Post on 07-Dec-2021
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