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Wills, Partitions & Successions
-Jairam Chandnani-LEXIM ASSOCIATES
05th January, 2008
Hindu Succession Act
LEXIM ASSOCIATES 3
Succession Law
4LEXIM ASSOCIATES.
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
LEXIM ASSOCIATES 5
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 6
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 7
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
LEXIM ASSOCIATES 8
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 9
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 10
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 11
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
LEXIM ASSOCIATES 13
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 14
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 15
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 16
Wills - Terms
Testator Beneficiary/Legatee Estate Executor/Executrix Bequest
Bequeath
Witnesses
Life-interest beneficiary
Codicil
LEXIM ASSOCIATES 17
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 18
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 19
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 20
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 21
Types of Bequests Conditional
Precedent
Subsequent
Specific v General Legacy
Distinguishable from other assets
Specific gets priority if estate inadequate for all
LEXIM ASSOCIATES 22
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
LEXIM ASSOCIATES 23
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 24
Wills
Wills & Other Laws: Is Stamp Duty payable?
Is Registration a must?
Are Takeover Regulations applicable?
LEXIM ASSOCIATES 25
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 26
Revocation
Irrevocable only after death
Revokes by marriage?
By making a new will / codicil
By destroying existing will
LEXIM ASSOCIATES 27
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 28
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 29
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 30
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?
LEXIM ASSOCIATES 31
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
LEXIM ASSOCIATES 33
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 34
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 35
HUF Partition
Manner of Partition: Oral Partition
By a Suit
By an Agreement or Deed of partition
By an Arbitration Award
LEXIM ASSOCIATES 36
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 37
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
LEXIM ASSOCIATES 39
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 40
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 41
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
LEXIM ASSOCIATES 42
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 43
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 44
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 45
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 46
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 47
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 48
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
LEXIM ASSOCIATES 50
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 51
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
LEXIM ASSOCIATES 53
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 54
Gift must be voluntary Total absence of consideration No man can gift to himself Donor & Donee
Transfer of Property
LEXIM ASSOCIATES 55
Gift of Immovable Property must be: By a written Gift Deed Registered Attested
Invalid - If 3 conditions not met Under Mohammedan Law?
Immovable Property
LEXIM ASSOCIATES 56
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 57
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
LEXIM ASSOCIATES 58
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
LEXIM ASSOCIATES 59
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 60
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 61
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
LEXIM ASSOCIATES 62
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 63
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 64
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 65
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 66
Company Law
Can a Company make a Gift? No express provision / case Donation permitted
Can Company receive a Gift? DCA’s view
LEXIM ASSOCIATES 67
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%?
LEXIM ASSOCIATES 68
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 69
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 70
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
LEXIM ASSOCIATES 71
FEMA
Gift of Indian Imm. Property General permission of RBI
Gift of Imm. Property abroad to R RBI’s General Permission if Donor is
LEXIM ASSOCIATES 72
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 73
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
LEXIM ASSOCIATES 75
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 76
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 77