on

preserving harmony within the family

COMPONENTS OF SUCCESSION PLANNING

Business Valuation

Entity Structure, Transfer Methods,

Taxes

Estate Planning

Identifying Successors

Establishing Goals and Objectives

Implement & Follow-

Up

Exit Strategy

Family Involvement

in the Process

Contingency Planning

SUCCESSION PLANNINGFAMILY BUSINESS

Family business is a commercial organization in which decision-makingis influenced by multiple generations of a family related by blood ormarriage who are closely identified with the firm through leadership orownership. Examples of family business are:

Aditya Birla Group

Ford

Mittal Steel

Raymond Group

Samsung

Tata Group

Toyota

FAMILYFAMILY

MANAGEMENTMANAGEMENTOWNERSHIPOWNERSHIP

SUCCESSION PLANNINGCHALLENGES

Emotions

Tunnel vision

Role confusion

Lack of talent

Succession Planning

Training

SUCCESSION PLANNINGPRECAUTIONS WHILE DRAFTING AWILL

Incorrect Drafting

Important declarations –

a) That you are revoking all earlier wills,

b) That you are of sound mind, and

c) That you are not making the making the will under any

pressure.

“Make your will as specific as possible.”

Medical Provisions.

TRUST

TYPES OF TRUST

Tru

stPrivate

The Indian Trusts Act, 1882

Public

The Charitable and Religious Trust Act, 1920

The Charitable Endowments Act, 1890

The Societies Registration Act, 1860

The Religious Endowments Act, 1863

PRIVATE TRUSTTHE INDIAN TRUSTS ACT, 1882

Indian Trust Act, 1882 is an act related to private

trusts & trustees.

Private Trust

Irrevocable Discretionary

Trust

Irrevocable Specific

Trust

Revocable Trust

BENEFITS OF TRUST

The ownership of trust assets is vested, not in the

beneficiaries but in the trustee.

Maintain the capital value of Trust assets.

Tool to bring a relatively large pool of assets/

investments under one umbrella.

COMPONENTS OF TRUST

The Settlor (aka grantor,

trustor) creates the trust.

The Trustee manages the

trust.

The Beneficiaries receive

the benefit of the trust.

Beneficiary

Trustee

Settlor

PROCEDURE

The Settlor shall:

Make an unequivocal declaration of an intention

on his part to create a trust.

Clearly define and specify the objects.

Specify the beneficiaries.

Trusts are registered with the Local Registrar under

the Indian Trusts Act, 1882.

APPLICABLE Laws

Indian Trust Act, 1882

Income Tax Act, 1961

Companies Act, 2013

REVOCABLE TRUST

Can be revoked (cancelled) by its Settlor.

The trust serves two purposes:

a) Ownership and Control exercised by the Settlor.

b) The property will be handed over to the named

beneficiary, after the death of Settlor.

Bypass’s the probate process.

IRREVOCABLE TRUST

Cannot be terminated or revoked unless on the occurrence of a pre-

defined event.

The trust serves two purposes:

a) Ultimate asset protection from the creditors, as the asset does

not belong to the trust owner anymore.

b) Prevent the property from being included in the assets of the

trust owner.

There are two types of Irrevocable Trust:

1. Irrevocable Specific Trust

2. Irrevocable Discretionary Trust

KEY CONSIDERATIONS

FLEXIBILITY

A trust or a foundation, especially a discretionary one, offersmore flexibility as compared to a Will.

For example, it allows flexibility to provide appropriatebenefits to different family members at different points intime, taking into account changing necessities, opportunities,etc., and also taking into account contributions made by suchmembers for the well-being of the family and for the growthof family businesses (if any)

Further, in the context of business succession, it allowsflexibility to take various factors into account in determininghow change in management should be effected and howmanagement responsibilities should be divided among familymembers and independent professionals

For persons who wish to retain absolute control over theirproperty during their lifetime, a Will may be preferable and ifappropriate, a trust structure may be created through a Will.

In fact, quite often, even where a trust structure is set up duringone’s lifetime, immovable properties are contributed into the trustthrough a Will.

For persons who are willing to part away with ownership whileretaining the ability to exercise some level of control, they mayconsider the option of setting up a revocable trust or setting up anirrevocable trust where they or a private trust company (set up bythe family) act as the trustee.

For persons who are willing to part with ownership and controlsubject to checks and balances, they may set up an irrevocabletrust with an institutional trustee and with terms and conditionsthey consider appropriate.

KEY CONSIDERATIONS

CONTROL

Beneficiaries are not signatories to a trust deed containing an

arbitration clause, and hence any disputes arising between

beneficiaries or trustees of a trust cannot be referred to arbitration

as such arbitration clause is not an “arbitration agreement”

between the trustees inter se, between the beneficiaries inter se or

between the trustees and the beneficiaries for the purposes of the

Arbitration & Conciliation Act, 1996 (“Arbitration Act”).

KEY CONSIDERATIONS

DISPUTE RESOLUTION

DISSOLUTION OF PRIVATE TRUST

A private trust may get dissolved or extinguished on

certain grounds:

The purpose of the trust is completed.

Time period mentioned in the trust instrument is

completed

If the property is not used for the purpose for which

trust is made.

If the purpose becomes unlawful after the

introduction of a new legislation.

If the trust property is destroyed.

PECULIAR FEATURES OF

AN OFFSHORE TRUST

Offshore trusts means trust formed

outside India.

Generally such trusts are formed in

jurisdictions which have no or low

taxes.

Many of such jurisdictions also have

the option of choosing the appropriate

law, of any other country, for the

purpose of governing the respective

trust.

For instance, a Trust formed in

Mauritius may opt to be governed by

the UK law of Trusts.

ANNUAL COMPLIANCE OF TRUSTS

1. Auditing of Accounts

2. Filing the Annual Returns

3. Foreign Contributions Report

4. Furnishing Certificates of TDS if required.

5. Publication of Accounts

THANK YOU