Tax

If an individual passes away without having a testamentary succession plan (will), such an individual dies “intestate” and the religious personal laws applicable to such a person determine the succession of the estate.  Hindus, Jains, Buddhists and Sikhs are governed by the Hindu Succession Act, 1956.  For Christians, Parsis and Jews, the provisions of Indian Succession Act, 1925, are used to define the legal successors.  Muslims need to follow succession rules which are defined in accordance with the religious law of Islam, known as the Sharia law. If one has married a person from a different religion and this marriage is registered under the Special Marriage Act, 1954, then, irrespective of one’s religion, barring a few exceptions the couple will be governed by the Indian Succession Act, 1925. 4.1.4 Hindu and Indian Succession Act Hindu Succession Act The Hindu Succession Act, 1956 is an Act of the Parliament of India enacted to amend and codify the law relating to intestate or unwilled succession, among Hindus, Buddhists, Jains, and Sikhs. \"Intestate\" is defined in Hindu Succession Act as - a person is deemed to die intestate in respect of property of which he or she has not made a testamentary disposition capable of taking effect; Applicability This Act is applicable to the following: 1) any person, who is a Hindu by religion in any of its forms or developments including a Virashaiva, a Lingayat or follower of the Brahmo, Prarthanaor Arya Samaj; 2) any person who is Buddhist, Jaina or Sikh by religion; and 3) to any other person who is not a Muslim, Christian, Parsi or Jew by religion unless it is proved that the concerned 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. Under the Hindu Succession Act, 1956, females are granted ownership of all property acquired either before or after the signing of the Act, abolishing their “limited owner\" status. However, it was not until the 2005 Amendment that daughters were allowed equal receipt of property as with sons. This invariably grants females property rights. General Rules of Succession in the Case of Males The property of a male Hindu dying intestate shall devolve according to the provisions of this Chapter- a) firstly, upon the heirs, being the relatives specified in class I of the Schedule; 451

Heirs in Class I: Son; daughter; widow; mother; son of a pre-deceased son; daughter of a pre-deceased son; son of a predeceased daughter; daughter of a pre-deceased daughter; widow of a pre-deceased son; son of a predeceased son of a pre-deceased son; daughter of a pre-deceased son of a pre-deceased son; widow of a pre-deceased son of a pre-deceased son b) secondly, if there is no heir of class I, then upon the heirs, being the relatives specified in class II of the Schedule; Heirs in Class II: (i) Father. (ii) (1) Son’s daughter’s son, (2) son’s daughter’s daughter, (3) brother, (4) sister. (iii) (1) Daughter’s son’s son, (2) daughter’s son’s daughter, (3) daughter’s daughter’s son, (4) daughter’s daughter’s daughter. (iv) (1) Brother’s son, (2) sister’s son, (3) brother’s daughter, (4) sister’s daughter. (v) Father’s father; father’s mother. (vi) Father’s widow; brother’s widow. (vii) Father’s brother; father’s sister. (viii) Mother’s father; mother’s mother. (ix) Mother’s brother; mother’s sister c) thirdly, if there is no heir of any of the two classes, then upon the agnates of the deceased; \"Agnate\" - one person is said to be an \"agnate\" of another if the two are related by blood or adoption wholly through males d) lastly, if there is no agnate, then upon the cognates of the deceased. \"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 Order of Succession among Heirs in the Schedule Among the heirs specified in the Schedule, those in class I shall take simultaneously and to the exclusion of all other heirs; those in the first entry in class II shall be preferred to those in the second entry; those in the second entry shall be preferred to those in the third entry; and so on in succession. General Rules of Succession in the Case of Female Hindus (1) The property of a female Hindu dying intestate shall devolve according to the rules set out in section 16: a) firstly, upon the sons and daughters (including the children of any pre-deceased son or daughter) and the husband; b) secondly, upon the heirs of the husband; c) thirdly, upon the mother and father; d) fourthly, upon the heirs of the father; and 452

e) lastly, upon the heirs of the mother. (2) Notwithstanding anything contained in sub-section (1)- a) any property inherited by a female Hindu from her father or mother shall devolve, in the absence of any son or daughter of the deceased (including the children of any pre-deceased son or daughter) not upon the other heirs referred to in sub-section (1) in the order specified therein, but upon the heirs of the father; and b) any property inherited by a female Hindu from her husband or from her father-in- law shall devolve, in the absence of any son or daughter of the deceased (including the children of any predeceased son or daughter) not upon the other heirs referred to in sub-section (1) in the order specified therein, but upon the heirs of the husband. ESCHEAT - Failure of Heirs If an interstate has left no heir qualified to succeed to his or her property in accordance with the provisions of this Act, such property shall devolve on the government; and the government shall take the property subject to all the obligations and liabilities to which an heir would have been subjected. Certain Exceptions Any person who commits murder is disqualified from receiving any form of inheritance from the victim. If a relative converts from Hinduism, he or she is still eligible for inheritance. The descendants of that converted relative, however, are disqualified from receiving inheritance from their Hindu relatives, unless they have converted back to Hinduism before the death of the relative. Amendments The Hindu Succession (Amendment) Act, 2005, amended certain sections of the Hindu Succession Act, 1956. It revised rules on coparcenary property, giving daughters of the deceased equal rights with sons, and subjecting them to the same liabilities and disabilities. The amendment essentially furthers equal rights between males and females in the legal system. Indian Succession Act Indian Succession Act is an act to consolidate the law applicable to intestate and testamentary succession Part-I: Preliminary Definitions: In this Act, unless there is anything repugnant in the subject or context,- a) \"administrator\" means a person appointed by competent authority to administer the estate of a deceased person when there is no executor; 453

b) \"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; c) \"executor\" means a person to whom the execution of the last will of a deceased person is, by the testator's appointment, confided; d) \"probate\" means the copy of a will certified under the seal of a Court of competent jurisdiction with a grant of administration to the estate of the testator; e) \"will\" means the legal declaration of the intention of a testator with respect to his property which he desires to be carried into effect after his death. Part-II: of Domicile 4. Applicability: This Part shall not apply if the deceased was a Hindu, Muhammad an, Buddhist, Sikh or Jaina 5. Law regulating succession to deceased person's immoveable and moveable property, respectively: (1) Succession to the immoveable property in India of a person deceased shall be regulated by the law of India, wherever such person may have had his domicile at the time of his death. (2) Succession to the moveable property of a person deceased is regulated by the law of the country in which such person had his domicile at the time of his death. Illustrations: (i) A, having his domicile in India, dies in France, leaving moveable property in France, moveable property in England, and property, both moveable and immoveable, in India. The succession to the whole is regulated by the law of India. (ii) A, an Englishman, having his domicile in France, dies in India, and leaves property, both moveable and immoveable, in India. The succession to the moveable property is regulated by the rules which govern, in France, the succession to the moveable property of an Englishman dying domiciled in France, and the succession to the immoveable property is regulated by the law of India. 6. One domicile only affects succession to moveables: A person can have only one domicile for the purpose of the succession to his moveable property. Part-III: Marriage 20. Interests and powers not acquired not lost by marriage: (1) No person shall, by marriage, acquire any interest in the property of the person whom he or she marries or become incapable of doing any act in respect of his or her own property which he or she could have done if unmarried. (2) This section- (a) shall not apply to any marriage contracted before the first day of January, 1866; 454

(b) shall not apply, and shall be deemed never to have applied, to any marriage, one or both of the parties to which professed at the time of the marriage the Hindu, Muhammad an, Buddhist, Sikh or Jaina religion. 21. Effect of marriage between person domiciled and one not domiciled in India: If a person whose domicile is in India marries in India a person whose domicile is in India, neither party acquires by the marriage any rights in respect of any property of the other party not comprised in a settlement made previous to the marriage, which he or she would not acquire thereby if both were domiciled in India at the time of the marriage. Part-V: Intestate Succession Chapter-I: Preliminary 29. Application of Part: (1) This Part shall not apply to any intestacy occurring before the first day of January, 1866, or to the property of any Hindu, Muhammad an, Buddhist, Sikh or Jaina. (2) Save as provided in sub-section (1) or by any other law for the time being in force, the provisions of this Part shall constitute the law of India in all cases of intestacy. 30. As to what property deceased considered to have died intestate: A person is deemed to die intestate in respect of all property of which he has not made a testamentary disposition which is capable of taking effect. Illustrations: (i) A has left no will. He has died intestate in respect of the whole of his property. (ii) A has left a will, whereby he has appointed B his executor; but the will contains no other provision. A has died intestate in respect of the distribution of his property. (iii) A has bequeathed his whole property for an illegal purpose. A has died intestate in respect of the distribution of his property. (iv) A has bequeathed 1,000 rupees to B and 1,000 rupees to the eldest son of C, and has made no other bequest; and has died leaving the sum of 2,000 rupees and no other property. C died before A without having ever had a son. A has died intestate in respect of the distribution of 1,000 rupees. Chapter II: Rules in cases of Intestates other than Parsis 31. Chapter not to apply to Parsis: Nothing in this Chapter shall apply to Parsis. 32. Devolution of such property: The property of an intestate devolves upon the wife or husband, or upon those who are of the kindred of the deceased, in the order and according to the rules hereinafter contained in this Chapter. 455

Part VI: Testamentary Succession Chapter-I: Introductory 57. Application of certain provisions of Part to a class of wills made by Hindus, etc.: The provisions of this Part which are set out in Schedule III shall, subject to the restrictions and modifications specified therein, apply-- (a) to all wills and codicils made by any Hindu, Buddhist, Sikh or Jaina, on or after the first day of September, 1870, within the territories which at the said date were subject to the Lieutenant-Governor of Bengal or within the local limits of the ordinary original civil jurisdiction of the High Courts of Judicature at Madras and Bombay; and (b) to all such wills and codicils made outside those territories and limits so far as relates to immoveable property situate within those territories or limits; and (c) to all wills and codicils made by any Hindu, Buddhist, Sikh or Jaina on or after the first day of January, 1927, to which those provisions are not applied by clauses (a) and (b): Provided that marriage shall not revoke any such will or codicil. 58. General application of Part: (1) The provisions of this Part shall not apply to testamentary succession to the property of any Muhammad an nor, save as provided by section 57, to testamentary succession to the property of any Hindu, Buddhist, Sikh or Jaina; nor shall they apply to any will made before the first day of January, 1866. (2) Save as provided in sub-section (1) or by any other law for the time being in force the provisions of this Part shall constitute the law of India applicable to all cases of testamentary succession. Chapter-II: of Wills and Codicils 59. Person capable of making wills: Every person of sound mind not being a minor may dispose of his property by will. Explanation-1: A married woman may dispose by will of any property which she could alienate by her own act during her life. Explanation-2: Persons who are deaf or dumb or blind are not thereby incapacitated for making a will if they are able to know what they do by it. Explanation-3: A person who is ordinarily insane may make a will during interval in which he is of sound mind. Explanation-4: No person can make a will while he is in such a state of mind, whether arising from intoxication or from illness or from any other cause, that he does not know what he is doing. 456

Illustrations: (i) A can perceive what is going on in his immediate neighbourhood, and can answer familiar questions, but has not a competent understanding as to the nature of his property, or the persons who are of kindred to him, or in whose favour it would be proper that he should make his will. A cannot make a valid will. (ii) A executes an instrument purporting to be his will, but he does not understand the nature of the instrument, nor the effect of its provisions. This instrument is not a valid will. (iii) A, being very feeble and debilitated, but capable of exercising a judgment as to the proper mode of disposing of his property, makes a will. This is a valid will. 60. Testamentary guardian: A father, whatever his age may be, may by will appoint a guardian or guardians for his child during minority. 61. Will obtained by fraud, coercion or importunity: A will or any part of a will, the making of which has been caused by fraud or coercion, or by such importunity as takes away the free agency of the testator, is void. Illustrations: (i) A, falsely and knowingly represents to the testator, that the testator's only child is dead, or that he has done some undutiful act and thereby induces the testator to make a will in his, A's favour; such will has been obtained by fraud, and is invalid. (ii) A, by fraud and deception, prevails upon the testator to bequeath a legacy to him. The bequest is void. (iii) A, being a prisoner by lawful authority, makes his will. The will is not invalid by reason of the imprisonment. (iv) A threatens to shoot B, or to burn his house or to cause him to be arrested on a criminal charge, unless he makes a bequest in favour of C. B, in consequence, makes a bequest in favour of C. The bequest is void, the making of it having been caused by coercion. (v) A, being of sufficient intellect, if undisturbed by the influence of others, to make a will yet being so much under the control of B that he is not a free agent, makes a will, dictated by B. It appears that he would not have executed the will but for fear of B. The will is invalid. (vi) A, being in so feeble a state of health as to be unable to resist importunity, is pressed by B to make a will of a certain purport and does so merely to purchase peace and in submission to B. The will is invalid. (vii) A being in such a state of health as to be capable of exercising his own judgment and volition, B uses urgent intercession and persuasion with him to induce him to make a will of a certain purport. A, in consequence of the intercession and persuasion, but in the free exercise of his judgment and volition makes his will in the manner recommended by B. The will is not rendered invalid by the intercession and persuasion of B. 457

(viii) A, with a view to obtaining a legacy from B, pays him attention and flatters him and thereby produces in him a capricious partiality to A. B, in consequence of such attention and flattery, makes his will, by which he leaves a legacy to A. The bequest is not rendered invalid by the attention and flattery of A. 62. Will may be revoked or altered: A will is liable to be revoked or altered by the maker of it at any time when he is competent to dispose of his property by will. Chapter-III: of the Execution of Unprivileged wills 63. Execution of unprivileged wills: Every testator, not being a soldier employed in an expedition or engaged in actual warfare, or an airman so employed or engaged, or a mariner at sea, shall execute his will according to the following rules: a) The testator shall sign or shall affix his mark to the will, or it shall be signed by some other person in his presence and by his direction. b) The signature or mark of the testator, or the signature of the person signing for him, shall be so placed that it shall appear that it was intended thereby to give effect to the writing as a will. c) The will shall be attested by two or more witnesses, each of whom has seen the testator sign or affix his mark to the will or has seen some other person sign the will, in the presence and by the direction of the testator, or has received from the testator a personal acknowledgment of his signature or mark, or of the signature of such other person; and each of the witnesses shall sign the will in the presence of the testator, but it shall not be necessary that more than one witness be present at the same time, and no particular form of attestation shall be necessary. Chapter-IV: of Privileged Wills 65. Privileged wills: Any soldier being employed in an expedition or engaged in actual warfare, or an airman so employed or engaged, or any mariner being at sea, may, if he has completed the age of eighteen years, dispose of his property by a will made in the manner provided in section 66. Such wills are called privileged wills. Illustrations: (i) A, a medical officer attached to a regiment is actually employed in an expedition. He is a soldier actually employed in an expedition, and can make a privileged will. (ii) A is at sea in a merchant-ship, of which he is the purser. He is a mariner, and, being at sea, can make a privileged will. (iii) A, a soldier serving in the field against insurgents, is a soldier engaged in actual warfare, and as such can make a privileged will. (iv) A, a mariner of a ship, in the course of a voyage, is temporarily on shore while she is lying in harbour. He is, for the purposes of this section, a mariner at sea, and can make a privileged will. 458

(v) A, an admiral who commands a naval force, but who lives on shore, and only occasionally goes on board his ship, is not considered as at sea, and cannot make a privileged will. (vi) A, a mariner serving on a military expedition, but not being at sea, is considered as a soldier, and can make a privileged will. 66. Mode of Making, and Rules for Executing, Privileged Wills: (1) Privileged wills may be in writing, or may be made by word of mouth. (2) The execution of privileged wills shall be governed by the following rules: a) The will may be written wholly by the testator, with his own hand. In such case it need not be signed or attested. b) It may be written wholly or in part by another person, and signed by the testator. In such case it need not be attested. c) If the instrument purporting to be a will is written wholly or in part by another person and is not signed by the testator, it shall be deemed to be his will, if it is shown that it was written by the testator's directions or that he recognised it as his will. d) If it appears on the face of the instrument that the execution of it in the manner intended by the testator was not completed, the instrument shall not, by reason of that circumstance, be invalid, provided that his non-execution of it can be reasonably ascribed to some cause other than the abandonment of the testamentary intentions expressed in the instrument. e) If the soldier, airman or mariner has written instructions for the preparation of his will, but has died before it could be prepared and executed, such instructions shall be considered to constitute his will. f) If the soldier, airman or mariner has, in the presence of two witnesses, given verbal instructions for the preparation of his will, and they have been reduced into writing in his lifetime, but he has died before the instrument could be prepared and executed, such instructions shall be considered to constitute his will, although they may not have been reduced into writing in his presence, nor read over to him. g) The soldier, airman or mariner may make a will by word of mouth by declaring his intentions before two witnesses present at the same time. h) A will made by word of mouth shall be null at the expiration of one month after the testator, being still alive, has ceased to be entitled to make a privileged will. Chapter-V: of the Attestation, Revocation, Alteration and Revival of Wills 67. Effect of gift to attesting witness: A will shall not be deemed to be insufficiently attested by reason of any benefit thereby given either by way of bequest or by way of appointment to any person attesting it, or to his or her wife or husband; but the bequest or appointment shall be void so far as concerns the person so attesting, or the wife or husband of such person, or any person claiming under either of them. 459

Explanation: A legatee under a will does not lose his legacy by attesting a codicil which confirms the will. 68. Witness not disqualified by interest or by being executor: No person, by reason of interest in, or of his being an executor of, a will, shall be disqualified as a witness to prove the execution of the will or to prove the validity or invalidity thereof. 69. Revocation of will by testator's marriage: Every will shall be revoked by the marriage of the maker, except a will made in exercise of a power of appointment, when the property over which the power of appointment is exercised would not, in default of such appointment, pass to his or her executor or administrator, or to the person entitled in case of intestacy. Explanation: Where a man is invested with power to determine the disposition of property of which he is not the owner, he is said to have power to appoint such property. 70. Revocation of unprivileged will or codicil: 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. Illustrations: (i) A has made an unprivileged will. Afterwards, A makes another unprivileged will which purports to revoke the first. This is a revocation. (ii) A has made an unprivileged will. Afterwards, A, being entitled to make a privileged will, makes a privileged will, which purports to revoke his unprivileged will. This is a revocation. 71. Effect of obliteration, interlineation or alteration in unprivileged will: No obliteration, interlineation or other alteration made in any unprivileged will after the execution thereof shall have any effect, except so far as the words or meaning of the will have been thereby rendered illegible or undiscernible, unless such alteration has been executed in like manner as hereinbefore is required for the execution of the will: Provided that the will, as so altered, shall be deemed to be duly executed if the signature of the testator and the subscription of the witnesses is made in the margin or on some other part of the will opposite or near to such alteration, or at the foot or end of or opposite to a memorandum referring to such alteration, and written at the end or some other part of the will. 72. Revocation of privileged will or codicil: A privileged will or codicil may be revoked by the testator by an unprivileged will or codicil, or by any act expressing an intention to revoke it and accompanied by such formalities as would be sufficient to give validity to a privileged will, 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. 460

Explanation: In order to the revocation of a privileged will or codicil by an act accompanied by such formalities as would be sufficient to give validity to a privileged will, it is not necessary that the testator should at the time of doing that act be in a situation which entitles him to make a privileged will. 73. Revival of unprivileged will: (1) No unprivileged will or codicil, nor any part thereof, which has been revoked in any manner, shall be revived otherwise than by the re- execution thereof, or by a codicil executed in manner hereinbefore required, and showing an intention to revive the same. (2) When any will or codicil, which has been partly revoked and afterwards wholly revoked, is revived, such revival shall not extend to so much thereof as has been revoked before the revocation of the whole thereof, unless an intention to the contrary is shown by the will or codicil. Chapter-VI: of the construction of Wills 74. Wording of will: It is not necessary that any technical words or terms of art be used in a will, but only that the wording is such that the intentions of the testator can be known therefrom. The important sections of the Indian Succession Act are discussed above. There are other sections that details about the laws applicable to intestate and testamentary succession for which the detailed Indian Succession Act can be referred. 4.1.5 Succession - Testate and Intestate Succession is the transmission of property belonging to a person at his death to some other person or persons. Succession and Inheritance can be of two kinds – Testamentary or testate inheritance which means inheritance as per the Will of the deceased and Non Testamentary or intestate succession, where the deceased dies without making a Will. The law on intestate succession for different communities in India is governed by different succession laws applicable for that particular community. For e.g. the Hindu Succession Act, Indian Succession Act, Shariat laws etc. The law on testate succession is governed by the Indian Succession Act, 1925 for all communities except Muslims. The law in relation to making of wills by Muslims is governed by the relevant Muslim Shariat Law as applicable to the Shias and the Sunnis. With the exception of Muslims, the Indian Succession Act, 1925 governs and has a common set of rules for persons of all religions. However, the Muslims shall be bound by the Indian Succession Act, 1925 for the purpose of testamentary succession, if the will relates to immovable property situated within the State of West Bengal and within the jurisdiction of the Madras and Bombay High Courts. 461

Applicability of the Succession law to a person belonging to a particular community is explained in the following diagram: Succession Certificate Succession Certificate is a certificate issued by a court to the legal heirs of a deceased. It establishes the authenticity of the heirs and gives them the authority to inherit debts, securities and other assets that the deceased may have left behind. To get a succession certificate, the beneficiary has to approach the district or the high court within whose jurisdiction, i.e. legal territory, the assets fall and file a petition for a succession certificate. Both these courts have concurrent jurisdiction, i.e. they are both at par. The petition should mention the relation of the petitioner with the deceased, details of other surviving legal heirs and beneficiaries, the time, date and place of death and also if he died intestate. It is also necessary to attach the death certificate and other documents that the court may require. The court, after examining the petition, issues a notice to all those concerned. It also issues a notice in a newspaper and specifies a time frame (usually one-and-a-half months) within which anyone who has objections may raise them. If no one contests the notice and the court is satisfied, it passes an order to issue a succession certificate to the petitioner. If there is more than one petitioner, then the court may jointly grant them a certificate but it will not grant more than one certificate for a single asset. Ideally a succession certificate is needed to inherit the assets of the deceased or get them transferred in your name. But most banks and financial institutions usually release funds to the nominee. However the nominee is not the final beneficiary of the asset, he is only a trustee till the ultimate beneficiary can be determined. So in case a nominee refuses to cooperate or any other dispute arises, then one would require a succession certificate. Similarly in case the amount is huge or the financial institution suspects foul play, it may ask you to produce a succession certificate. Also in certain states, a probate (a copy of the will, if it exists, authenticated by the court) and a succession certificate are compulsory to transfer the title of an immovable property. A Succession Certificate is not granted in cases where obtaining a Probate of Letter of Administration is necessary such as when there is a valid will. 462

Sub-Section - 4.2 Estate Planning Process 4.2.1 Collect Comprehensive Information and Examine Circumstances to Set Estate Planning Goals The CFPCM professional collects sufficient information and documents about the client required to develop an estate plan for the client. The CFPCM professional should strive to collect the complete and accurate client information (using a data gathering questionnaire) and documents required to make an estate plan. The financial planner should clearly communicate to the client the importance of collecting complete, current and accurate information. The financial planner should collect the following facts and data about the client:  Personal information about family and other dependents  Determine the client’s assets and liabilities including the life insurance policies that the client owns.  Methods of property ownerships for e.g. Joint Ownership  List of Successors  Estate Planning goals and objectives- family and charitable In addition to the above quantitative information, the financial planner should obtain qualitative information such as client’s values, attitudes, etc. and examine client’s circumstances to make appropriate estate planning recommendations. The CFPCM professional should assist the client in clarifying and prioritizing his/her estate planning objectives, and discuss with the client the merit and feasibility of any objectives that appear to be unrealistic. If the CFPCM professional is unable to collect information necessary to develop and support recommendations, he/she discusses this with the client, explaining how these limitations impact the estate plan. 4.2.2 Determine Value of Client’s Estate and Liquidity Aspects In order to make appropriate recommendation, it is important to determine the value of clients’ estate and understand the liquidity aspects. Ongoing planning for the liquidity needs of an estate is an essential element of estate planning. Should an estate not be liquid at death, the deceased’s family members and dependents may suffer hardship, as they may have to provide the cash themselves or agree to the sale of an asset to generate the cash needed. Therefore, the financial planner should evaluate the initial expenses that need to be catered such as funeral, burial or cremation costs and, in some instances, medical expenses incurred just before death, settle liabilities and administration costs provide for other taxation liabilities that may arise at death, such as capital gains tax, etc. 463

Before making an estate plan, it is important to understand the worth of the client’s estate. The value of estate is the current value of assets minus liabilities. The estate may also include other items that the client may not possess currently, such as:  Any future payments the client is expected to receive, such as an insurance settlement or the remaining payments from the lottery jackpot won a couple of years ago.  Future inheritances  A loan given to relatives Example: Your client, a businessman has a house worth ₹2.1 crore and a farm house worth ₹85 lakh. His business is worth ₹10 crore as per last balance sheet. He has two other partners in the business having stakes of 24% each. He has two cars purchased at ₹40 lakh and ₹20 lakh, the latter being in personal account. The cars have depreciated/market value at ₹30 lakh and ₹8 lakh, respectively. He also has stocks worth ₹1.65 crore in a Demat account where he is the primary holder. The business has taken Keyman’s insurance on his life of value ₹1.5 crore. He has himself insured his life for an assured sum of ₹1.5 crore. You evaluate your client's estate in case of any exigency with his life as. Assets and Receivables on Personal account Value of house 21,000,000 Value of farm house 8,500,000 Personal car: market value 800,000 Demat account holding 16,500,000 Life Insurance: Sum assured 15,000,000 Total Value 61,800,000 (21000000+8500000+800000+16500000+15000000) Assets and Receivables on Business account: Current worth 100,000,000 Keyman's insurance 15,000,000 T Total value 115,000,000 (100000000+15000000) Stake of client to the extent of 52% 59,800,000 (115000000*52%) Estate of the client = 121,600,000 (61800000+59800000) 4.2.3 Estimate Cost of Transfer and Other Expenses The financial planner should ensure that the costs do not outweigh the benefits when implementing the estate plan. The planner, should carry out an exercise of weighing the costs against the benefits of implementing the proposed plan, taking into account professional fees, transfer duty, capital gains tax implications and other expenses. The two most common ways of succession are: 1) Direct transfer (by way of gift or bequest in the Will) 464

2) Creation of a Private Trust where beneficiaries’ are ascertained or ascertainable individuals. A private Trust in India is governed by the Indian Trust Act, 1882. Direct transfer is simpler and does not require administration and is more appropriate where the Estate is not very significant. Further, in case of immovable property, direct transfer is more tax efficient. The gifts between specified close relatives are tax exempt and transmission of assets on inheritance is also tax exempt. In case of a will, the court grants a probate (a copy of will certified under the seal of court), post which the assets can be transferred to the legatee (beneficiary). The cost of getting a probate includes legal fees as well as stamp duty on the value of the property being willed. The stamp duty varies from state to state. Probate is very important in case of Real Estate. In cases where the Estate is significant, the Trust structure may be appropriate. Certain aspects which need to be considered before going for the trust model for asset protection include (i) critical to identify competent Trustees with integrity (ii) Title transfer costs – registration fees, stamp duty, etc. (In Maharashtra, stamp duty is 3% in case of movable property and 3% to 5% depending upon the location of immovable property in case of private trust). From a tax perspective, the tax treatment of the trusts is not very friendly. In India, there is no estate duty or inheritance tax and as a result, one of the greatest reasons for use of trusts globally is not applicable in India. Generally, the transfer of assets under a Will would not be liable to tax in India but transfer made during the lifetime of the person may need to be examined from tax perspective. To conclude, direct transfer is simpler and does not require administration and is more appropriate where the Estate is not very significant. In cases where the Estate is significant, the trust structure presents enormous flexibility and succession possibilities with estate protection but the same needs to be carefully examined from tax perspective. 4.2.4 Develop a Plan of Transfer After considering the cost of transfer and other expenses, the financial planner should present the strategies to help client meet his estate objectives. After the client has chosen the strategy, the client and the planner should agree on how the recommendation will be carried out. Then, the planner should develop a plan of transfer as per client’s recommendations. After the estate plan has been formulated, the planner may carry out the recommendation or serve as client’s ”coach” to coordinate the whole process with the client and other professional such as attorney or lawyers. There are many tools and methods of estate planning such as wills, trusts, beneficiary designations, nomination, property ownership (joint tenancy with rights of survivorship, tenancy in common, tenancy by the entirety), gift, and powers of attorney which are discussed in the next sub-section. The typical estate plan centers on a will or a trust instrument that contains the basic dispositive provisions of the client’s estate plan. The instrument should name the client’s desired fiduciaries and may set out investment directives, make outright bequests, exercise powers of appointment, and establish ongoing trusts that may continue after the client’s death. Other potential elements of the action plan may include changes in the legal ownership of assets (i.e. 465

the use of Joint Tenancy agreements), the purchase of additional insurance to address estate preservation objectives and possibly the gifting of assets prior to death. 4.2.5 Implement Plan and Review Periodically The next crucial step is to implement the estate plan. The client may require the assistance of several professionals, including an estate lawyer (or notary), an accountant, a financial planner, a trust officer and investment advisor. To execute an estate plan, the planner should assist the client to designate someone to act on the client’s behalf in case he is unable to do so – as executor of your will, trustee for your assets, legal guardian for your dependents and/or personal representative or power of attorney if you became incapacitated. After the plan has been implemented, the financial planning should direct the client about safekeeping of the original documents, instructions on title transfers and recommendations for future review. Periodic revisions are a must to ensure that the estate plan is still attaining the set objectives. With your estate plan successfully implemented, one final but critical step remains: carrying out a periodic review and update. Although a valid will is a good beginning point for an estate plan, the will must be reviewed periodically to assure that a property owner's most recent intentions are honored at death. The birth of new children or grandchildren, the unexpected illness or disability of family members, and changes in the estate owner’s objectives are typical reasons to revise an estate plan, will or trust. Major tax law changes may affect the goals of an existing plan or the tax clauses contained in a will or trust. An owner may perceive beneficiaries and their needs differently over time. In addition, the estate owner's financial situation may change. Finally, guardianship for minor children or arrangements for special needs beneficiaries may also need to be altered. The financial planner should revaluate the client’s objectives, examine changes in the client's lifestyle and accordingly review and update the client’s estate plan periodically. 466

Sub-Section - 4.3 Methods of Estate Planning Introduction Estate planning tools can be classified as those that take effect during the life of a person and after death of a person. 4.3.1 Will A will is the most well-known of all estate planning documents, it is generally the simplest and easiest to create. “Will” is defined in Section 2(h) of the Indian Succession Act 1925 to mean the “legal declaration of the intention of the testator with respect to his property, which he desires to be carried into effect after his death.” A will or testament is a legal declaration by which a person, the testator, names one or more persons to manage his or her estate and provides for the distribution of his property at death. It is a document in which a person specifies the method to be applied in the management and distribution of his estate after his death. The person making the will is the testator, and his rights extend to what are legally his own. The will comes into effect only after the death of the testator. The person who is named in a will to receive a portion of the deceased person’s estate is known as a legatee. The person named in the will to administer the estate of the deceased person is termed as an 467

Executor Registration and Format of Will Format of Will: There is no prescribed format of a Will. In order for it to be effective, it needs to be properly signed and attested. The Will must be initialed by the testator at the end of every page and next to any correction and alteration. Language of a Will: A Will can be written in any language and no technical words need to be used in a Will, however the words used should be clear and unambiguous so that the intention of the testator is reflected in his Will. Stamp Duty: No stamp duty is required to be paid for executing a Will or a codicil. A Will, therefore, need not be made on stamp paper. A Will made on a plain paper is equally valid as a Will on a stamp paper. Registration of Will:It is not compulsory to register a will. However, it is usually a good practice to register a will. A registered will cannot ordinarily be tampered with, destroyed, mutilated, lost or stolen. If a will is registered, no person can examine the will and copy the contents without an express permission in writing of the testator. The non-registration of a Will does not lead to any inference against the genuineness of a Will. In other words, registration therefore does not give any special sanctity to the Will though registration of the Will by the testator himself evidences the genuineness of the Will. Probate: A probate means a copy of the will, certified under the seal of a competent court with a grant of administration of the estate to the executor of the testator. It is the official evidence of an executor’s authority. The grant of the probate decides the genuineness of the will and the executors right to represent the estate. The details about the types of wills, legal requirements, revoking a will, the probate process have been discussed in the next sub-section. Nomination Nomination is an instruction that you give to the investment provider or financial service — bank, mutual fund, insurance company, post office, depository or any other—to record the name of the person or persons entitled to receive the investment or its value when you die. When you nominate, you make it easy for your dependants to have access to the investment. They just have to establish your death by providing a death certificate and provide proof of their identity and address as the nominee and the company will transmit the investment to the nominee. In the absence of nomination, apart from establishing death, the person making the claim also has to establish her right to receive the investment proceeds. This includes providing a copy of the Will or succession certificate, a no-objection certificate from the other heirs and an indemnity protecting the investment provider against claims by others. The entire procedure may take a long time to complete. A nomination makes the process and documentation simpler since you have identified the beneficiary in your lifetime. 468

While a nomination is an uncomplicated way for your dependants to receive the proceeds of your investment, don’t confuse it with estate planning. If you have also left a Will, then it supersedes any nomination. Similarly, if an investment or deposit is jointly held, the nomination becomes effective only on the death of all the joint holders. A nominee is not the owner of the investment proceeds after your death. The exception is equity shares where the nominee becomes the owner of the investment. In other cases, the nominee just facilitates receiving the proceeds and holds it as a trustee till division of estate happens among heirs. If there is no Will, other heirs can take legal action for a share of the investment proceeds even if the nominee is also an heir. If you want to use nomination to distribute your wealth, make sure you do it in such a way that there is no dispute. Even then it’s not a fool proof method and is open to legal action. It is best to have nominations to simplify the process for your dependants to accumulate the proceeds from your investments in different products and a Will to distribute it among your heirs. 4.3.2 Trust A Trust involves transferring of one’s estate to a Trustee for the benefit of certain beneficiaries which may include the person creating the Trust who is called the Settlor. A Trust provides for management of the estate during one’s lifetime and also provides for distribution and management of one’s wealth post demise in a planned manner over a period of time. According to section 3 of Indian Trust Act, 1882, “A trust” is an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owners, or declared and accepted by him, for the benefit of another or of another and the owner. Traditionally, Wills have been the primary tool people use to distribute assets according to their wishes. But with families going to courts on disputes arising out of Wills either on the authenticity thereof, mental soundness of the person making the Will or alleged forgery, the Trust route created during the lifetime of the individual is emerging as a more viable solution to estate planning. The grounds on which a Will may be challenged are numerous, the time taken in India to get a probate of the Will in case the Will is contested could be several years and it could be a very expensive affair, exactly what any family doesn’t need. Further the necessity to obtain a probate of the Wills in most of the cases entails the Will being made public and going to courts for obtaining a Probate. A public document, a will is subject to scrutiny by anyone who wishes to know its contents. If someone feels they’ve been treated unfairly, they can contest the will. Such challenges can tie up assets for months or even years, and cost your estate a huge amount of money. In a Trust, a person transfers his property to another person i.e. the Trustee to hold it for the benefit of certain beneficiaries or it can be for the benefit of beneficiaries and himself. By adopting a Trust Route a person can avoid the issues which arise in a Will and make a ring fenced structure to ensure that the person’s future generations are well protected through a vehicle created by him and according to his directions. The Trust has the following components: 469

 Author/Settlor/Trustor/Grantor: The person who creates the trust agreement. The person who reposes or declares the confidence is called the\" author of the trust“.  Trustee:The person who holds the property for another's benefit.The person who accepts the confidence is called the\" trustee“.  Beneficiary: The person who is benefited by the trust. The person for whose benefit the confidence is accepted is called the\" beneficiary“.  Trust-property or Trust money: The subject matter of the trust is called the Trust property or trust money. Trust property can be in the form movable or immovable property viz. cash, jewellery, land, investment instruments etc.  Settled Property:Settled property includes property held in trust for successive beneficiaries; for any individual, but subject to a contingency (such as attaining a specified age); under which the income is payable at someone's discretion or has to be accumulated. But, property that is held by trustees who must distribute it to specified people is not settled property.  The \"beneficial interest\" or\" interest\" of the beneficiary: The right against the trustee as owner of the trust-property.  Instrument of trust: The instrument, if any, by which the trust is declared. Types of Trusts The Indian Law classifies trusts only on the basis of their purpose, namely private purpose (Private Trust) or public purpose (Public Trust) and religious/charitable (Religious / Charitable Trust). A Public Trust is for the benefit of the public and the beneficiaries are incapable of ascertainment and a private trust is created for benefit of certain specified individuals who are ascertained or are capable of being ascertained. Public Trusts (Charitable & Religious Trusts): A trust is called as Public Trust when it is constituted wholly or mainly for the benefit of Public at large, in other words beneficiaries in the Public trust constitute a body which is incapable of ascertainment. The Public trusts are essentially charitable or religious trusts and are governed by the general Law. The provisions of Indian Trusts Act do not apply on Public Trusts. 470

Private trusts are governed by the Indian Trusts Act, 1882. When the purpose of the trust is to benefit an individual or a group of individuals or his or their descendants for any legal person and who is capable of holding property, it is a private trust. Usually, the purpose of the private trust is defined, like creating a pool of funds for a child’s education or a medical trust for parents. Such trusts come to an end when the purpose for which they were set up is achieved, or the defined time has expired. If none of the above has transpired, they compulsorily expire after 18 years of the death of the last beneficiary living at the time of creation of the trust. 4.3.3 Insurance Life insurance is perceived more as an instrument to generate wealth during lifetime, it is a tool which provides financial support to your family or loved ones after your death. There can be many circumstances which go against you. Life insurance gives a financial support in such situations. This is the primary objective of estate planning. Types of life insurance: There are two types of insurance policies which are used in estate planning:  Term Insurance: These are pure protection policies where company pays out the death benefit to the nominee of the policy holder. There is no cash value accumulated and all premium payment is allocated towards cost of the protection cover. There are varieties of term insurance available including decreasing term insurance value and increasing death benefit.  Whole life Insurance: This is a term insurance accompanied with a savings accumulation benefit. The policy provides death benefit till the life insured is alive. The savings get accumulated in cash value as per the investment mandate. The premium payments in these policies are higher as compared to term insurance due to savings element. There are two variants of whole life insurance policies – traditional and unit linked, each having their unique features and benefits. Benefits of Life Insurance in Estate Planning  Protection to the family: Life insurance is bought for giving the family a financial support in case of any mishap. Generally, the surviving spouse and children are the beneficiaries. It is necessary that the needs of your family are assessed correctly and the right cover is bought. A term insurance bought on your life works efficiently in fulfilling this objective. However, there have been instances when the spouse or children of the deceased have been deprived of this benefit by relatives and other members. Married Women Property (MWP) act gives the right protection in resolving any kind of disputes. Any insurance policy registered under MWP in the name of husband for the benefit of wife, children or both, is deemed to be a trust and cannot be touched by any creditor. Also, the husband does not have any control on the proceeds and neither it form part of his estate. This make sure that benefit accrues to the spouse or children, whatever the circumstances.  Retirement: Although pension plans have been in the forefront when it comes to retirement planning, very little is known about benefits of whole life insurance policies. Once savings get accumulated, you can withdraw cash or convert it into annuity which will provide income at retirement. Also, such policies if assigned on children’s names, can 471

be utilized by them for meeting their financial goals as they will have enough time to grow their money.  Disputes settlement: Many times, having a large number of members in the family leads to family feuds and the distribution of the estate goes to the Court for settlement. The family has to fight a long battle which results in a huge cost. The major sufferers in such cases are the spouse and children of the deceased. Also, if the deceased has run up huge debts then the obligation to pay is on the spouse and children. A life insurance policy can come in handy for providing funds for estate settlement costs or meeting debt obligations of the deceased.  Business protection: Parents, whose adult son/daughter is going to take over the business, buy a life insurance policy in their names. This protects the parents, as an early death can disrupt the business. Even in cases where more than one owner is involved, like partnership firms, the early death of any one partner can seriously impact the business. The life insurance provides funds to the surviving partner to buy the partnership interest of the deceased partner from the heirs. This keeps the business intact as an ongoing enterprise.  Estate building– Life insurance can also be used to create or enhance an estate. The proceeds from a life insurance policy provide money to heirs at the required time.  Estate protection: Families which are involved in the farming business have a sizeable amount of land/farm and there can be members who are not dependent on the farming for their livelihood. However, every member has a share and with the death of a member the asset is split up into small units of uneconomical size so that there is an equal division among all children. To prevent such instances, the parents take life insurance policies in the names of non-farming members and they receive the proceeds. The savings can be at such a rate that it gives the same amount as the estate in child’s name thus keeping the farming business intact to the operating heirs. Ownership of Life Insurance Policy Who owns a life insurance policy is of great consideration in estate planning. If it is on the deceased’s name, then policy proceeds are treated as part of owner’s estate after the death, regardless of who is the major beneficiary. If in between, the policy ownership is changed or the policy is transferred to some other name, the new owner can change the beneficiary or surrender the policy to take the cash value. Hence, while making such decisions the ownership issue should not be taken lightly and care should be taken especially when relationships become unstable or the owner’s credibility is doubtful. This is most appropriate when parents choose guardian’s for the life insurance policies for their children’s benefit. Designating a Beneficiary The beneficiary in any life insurance policy is generally the spouse and the children. The husband makes the spouse the beneficiary in his policies and vice versa. If neither of them survives, the benefit goes directly to the children or to a trust created for the children’s upbringing. The proceeds might also go to an estate if there are no immediate surviving heirs of the deceased. Care has to be taken while selecting the beneficiary as the strategy sometimes can lead to taxation problems. The life insurance proceeds can also be included in your estate if you 472

have been the owner of the policy. Thus taking the help of an estate planner is advisable to avoid any disputes later on. Life insurance, as shown above, can have multiple benefits if utilized efficiently. There are many life insurance companies and so are the products. Choosing the best policy is a difficult decision as also the amount of life insurance to buy and which one to utilize depends on many factors like age, composition of family and the total estate, what is the risk involved and the family needs after your death. You should analyze these factors carefully before buying any life insurance for estate planning. Most importantly, review life insurance needs periodically as your family needs and estate composition will change during your lifetime. Life Insurance - Married Woman Property Act The Married Woman Property Act, 1874 (MWP Act) was formed with the intention to safeguard a married woman’s property from creditors and family members. A life insurance policy under MWP Act works well for self-employed individuals or business owners, who run the risk of their business going bust or have taken too much credit. In such a case, even if something happens to the policyholder, the creditors will not get access to these funds and the future of the wife and/or children will be safe guarded. As per section 6 of the Act, the husband can buy a life insurance policy on his own life under the Act and as well as create a trust for the same. This will ensure that creditors, or any kind of court attachments don’t get hold of this money and the wife and/or children get the funds after his demise. In fact, though the husband has to service the premiums, he loses all control over the policy since it becomes a trust property. This trust does not form a part of the husband’s estate. In fact, on death of the policy holder, or maturity of the policy or even on surrender of the policy, the benefits go to the wife and/or children. The best thing is that it is not required to create a separate trust under trust laws. Filling up necessary forms available with your insurer will complete the procedure. 4.3.4 Gift One goal of estate planning for some families is to ensure maximum enjoyment of the property while the owners are alive, and then at death transfer it according to their wishes. However, some believe that they receive the greatest benefits when they transfer property before their death, while they can still guide and affect the outcome. This can be accomplished through an estate planning tool called gifting. In addition to expressing love and affection, gifts serve other purposes. They can give children an opportunity to participate in the management of a family business, help finance a college education, or pay medical costs. Gift is also a mode thorough which the wealth can be transferred to the legal heirs or the intended person, the only difference being that the person will have to give the gift during his lifetime. A gift is a transfer of movable or immovable property made voluntarily and without consideration. The person making the gift is called donor; the person receiving a gift is called 473

the donee. Any person capable of making a contract can make a gift. A gift is usually an irrevocable transfer, but it can however be revoked if the donee agrees to do so. Gifts are taxable as income from other source, subject to exemptions provided u/s Sec 56 (2) (vii) of the Income Tax Act. Gifts are routinely used to transfer wealth from donor to donee; especially where the exemptions mentioned above would apply, thereby exempting the gift from tax in the hands of the donee. However, any income earned from the gift after such transfer will be subject to tax routinely in the hands of the donee. A gift is the transfer of existing movable or immovable property by a donor (the person making the gift) to a donee (recipient) and accepted by or on behalf of the donee. The gift of movable or immovable property must be in accordance with section 122 of the Transfer of Property Act, 1882, (ToPA). Under this section, a gift is considered to be valid when, (i) it is made voluntarily; (ii) it is without consideration; (iii) there has been an offer by the donor; and (iv) the offer has been accepted by the donee during the lifetime of the donor and while he or she is still capable of giving. Under section 123 of the To PA, a gift of immovable property must be effected: 1) by a registered instrument, 2) signed by or on behalf of the donor, and 3) attested by at least two witnesses. In case of movable property, the gift has to be effected either by a registered instrument signed as aforesaid, or by delivery in the same manner as goods sold under section 33 of the Sale of Goods Act, 1930. As per section 17 of the Registration Act, 1908, it is mandatory to register a gift deed relating to immovable property with the sub-registrar of assurances within whose sub-district the whole or portion of the property is situated, within a period of four months from the date of execution. Otherwise, the transfer will be held invalid. However, gift of movable property can be effected either by delivery of movable property or by executing a gift deed signed by or on behalf of the donor and registered with the sub-registrar of assurances. Registration is mandatory in case of gift of movable property only when it is effected by a deed of gift signed by the donor. Stamp duty shall be payable in accordance with the provisions of the Stamp Act applicable to the state where the property is situated. For example, if the property is in Mumbai, stamp duty as per article 34 of Schedule I of the Maharashtra Stamp Act, 1958, will be applicable. Also, in certain states (for instance, in Maharashtra), stamp duty depends on the relationship between the donor and the donee and the type of property (residential, commercial or agricultural). For example, (a) if a father is gifting residential immovable property to his daughter, stamp duty payable would be ₹200 (as per the 2015 amendment Act); (b) if a sister is gifting immovable property (residential or commercial) to her brother, or if a father is gifting commercial immovable property to his daughter, then stamp duty would be 2% of market value of the 474

property, and (c) if an uncle is gifting immovable property to his nephew, the stamp duty would be the same as is paid on a conveyance of immovable property. However, it is to be noted that section 129 of the To PA exempts gifts covered by Mohammedan law from the requirements of section 123, which require only declaration, acceptance and delivery to be valid. Thus paving the way for Muslim oral gifts to be valid whether they are moveable or immovable property. Hence, in light of the aforesaid, it can be said that in the case where a gift deed is executed in relation to the gift of either movable property or immovable property, but not registered, the gift would not be held valid even when such gift has been proved to have been made in good faith. 4.3.5 Power of Attorney According to the ‘Section: 1A’ of “POWER OF ATTORNEY ACT, 1882”, “A ‘Power Of Attorney’ includes any instruments empowering a specified person to act for and in the name of the person executing it”. The term ‘Power Of Attorney’ is an authority given by an instrument by one person, called as the donor or principal, authorizing another person, called donee or agent to act on his behalf. There may be possibility of giving ‘Power Of Attorney’ by two or more persons jointly to one or more persons. Here a legal authority is given by the principal to the agent which may be broad or limited and an agent can take all necessary decisions i.e. financial, property related matters and all other matters where principal cannot be present to sign or in the case of principal’s illness and disability. A paper signed by principal giving powers to an agent is sometimes itself called a power of attorney. A paper giving a power of attorney should be clear and understandable. A Power of Attorney (POA) is an instrument by which a person may formally authorize another person to act on his behalf or as his agent on all matter or for a specific transaction or particular types of transactions. There are two parties to a POA – Donor and the Donee. Both the parties to the POA should have attained majority, be of sound mind and competent to contract. Types of POA:  General POA: Enables the donee to act on all matters for the donor. The general list of matters covered in this category includes management of bank accounts, sale of property, attending dealings in court, etc.  Specific POA: Restricts the donee’s authority to act only on a specific transaction, e.g. POA granted to a person to deal with the renting out of an apartment only. 4.3.6 Transfer of Property and Partition In common parlance, transfer of property refers to making over the possession from one person to another. The Transfer of Property Act 1882 is an Indian legislation which regulates the transfer of property in India. It contains specific provisions regarding what constitutes transfer and the conditions attached to it. According to the Act, 'transfer of property' means an act by 475

which a person conveys property to one or more persons, or himself and one or more other persons. The act of transfer may be done in the present or for the future. The person may include an individual, company or association or body of individuals, and any kind of property may be transferred, including the transfer of immovable property. Property is broadly classified into the following categories: 1) Immovable Property (excluding standing timber, growing crops, and grass) 2) Movable Property The Interpretation of the Act, says “Immovable property” does not includes standing timber, growing crops or grass\". Section 3(26), The General Clauses Act, 1897, defines, \" immovable property\" shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth. \"Immovable property\" includes land, buildings, hereditary allowances, rights to ways, lights, ferries, fisheries or any other benefit to arise out of land, and things attached to the earth or permanently fastened to anything which is attached to the earth, but not standing timber, growing crops nor grass. A transfer of property passes forthwith to the transferee all the interest which the transferor is then capable of passing in the property, unless a different intention is expressed or implied. According to Section 43 of the Transfer of Property Act 1882, in case a person either fraudulently or erroneously represents that he is authorised to transfer certain immovable property and does some acts to transfer such property for \"Consideration\", then such a transfer will continue to operate in future. It will operate on any interest which the transferor may acquire in such property. This will be at the option of the transferee and can be done during the time during which the contract of transfer exists. As per this rule, the rights of bona fide transferee, who has no notice of the earlier transfer or of the option, are protected. This rule embodies a rule of \"Estoppel\" i.e. a person who makes a representation cannot later on go against it. Every person, who is \"Competence (law)\", is competent to transfer property, which can be transferred in whole or in part. He should be entitled to the transferable property, or authorised to dispose off transferable property which is not his own. The right may be either absolute or conditional, and the property may be movable or immovable, present or future. Such a transfer can be made orally, unless a transfer in writing is specifically required under any law. According to Section 6 of the Transfer of Property Act, property of any kind may be transferred. The person insisting non-transferability must prove the existence of some law or custom which restricts the right of transfer. Unless there is some legal restriction preventing the transfer, the owner of the property may transfer it. However, in some cases there may be transfer of property by unauthorised person who subsequently acquires interest in such property. In case the property is transferred subject to the condition which absolutely restrains the transferee from parting with or disposing of his interest in the property, the condition is void. The only exception is in the case of a lease where the condition is for the benefit of the lessor or 476

those claiming under him. Generally, only the person having interest in the property is authorised to transfer his interest in the property and can pass on the proper title to any other person. The rights of the transferees will not be adversely affected, provided: they acted in good faith; the property was acquired for consideration; and the transferees had acted without notice of the defect in title of the transferor. It should be noted that these conditions must be satisfied: There must be a representation by the transferor that he has authority to transfer the immovable property. The representation should be either fraudulent or erroneous. The transferee must act on the representation in good faith. The transfer should be done for a consideration. The transferor should subsequently acquire some interest in the property he had agreed to transfer. The transferee may have the option to acquire the interest which the transferor subsequently acquires. Explanation of Section 44 TPA, 1882 (With reference to Section 4 of the Partition Act, 1893) Section 44 says: Transfer By One Co-Owner- Where one of two or more co-owners of immovable property legally competent in that behalf transfers his share of such property or any interest therein, the transferee acquires, as to such share or interest, so far as is necessary to give effect to the transfer, the transferors right to joint possession or other common or part enjoyment of the property, and to enforce a partition of the same, but subject to the conditions and liabilities affecting, at the date of the transfer, the share or interest so transferred. Where the transferee of a share of a dwelling house belonging to an undivided family is not a member of the family, nothing in this section shall be deemed to entitle him to joint possession or other common or part enjoyment of the house. This section of Transfer of Property Act deals with rights and liabilities of a transferee from a co-owner, as to the enjoyment of the property transferred (should be immovable for this section). The first part of the section merely incorporates the principle that a person who takes transfer from another, steps into the shoes of his transferor, and is clothed with all the rights and becomes subject to all the liabilities of his transferor. In short, we can say that he becomes as much a co-owner as his transferor was before the transfer. The second part of the provision provides an exception to the general rule stated in the first part and is based on convenience. It is designed to prevent an outsider from forcing his way into a dwelling house in which other members of the transferors family have a right to live. Ownership consists of innumerable number of claims, liberties, powers with regard to the thing owned. Ownership is of different kinds. There are absolute and limited, sole ownership, co- ownership, vested ownership, contingent ownership, corporeal, incorporeal. When a person owns a property in one time it is called sole ownership, but if the property is owned by more 477

than one person then it is called joint ownership. By means of partition one can have co- ownership changed into sole ownership. The expression co-owner is wide enough to include all kinds of ownership such as joint tenancy, Tenancy in common, Coparcenary, membership of undivided Hindu family, etc. The very fact of the reference to the property that the parties have certain shares, indicates that they are co-owners. In Indian Law a co-owner is entitled to three essentials of ownership-  Right to possession  Right to enjoy  Right to dispose Therefore, if a co-owner is deprived of his property, he has a right to be put back in possession. Such a co-owner has an interest in every portion of the property and has a right irrespective of his quantity of share, to be in possession jointly with others. This is also called joint-ownership. The Following are the Types of Co-ownerships: Tenants in Common When the type of co-ownership is not specifically stated, by default a tenancy in common is likely to exist. Each tenant in common has a separate fractional interest in the entire property. Although each tenant in common has a separate interest in the property, each may possess and use the whole property. Tenants in common may hold unequal interest in the property but the interests held by each tenant in common is a fractional interest in the entire property For e.g. B owns a 25% interest in the property and A owns a 75% interest. Each tenant in common may freely transfer his/her interest in the property. Tenants in common do not have the right of survivorship. Therefore, upon the death of one tenant in common, his/her interest passes via will or through the laws of intestacy to another persons who will then become a tenant in common with the surviving co-owners. Joint Tenancy The most attractive feature of joint tenancy is the right of survivorship. Upon the death of one joint tenant, his/her interest immediately passes to the surviving joint tenants and not to the decedents estate. Joint tenants hold a single unified interest in the entire property. Each joint tenant must have equal shares in the property For e.g. B and A each hold a 50% interest. Each joint tenant may occupy the entire property subject only to the rights of the other joint tenants. Unlike tenants in common, joint tenancy has several requirements that must be met in order to be properly created. Massachusetts law requires that in order for a joint tenancy to be created specific language must be included in the conveyance or devise. Such language includes that 478

the grantees take the land: \"jointly\"; \"as joint tenants\"; \"in joint tenancy\"; \"to them and the survivor of them\"; or using other language in the instrument that it was clearly intended to create an estate in joint tenancy. However, even if such language is contained in the conveying instrument, a joint tenancy may not exist. There are four additional common law requirements necessary in order to create a joint tenancy. The four unities are:  Unity of time. The interests of the joint tenants must vest at the same time  Unity of possession. The joint tenants must have undivided interests in the whole property, not divided interests in separate parts  Unity of title. The Joint tenants must derive their interest by the same instrument (e.g. a deed or will  Unity of interest. Each joint tenant must have estates of the same type and same duration. All four unities must exist. If one unity is missing at any time during the joint tenancy, the type of co-ownership automatically changes to a tenancy in common. A joint tenancy may be created by a will or deed but may never be created by intestacy because there has to be an instrument expressing joint tenancy. A joint tenancy is freely transferable. Tenancy by the Entirety This type of co-ownership is exclusively for husband and wife. Similar to joint tenancy, tenancy by the entirety provides the right of survivorship. To exist, tenancy by the entirety requires that the four unities of joint tenancy exist plus a fifth unity of marriage between the two co-owners. However, even if all five unities exists, the type of co-ownership may still be joint tenancy if the conveying instrument indicates such. Unlike joint tenancy, tenancy by the entirety does not allow one spouse to convey his interest to a third party. However, one spouse may convey his/her interest to the other spouse. A tenancy by the entirety may only be terminated by divorce, death, or mutual agreement by both spouses. A terminated tenancy by the entirety becomes a tenancy in common. Transfer of Property through Gift Deed There are various ways through which you can transfer a property that you own. It could be by way of sale, Will or gift. A commonly used method, especially when transferring to a family member or friend, is executing a gift deed in favour of the recipient. Though no monetary transaction is involved, it is still necessary to register the gift deed to make the transfer valid. What is a Gift Deed? Under section 122 of the Transfer of Property Act, 1882, you can transfer immovable property through a gift deed. Like a sale deed, a gift deed contains details of the property, the transferor and recipient. But instead of a sale consideration in a sale deed, a gift deed allows you to transfer ownership without any exchange of money. Registering a gift deed with the sub- 479

registrar is mandatory as per section 17 of the Registration Act, 1908, and as per section 123 of the Transfer of Property Act. If you don’t do this, the transfer will be invalid. Besides that, once a gift deed is registered in the name of the recipient, only then can she apply for mutation of the property. Mutation is necessary to transfer utility connections in the name of the recipient. Also, for the recipient to be able to further transfer the property, a registered gift deed will be required. Mutation A property when acquired by a person and on becoming the rightful owner of the property should ensure that all the titles of the property are transferred in his name. Mutation refers to a significant alteration or substitution of the name of a person by the name of another in relation to the record showing the right or title to the property. Mutation helps in proper updation of the revenue records to ensure proper collection of revenue from the person who is in possession of the property. Gift, Will or Trust – Which One to Choose? Gift, Will and Trust are unique instruments through which you can pass on assets to your loved ones. A Gift is used when you want to gift (assets) to your loved ones while you are alive; a Will is used to transfer the ownership of assets to the Beneficiaries after you are no more; A Trust is used when you would like to transfer ownership of assets to the Beneficiaries at a specific date in the future. A Will has its own pros & cons – the con being that the execution of the Will is time consuming and can be contested in a court. However, a Will can be changed (modified) any number of times during your life, unlike a Trust Deed which cannot be revoked once made; that means it would be difficult to re-claim assets that have already moved to the Trust in case you need them back in the future. Also, in a Trust, there is the possibility of the Trustees turning unfaithful. Therefore, it is important to appoint Trustees who are trustworthy. In case of Gifting, although it is much easier to just gift the assets to your loved ones, any income arising from such gifts will be clubbed with your income and taxed as per your income tax slab rate. In India, although there is no inheritance tax, which takes some appeal off from forming a Trust (as a Trust reduces your tax liability but does not make you completely tax exempt), a person in the higher income tax slab can create a Trust if he/she is looking to transfer assets to their loved ones in distant time. This way, it helps one have control of their assets, create wealth for the Beneficiaries and also aid in saving taxes. 480

Sub-Section - 4.4 Will If an individual desires to leave his property to certain persons / relations, he can do so by means of a will. A will gives effect to the wishes of the individual on his death, once the will is proved in a court of law in accordance with law. If a person dies without leaving a will (i.e. intestate), this triggers rules under the laws of intestate succession under which the deceased’s properties pass to relations specified under the laws. However, these default rules will not apply with respect to the property bequeathed under a valid will. A will has been defined under the Indian Succession Act, 1925 (ISA) as “the legal declaration of the intention of the testator, with respect to his property, which he desires to be carried into effect after his death.” In other words, a will or a Testament means a document made by a person whereby he disposes of his property (such individual is called a testator), but the disposal comes into effect only after his death. Persons to whom property is bequeathed under a will are called legatees. In India, the law governing substantive rights in relation to wills is tied to the religion of the individual. Therefore, the respective personal law will apply based on the religion of the testator. Personal laws may be wholly codified (i.e. enacted into statutory law) or partly codified and partly customary. However, for wills made by Christians, Parsis, persons married under the Special Marriage Act, 1954 or under the Foreign Marriage Act, 1969, the provisions of the Indian Succession Act, 1925 will apply. Testamentary succession in respect of moveable properties is governed by the law of the domicile of the owner while succession to immoveable properties is governed by the law where the immovable property is situated. Procedural aspects (such as probate) are governed by provisions of the Indian Succession Act, 1925 (with some exceptions in case of Muslims). We discuss below certain threshold considerations for drafting a will followed by the process governing probate and letters of administration 4.4.1 Characteristics and Contents of a Will Essential Features of a Will A will can be made at any time in the life of a person. A will can be changed a number of times and there are no legal restrictions as to the number of times it can be changed. It can be withdrawn at anytime during the lifetime of the person making the will. A will has to be attested by two or more witnesses, each of who should have seen the testator signing the will. There are certain characteristics which should be included in the instrument of will such as:-  The Name of the Testator: The name of the testator should be mentioned accurately without any error in initials, spelling or grammatical mistake so that it will not affect the instrument of Will. The name of the testator can also be clarified by looking into his birth certificate or any school certificates. 481

 Right to Appoint Legatee: The testator is having absolute right to appoint any person as a legatee or beneficiary of a Will and legatee should execute the Will carefully and in accordance with the law.  To Take Effect after Death: A testator who is having power to make the Will during his lifetime, but it will take effect only after his death. A gift made by a person during his lifetime and will take effect during his lifetime, cannot be considered as a Will.  Revocability under the Law: In general a Will made by the testator can be revoke at any time during his lifetime and testator can choose any other person as his legatee. There may be chances where a testator wishes to bring some alterations in the Will then he can make some necessary amendments in the prepared Will which is otherwise called as Codicil. A third party cannot file a civil suit against the testator on the ground of cancellation of the Will. A Will made by the testator may be irrevocable in some cases where an agreement is entered into contrary to the Will, may bind the testator.  Intention of The Testator supreme: The testator of the Will has right to revoke Will at any time which can only be proved by the intention of the testator that whether he is intending to revoke the previous testamentary instruments made by him or he can state in his Will that ‘This is my last Will’ then it can be presumed that all the earlier testamentary instruments has been revoked.  The Declaration to be ‘Last Will’: A person as testator has power to make declaration of Will unnumerable times but it is always the last will of testator which will prevail. The words “I declare this to be my last will” need not be stated in the instrument of the Will. Once the Will is made by the testator Inserting of words ‘Last and Only will’ at the time of death it can be presumed that all the previous Wills will get revoked and fresh Will has to be effected.  Lost Subsequent ‘Will’: Mere loss of the original Will does not operate a revocation but it has to be inferring by the stringent evidence to prove its revocability and a testator must show the genuine reasons for the loss of the Will. Once it is proved that an original will is lost then ‘Subsequent Will’ will be valid. Formalities for Making a Will Formalities for making a will depend on the religion of the testator. Wills made by persons of all religions including those who marry under the Special Marriage Act, 1954 (except Muslims who marry under customary law) must meet the conditions below:  The will must be in writing made by a person who is a major, of sound mind and with free consent;  The will must be signed by the testator or by some other person in the testator’s presence and at his direction;  The will must be attested by two or more persons;  The document must be a declaration of intent of the testator with respect to his property;  The document must specify that his intent should be carried out after the testator’s death; 482

 There must be a disposition of property under the document. The will should clearly set out the properties intended to be transferred and should also set out that the document has been executed without coercion or undue influence. Case law has held that where one of the natural heirs is to be disinherited, the testator must set out clear reasons as to why the testator wishes to disinherit such individual. A will must be dated; otherwise proof of the day on which the will was executed is to be given at the time when the petition for probate is filed. Registration of a will is optional and no adverse inference can be drawn against the will in case of non-registration. Registration of a will is optional under the provisions of Indian Registration Act and no adverse inference can be drawn against the will in case of non-registration. Contents of a Will It is not necessary that any technical words or terms of art be used in a will, but only that the wording is such that the intentions of the testator can be known there from. Given below are some important points that one must keep in mind while making a Will.  A Will should have your complete name, address, names of the family members, age and also the health condition. Stating the health condition is important so that it is clear that the Will was made by a person of sound mind.  A Will should carry and date and also a clause stating revocation of all the earlier Wills, whether made in the past or not. This would ensure that there is no ambiguity about which Will isthe latest one.  A Will can be prepared by anyone who is not a minor, of sound mind, and free from any coercion, fraud and undue influence  Will can be written a simple non-technical language and it can be in any scheduled language. It can even be hand written on a plain paper. It is not required to be stamped. It may or may not be registered.  For a Will to be valid, it needs to be signed on all the pages by the person making the Will. It should be attested by 2 witnesses. Witness chosen should not be a beneficiary of the Will. Infact, a doctor and a lawyer would be an ideal witness for the Will.  Although the Will can be made by the person himself, it may be advisable to involve a lawyer to ensure that there are no loopholes in the Will and it can be executed smoothly when the time arises.  Will should ideally specify the complete details of the assets owned as well as the beneficiaries to whom the assets are to be passed on. Giving complete details helps avoid any confusion during the execution of the Will.  You may or may not appoint an Executor to the Will. Executor is the person incharge of carrying out the directions of the Will. A beneficiary can be an Executor to the Will.  Since you may acquire certain assets after making the Will, the Will may either have to be revised or there can be a “residual clause” in the Will stating how assets acquired in future should be distributed. 483

4.4.2 Types of Will - Unprivileged, Privileged, Joint, Mutual and Conditional Privileged Wills Any soldier being employed in an expedition or engaged in actual warfare, or an airman so employed or engaged, or any mariner being at sea, may, if he has completed the age of eighteen years, dispose of his property by a will made in the manner provided in section 66 of Indian Succession Act. Such wills are called privileged wills. Illustrations (i) A, a medical officer attached to a regiment is actually employed in an expedition. He is a soldier actually employed in an expedition, and can make a privileged will. (ii) A is at sea in a merchant-ship, of which he is the purser. He is a mariner, and, being at sea, can make a privileged will. (iii) A, a soldier serving in the field against insurgents, is a soldier engaged in actual warfare, and as such can make a privileged will. (iv) A, a mariner of a ship, in the course of a voyage, is temporarily on shore while she is lying in harbour. He is, for the purposes of this section, a mariner at sea, and can make a privileged will. (v) A, an admiral who commands a naval force, but who lives on shore, and only occasionally goes on board his ship, is not considered as at sea, and cannot make a privileged will. (vi) A, a mariner serving on a military expedition, but not being at sea, is considered as a soldier, and can make a privileged will. Unprivileged Wills Wills executed according to the provisions of ‘Section 63’ of the ‘Indian Succession Act, 1925’ are called Unprivileged Wills. An unprivileged Will is one which is created by every testator not being a soldier, airman, mariner so employed. Every testator, not being a soldier employed in an expedition or engaged in actual warfare, or an airman so employed or engaged, or a mariner at sea, shall execute his will according to the following rules:--  The testator shall sign or shall affix his mark to the will, or it shall be signed by some other person in his presence and by his direction.  The signature or mark of the testator, or the signature of the person signing for him, shall be so placed that it shall appear that it was intended thereby to give effect to the writing as a will.  The will shall be attested by two or more witnesses, each of whom has seen the testator sign or affix his mark to the will or has seen some other person sign the will, in the presence and by the direction of the testator, or has received from the testator a personal acknowledgment of his signature or mark, or of the signature of such other person; and each of the witnesses shall sign the will in the presence of the testator, but it shall not be necessary that more than one witness be present at the same time, and no particular form of attestation shall be necessary. 484

Joint Wills A joint will is a single document executed by more than one person (typically husband and wife), making which has effect in relation to each signatory's property on his or her death (unless he or she revokes (cancels) the will during his or her lifetime). Although a single document, the joint will is a separate distribution of property by each executor (signatory) and will be treated as such on admission to probate. In other words, a Joint Will is a single Will that two people prepare together where each one leaves all of their assets and property to the other. After one of the Testators dies, the surviving Co-Testator cannot change the Will. If the surviving Testator creates a new, separate Will, the specifics from the Joint Will may still be upheld by a court of law. Some Joint Wills include a stipulation for how the assets will be distributed after the second person dies. Couples can encounter several issues and difficulties when choosing to draft a Joint Will, rather than separate wills. For example: if one spouse decides they want to make a change to the Will, they will not be able to do so without the consent of the other spouse; if one spouse solely owns an asset and wants to leave it to someone other than their mutual children, this can be problematic as well. Mutual Wills Mutual wills are any two (or more) wills which are mutually binding, such that following the first death the survivor is constrained in his or her ability to dispose of his or her property by the agreement he or she made with the deceased. Mutual Wills are two identical but separate wills, prepared by two people who name each other as their Beneficiary should one die before the other, and mutually agree upon other Beneficiaries after both of their deaths. Historically such wills had an important role in ensuring property passed to children of a marriage rather than a widow or widower's spouse on a remarriage. Conditional or Contingent Wills A Will may be expressed to take effect only in the event of the happening of some contingency or condition, and if the contingency does not happen or the condition fails, the Will will not be legally enforceable. Accordingly, where A executes a Will to be operative for a particular year, i.e.,. if he dies within that year. A lives for more years, after that years. Since A does not express an intention that the Will be subsisting even intestate. A Conditional Will is invalid if the condition imposed is invalid or contrary to law. 485

4.4.3 Legal Requirements and Testamentary Capacity Persons Capable and Competent to make a Will  According to Section 59 of Indian Succession Act 1925,  Any person of sound mind can make a Will - A person who has reached the age of majority can make a Will. However, as per Section 60 of the Act, a father whatever his age may be, may by Will may appoint a guardian or guardians for his child during minority. - A married woman may make a Will of her property which she could alienate by her own act during her life-time. The following persons cannot make a Will:  Lunatic, insane persons - Minor i.e. below 18 years of age. - Corporate bodies by their very nature are incapable of making a Will, though they may benefit under the Will of an individual partner. Other persons who can make a Will:  Persons who are deaf or dumb or blind are not thereby, incapable in making a Will, if they are of sound mind  Persons, who are ordinarily insane, may make a Will during an interval while they are of sound mind.  No person can make a Will while he is in such a state of mind, whether arising from intoxication or from illness or from any other cause, so that he does not know what he is doing. General Procedure to Make A ‘Will’ Making a Will is the simplest form of estate planning. There is no legal requirement that a will be drawn up by a lawyer. There is no prescribed format to make a will. It can be in any language and can be either hand-written or typed. There is no stamp duty to be paid on a will. To be a valid document, the will must be signed and witnessed by at least two witnesses. Registration of a will is not compulsory in India. However, registration implies that the person writing the will and the witnesses have appeared before the registering officers who have verified their identity and attested the same. A ‘Will’ should be prepared with utmost care and must contain several parts to make a complete Will though there is no defined format for making a Will but a general procedure should be adopted while writing a Will by the testator which includes: 1. Declaration In The Beginning: In the first paragraph, person who is making a Will, has to declare that he is making this Will in his full senses and free from any kind of pressure and undue influence and he has to clearly mention his full name, address, age, etc at the time of writing the Will so that it confirms that a person really wishes to write a Will. 2. Details of Property and Documents: The next step is to provide list of items and their current values, like house, land, bank fixed deposits, postal investments, mutual funds, 486

share certificates owned by testator. He must also state the place where he has kept all the documents if the will documents are under safe custody of the bank then testator has to write details about the releasing of the Will from the bank. Here it is the most important duty of the testator to communicate the above matter to the executor of the Will or any other family members, which will make the Will valid after testator death. 3. Details of ownership by the Testator: A testator while making a original Will should specifically mention that who should own his entire property or assets so that it will not affect the interest of the successors after his death. If testator wishes the name of the minor as beneficiary then a custodian of the property should be appointed to manage the property. 4. Attestation of the ‘Will’: At the end, once the testator complete writing his Will, he must sign the will very carefully in presence of at least two independent witnesses, who have to sign after his signature, certifying that the testator has signed the Will in their presence. The date and place also must be indicated clearly at the bottom of the Will. It is not necessary that a person should sign all the pages of the Will instrument but he must sign to avoid any legal disturbances. 5. Execution of A ‘Will’: On the death of the testator, an executor of the Will or an heir of the deceased testator can apply for probate. The court will ask the other heirs of the deceased if they have any objections to the Will. If there are no objections, the court will grant probate .A probate is a copy of a Will, certified by the court. A probate is to be treated as conclusive evidence of the genuineness of a Will. In case any objections are raised by any of the heirs, a citation has to be served, calling upon them to consent. This has to be displayed prominently in the court. Thereafter, if no objection is received, the probate will be granted and it is only after that Will comes into effect. Registration of ‘Wills’ According to the Section: 18 of the ‘Registration Act, 1908’ the registration of a Will is not compulsory. Once a Will is registered, it is strong legal evidence that the proper parties had appeared before the registering officers and the latter had attested the same after. The process of registration begins when a Will instrument is deposited to the registrar or sub-registrar of jurisdictional area by the testator himself or his authorised agent. Once the scrutiny of Will instrument is done by the registrar and registrar is satisfied with all the documents then registrar will make the entry in the Register-Book by writing year, month, day and hour of such presentation of the document and will issue a certified copy to the testator. In case if registrar refuses to order Will to be registered then testator himself or his authorised agent can institute a civil suit in a court of law and court will pass decree of registration of Will if court is satisfied with the evidence produced by the plaintiff. A suit can only be filed within 30 days after the refusal of registration by the registrar. If the testator willing to withdraw the Will after the process of registration then a sufficient reason has to be given to registrar, if satisfied he will order for the registration of Will. 487

Testamentary Capacity Testamentary capacity refers to person’s full sense and mental sanity to have confirmed and signed the Will after understanding what his assets comprised and what he is doing by making a Will. He understands in full mental capacity who he is naming the assets to and how are they related to him and what repercussions it may have later. Testamentary capacity is the legal status of being capable of executing a Will. According to Indian Succession Act 1925, a person is said to have testamentary capacity only if he is in a sound disposing state of mind. It is essential that the testator should have sufficient capacity to comprehend perfectly the conditions of his property, his relations to the persons who were or should or might have been object of his bequest and the scope or the bearing of the provisions of his Will. Important Elements in Testamentary Capacity (i) It is a voluntary act on the part of the testator • There is no compulsion or force on the testator to make the Will • It is his own decision to dispose off his property (ii) The testator should have a sound disposing mind • The testator should not be suffering from any mental disorder which could possibly interfere in his decision making • He should not be in a state of intoxication due to alcohol, drugs or disease • Testamentary capacity is task-specific, a person suffering from mental illness can make a will provided his psychopathology is not interfering in his decision making • Testamentary capacity is also situation-specific. Clinician should explore the circumstances under which the testator is making the Will. (iii) The testator should know what he is doing by making a Will • The testator should be in full senses to appreciate the nature of the act an. (iv) The testator should have sufficient capacity to know the extent of his property • The testator should know the nature and extent of his assets which he is going to distribute • He should also know the approximate value of his property (v) The testator should be aware of the potential beneficiary • The testator should have the knowledge about the legal heirs of his property • He should also know the potential beneficiaries whom he is likely to distribute his property and the relationship with them • He should be able to rationalize his decision. 488

(vi) The testator should be aware of the consequences of his decision • Testator should be aware of the possible consequences of the distribution of his assets. (vii) The testator should be free from undue influence/fraud/coercion • Under Section 61 of Indian Succession Act 1925, a Will or any part of a Will, the making of which has been caused by fraud or coercion or by such importunity as takes away the free agency of the testator is void. • However sound mind the testator may be having, if it has been the subject of undue influence, the soundness of mind will not help the will to be declared valid. (viii) The testator must have the knowledge of the contents of the Will • It is the inevitable effect of the sound mind to know the contents of his Will. • If the testator does not know the contents of his Will it cannot be said to be a valid Will. • However such knowledge and approval of the testator may be presumed on the proof of signature of the testator. 4.4.4 Modifying or Revoking a Will A Will can be revoked, changed or altered by the testator at any time when he is competent to dispose of his property. A person can revoke, change or alter his Will by: • Executing a new Will, • Revoking the earlier Will, • Registering the new Will (if the old Will is registered), • Destroying the old Will or • by making a codicil. On the marriage of a Parsi or a Christian testator, his/her Will stands revoked, this however does not apply to Hindus, Sikhs, Jains and Buddhists. Revocation of will by testator's marriage: Every will shall be revoked by the marriage of the maker, except a will made in exercise of a power of appointment, when the property over which the power of appointment is exercised would not, in default of such appointment, pass to his or her executor or administrator, or to the person entitled in case of intestacy. Explanation: Where a man is invested with power to determine the disposition of property of which he is not the owner, he is said to have power to appoint such property. Revocation of unprivileged will or codicil: 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 489

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. Illustrations (i) A has made an unprivileged will. Afterwards, A makes another unprivileged will which purports to revoke the first. This is a revocation. (ii) A has made an unprivileged will. Afterwards, A, being entitled to make a privileged will, makes a privileged will, which purports to revoke his unprivileged will. This is a revocation. Revocation of privileged will or codicil: A privileged will or codicil may be revoked by the testator by an unprivileged will or codicil, or by any act expressing an intention to revoke it and accompanied by such formalities as would be sufficient to give validity to a privileged will, 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. Explanation: In order to the revocation of a privileged will or codicil by an act accompanied by such formalities as would be sufficient to give validity to a privileged will, it is not necessary that the testator should at the time of doing that act be in a situation which entitles him to make a privileged will. 4.4.5 Probate Process Probate is the copy of the will which is given to the executor together with a certificate granted under the seal of the court and signed, by one of the registrars, certifying that the will has been proved. The application for probate shall be made by petition along with copy of last Will and testament of the deceased to the court of competent jurisdiction. It takes about 8-10 months to obtain a probate if the petition is not contested by any person. At the time of filing the petition, court fees will have to be paid. The copy of the will and grant of administration of the testator’s estate together, form the probate. It is conclusive evidence of the validity and due execution of the will and of the testamentary capacity of the testator. A probate is obtained to authenticate the validity of the will and it is the only proper evidence of the executor’s appointment. The grant of probate to the executor does not confer upon him any title to the property which the testator himself had no right to dispose off which did belong to the testator and over which he had a disposing power with a grant of administration to the estate of the testator. Probate proceedings cannot be referred to Arbitration. The probate court (whether it is the District Court or High Court) has been granted and conferred with exclusive jurisdiction to grant probate of a Will of the deceased. 490

Section 213(1) of the Indian Succession Act inter alia states that the right of a legatee (a person who inherits under a will) to property bequeathed under a will can’t be established in a court unless a court of competent jurisdiction in India has granted a probate of the will under which the right is claimed or letters of administration with the will annexed thereto have been obtained. However, section 213 (2) states that the said section is not applicable to the wills executed by Mohammedans, Hindus, Buddhists, Sikhs and Jains except in certain circumstances mentioned therein. Further, section 213 (2) states that in case of a Parsi dying after the commencement of the Act, a probate is necessary if the will in question is made or the property bequeathed under the will is situated within the “ordinary original civil jurisdiction” of the Bombay high court. To whom probates can be granted: Under the Indian Succession Act, 1925, a probate can be granted only to an executor appointed under a Will. However, it cannot be granted to a minor, a person of unsound mind, or to association of individuals, unless it is a company that satisfies the conditions stipulated by the government In the event a person dies intestate or a Will does not name any executor or the executor named in a will is unable or unwilling to serve, the courts must appoint an administrator which is done by issuing a short document called Letter of Administration (LoA). To whom can a LoA be granted: Under the Indian Succession Act, 1925, a LoA can be granted to any person entitled to the whole or any part of the estate of the deceased person. However, it cannot be granted to a minor, a person of unsound mind, or to association of individuals, unless it is a company that satisfies the conditions stipulated by the government. Procedure to Apply for a Probate An application/petition for probate must be filed in court along with the original will in question. The application should be made before the district judge (or High Court depending on the property value and also depending on whether the High Court has original jurisdiction for testamentary matters) in whose jurisdiction the testator at the time of his death had fixed abode or had some property situated. The application should contain the following facts:  The time of the testator’s death;  a declaration that the will attached is the last will and testament;  a statement that the will was duly executed,  the value of assets which are likely to be inherited;  Title deeds pertaining to the immovable property mentioned in the will, if any.  Documents pertaining to movable property in the will, if any; and  a statement that the executor making the application is named in the will. 491

On receipt of the application, the court issues notices to the next of kin of the deceased to file their objections, if any, to the grant of probate. A general public notice is also given in a newspaper. The executor is thereafter asked to establish the (a) proof of death of the testator; (b) proof that the will has been validly executed by the testator; and (c) proof that the will is the last will and testament of the deceased. Proof of death is usually shown by submission of original death certificate. In order to assess whether the will has been validly executed and is a genuine document, it must be shown that that the will was signed by the testator and that he had put his signatures to the testament of his own free will; that he was at the relevant time in a sound disposing state of mind and understood the nature and effect of the dispositions and that the testator had signed it in the presence of two witnesses who attested it in his presence and in the presence of each other. 492

Sub-Section - 4.5 Powers of Attorney 4.5.1 Use and Purpose In the modern world where commerce and industry have assured large and long roles to play, the need for entering into contracts of agreements in relation to business and other transactions have become a common and necessary feature of daily life. As man became busier it became more and more necessary for him to depend on others for getting his things done. The hectic activities of the businessmen and industrialists have made the execution of power of attorney for delegating his functions. Granting a Power of Attorney is a legal process that involves the drafting of a document which assigns to another person the power to act as your legal representative. Principal should be careful while authorising an agent as attorney to avoid inconvenience and expense of any legal proceedings in the future. A power of attorney is an instrument that is used by people to confer authority on somebody else to legally act on their behalf. A PoA functions on the principle of an “agency” where the PoA holder, that is, the person to whom the power is given, is authorized to perform certain acts on behalf of the PoA grantor, and such authorized acts by the PoA holder will have the same effect as if done by the PoA grantor himself. Consequently, the PoA grantor is bound by the acts of the PoA holder in relation to transactions with a third party. PoAs are widely used both by corporate entities and individuals for various purpose such as applying for consents and approvals and dealing with governmental authorities in relation to these, getting property registered, incorporation of a company, execution and registration of documents and so on. It is important to note that for being a legally valid document, each PoA is required to be compulsorily executed on appropriate value stamp paper and should also be notarized/authenticated. A related question that often arises is whether a PoA is required to be registered or not. The answer to this lies in the terms of the PoA. For example, if a PoA merely authorizes the PoA holder to sell the immovable property on behalf of the PoA grantor and does not result in creating, declaring, assigning, limiting or extinguishing any right, title or interest in favour of the PoA holder in the property, then the PoA would not be required to be compulsorily registered. However, if the intention of the parties is to transfer/convey property under the guise of a PoA, then the document is not only required to be stamped at a higher rate, as a conveyance deed, but also requires registration. 4.5.1 Types - General and Special The Power of Attorney can be classified into two categories which includes: (i) General Power of Attorney: A general power of attorney is one by which an instrument is executed by the principal authorising the agent to do certain acts in general on his behalf. The word ‘General’ here means that the power must be general regarding the subject 493

matter and not general with regard to powers in respect of a subject matter. If the subject matter is not general but restricted to something either specific or (ii) specifically mentioned by the principal while drafting an instrument then it will not constitute a general power of attorney. It is otherwise called as limited power of attorney. (iii) Special Power of Attorney: A special power of attorney is one by which a person is appointed by the principal to do some specified act or acts. In this type of power of attorney, an agent conferred with a power to do specific act in a single or specified transactions in the name of the principal. (iv) Durable Power of Attorney: A Power of Attorney which specifically says otherwise, agent’s power ends if principal become mentally incapacitated. However, a power of attorney may say that it is to remain in effect in the event of future incapacity of the principal. A power of attorney that says this is called a durable power of attorney. To ascertain whether power of attorney is of general or special in nature, the subject matter in respect of which power is conferred Is to be seen accurately. The power of attorney is the unilateral document wherein donor or the principal gives authoritative power to the agent by signing the document and the agent’s sign is not always required. 4.5.2 Revocation In case of a power of attorney (POA), a person appoints an agent to act on his behalf. Revocation of the POA is as important as delegation of the power itself. Otherwise, it might be to the prejudice of the parties themselves. In deciding whether the agency can be revoked or not, two conflicting interests are to be reconciled and a suitable middle way is to be formed so that none of the parties suffer unjustly. The interest of the one who has delegated power should be in conflict with that to whom the power is given. The statutes are silent as to when a POA can be revoked. A POA is automatically terminated if either one of the parties to the instrument dies or becomes insolvent, or any specific condition in the instrument is breached. Usually, if the power given was one coupled with interest, it cannot be withdrawn. Section 202 of the Indian Contracts Act contains some relevant provisions. Accordingly, if an agent has an interest in the property that forms the subject matter of the agency created via the POA, the agency cannot be terminated to the prejudice of such an interest. Also, where an agency is created for valuable consideration and authority is given to effect a security, it cannot be revoked. The POA is irrevocable if it creates an agency coupled with interest. Where an authority or power is coupled with interest, it is irrevocable unless there is an express stipulation to the contrary. Still, the parities can by agreement make it revocable. If the power is irrevocable, the parties are nevertheless free to make it revocable by an express stipulation to the contrary. However, in cases where it is revocable it cannot be made irrevocable merely by writing it in the agreement. Just because a power is declared in the instrument granting it to be irrevocable does not make it so. Irrevocability requires something further. If on a construction of the document and in the light of the facts, the document does not prima facie meet the conditions for the creation of a 494

power coupled with interest, merely because the document itself describes the agency to be irrevocable, does not make it so. The interest which an agent gets in the property must be simultaneous with the power given to him in order to give him a power coupled with interest. If the interest created in the agent is the result or proceeds arising after the exercise of the power the agency is revocable and cannot be said to be an irrevocable agency. According to the Indian Contract Act, no agency can be terminated where the agent has an interest in the property which forms the matter of the agency. To decide whether a given power is coupled with interest or not, the facts of the case and the wording of the instrument itself are relevant. 4.5.3 Role of the Executor Granting a power of attorney and appointing an executor for your estate both authorize another individual to act for you as a legal representative. An executor carries out your wishes for your estate after your death. A power of attorney assigns someone to carry out your wishes while you're alive. The principal, or maker of a power of attorney, appoints an agent to handle her affairs during her lifetime. The maker of a will, or testator, however, designates an executor to handle his affairs after death. Whereas an agent may only have his powers revoked by the principal, an executor may only be removed by the court. Legal Powers which can be granted to the Attorney (Agent) Broadly speaking a power of attorney provides an agent “all powers that the principal has” to manage the principal’s financial affairs or make health care decisions may be enough for many purposes. An agent may be authorised to: (i) To execute all contracts, deeds, bonds, mortgages, notes, checks, drafts, money orders. (ii) To manage, compromise, settle, and adjust all matters pertaining to real estate. (iii) To lease, collect rents, grant, bargain, sell, or borrow and mortgage. (iv) To sell any and all shares of stocks, bonds, or other securities. (v) To file, sign all tax returns, insurance forms and any other documents. (vi) To enter into contacts, and to perform any contract, agreement, writing, or thing to make, sign, execute, and deliver, acknowledge any contract, agreement. (vii) To make health-care decisions for the donor or his minor children. (viii) To sue on behalf of the principal. Role of the Executor Executors can be required to provide the following services themselves or be required to arrange the relevant professionals. Serious consideration should be given before entrusting 495

those tasks to a family member or friend who may not have either the time or expertise to perform them:  Notify the beneficiaries - When a person dies, the executor locates the Will and immediately contacts the beneficiaries and any relevant business associates.  Look after the estate - It is important for the executor to ensure that all assets including property and investments are safe and arrange insurance protection when needed. The immediate needs of the beneficiaries must also be assessed to ensure that they do not suffer any unnecessary financial hardship.  Value the estate - The executor must identify and account for all assets and liabilities. Each item then requires written confirmation from banks, financial institutions, insurance companies, share registers, titles office and creditors etc. The value of assets must be ascertained, often by obtaining valuations from licenced valuers or estimates from recognised sources.  Obtain authority to administer the estate - Before an estate can be administered, the executor must apply to Court for the authority to deal with the deceased's estate. This is referred to as obtaining 'probate of the Will'.  Pay all debts - Creditors, funeral expenses, income tax, fees for administering the estate and out-of-pocket expenses must all be paid. This often requires the executor to sell some assets. Beneficiaries may choose to provide funds to cover these expenses so as to keep the assets of the estate intact.  Divide the estate - When all debts have been paid, the executor is then free to distribute the remaining assets according to the directions laid out in the Will.  Establish trusts - Executors are responsible for setting up trusts for beneficiaries. Trusts are required if the beneficiary is under 18 years of age or mentally incapable, or if there are specific instructions in the Will. Such trusts need ongoing administration, often over many years. 496

Sub-Section - 4.6 Trust Structure for Efficient Transfer Trusts originated at the end of the middle ages as a means of transferring wealth within the family and have remained the characteristic device employed for organizing intergenerational wealth transmission in situations where the transferor has substantial assets or complex family affairs. Modern day private trusts are used to carry out this function in India. Public trusts, on the other hand, may be used to contribute property towards religious and charitable purposes. The first attempt to regulate the management and administration of trusts was made by the British Government in 1810 by passing a regulation, followed by many such regulations. Currently, the legislations governing trusts in India are among others The Indian Trusts Act, 1882, The Charitable and Religious Trusts Act, 1920, The Religious Endowments Act, 1863, The Charitable Endowments Act, 1890 and The Societies Registration Act, 1860. Reasons for Setting up a Trust  Providing for family and protecting, in particular, the interests of very young children and adults with special needs;  Attaching certain conditions to gifts;  Bypassing the probate process while ensuring succession from one generation to another;  Giving children the benefits of family wealth without losing control over key assets;  Creating a single relatively large pool of investment funds which has more scope to perform well than a series of smaller pools;  Creating a legal framework and a tax effective structure for the family assets which will last for a long time;  Protecting these assets against actual and potential creditors;  Allowing administrative, investment and recordkeeping functions and possibly also property management functions to be centralised &handled more efficiently and at a lower cost;  Managing tax risks that may arise on the devolution of the trust property; How to Create a Trust Four essential conditions are necessary to bring into being a valid trust  The person who creates a trust (settlor) should make an unequivocal declaration of an intention on his part to create a trust. In order to create a trust, the settlor must properly manifest his intention by an external expression of it (by written or spoken words or by conduct) as opposed to an undisclosed intention.  The settlor must clearly define and specify the purpose. Since the purpose has to be accomplished by a trustee, who may not always be the author himself, it is necessary that the purpose is clearly declared so that the trustee can faithfully accomplish the author’s purpose, for which the author has reposed confidence in the trustee. 497

 The settlor must specify the beneficiaries. Where there is no transfer of ownership, there is no trust. The settlor gives up the ownership of the property thus resulting in transfer of legal ownership of the property to the trustee and transfer of beneficial ownership to the beneficiaries of the trust. The concept of ownership in the case of a trust is different under Indian and English Law. India does not recognize duality of ownership in the case of a trust, i.e. it recognizes only legal ownership and not equitable ownership as is provided for under English law which recognizes duality of ownership i.e. legal and equitable. Under Indian law, the trustee is both the legal and beneficial owner of trust property.  The settlor must transfer identifiable property under an irrevocable arrangement and totally divest himself of the ownership and the beneficial enjoyment of the income from the property. 4.6.1 Trust Structures for Tax Efficiency The Indian Law classifies trusts on the basis of their purpose, namely private purpose (Private Trust) or public purpose (Public Trust) and religious/charitable (Religious / Charitable Trust) Creating a private trust can be an efficient mode of planning one’s Estate. Estate Planning by a Trust structure can be explained by the diagram 1 I. Private Trust A private trust is created for the benefit of specific individuals i.e., individuals who are defined and ascertained individuals or who within a definite time can be definitely ascertained. A private trust does not work in perpetuity and essentially gets terminated at the expiry of purpose of the trust or happening of an event or at any rate on eighteen years after the death of the last transferee living at the time of the creation of the trust. 498

Private trusts are governed by the Trusts Act. This Act is applicable to the whole of India except the State of Jammu and Kashmir and the Andaman and Nicobar Islands. That apart, the Trusts Act is not applicable to the following: (i) Waqf; (ii) Property of a Hindu Undivided Family; and (iii) Public or private religious and charitable endowments; A person can be a settlor of a private trust if he has attained majority (i.e., has completed 18 years of age or in case of a minor, for whom a guardian is appointed by the court or of whose property the superintendence has been assumed by the court of wards the age of majority is 21 years) and is of sound mind, and is not disqualified by any law. But a trust can also be created by or on behalf of a minor with the permission of a principal civil court of original jurisdiction. Apart from an individual, a company, firm, society or association of persons is also capable of creating a trust. A family trust set up to benefit members of a family is the most common purpose for a private trust. The purpose of the family trust is for the settlor to progressively transfer his assets to the trust, so that legally the settlor owns no assets himself, but through the trust, beneficiaries get the benefit of these assets. A family trust can be set up either while one is still alive (by a declaration of trust contained in a trust deed) or upon death, in terms of a will. The Foreign Exchange Management Act, 1999 (“FEMA”) of India has granted general permission to a person resident in India to hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India if such ‘Foreign Currency Assets’ have been acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India. Such person may set up a trust in such jurisdiction or any other jurisdiction to which he could contribute the Foreign Currency Assets. However, a trust receiving foreign contribution in India would need approval under the Foreign Contributions Regulations Act 1976, which is administered by the Ministry of Home Affairs in India. However, such trust can only be a trust, the objects of which are dedicated to cultural, economic, educational, religious or social purposes. Family (private) trusts may be set up either inter vivos i.e. during a person’s lifetime or under a will i.e. testamentary trust, either orally or under a written instrument, except where the subject matter of the trust is immovable property, the trust would need to be declared by a registered written instrument. Private trusts may also be used as a collective pooling vehicles for individual retail investors. a) Mutual Funds All mutual funds in India are set up in the form of trusts which are registered under the Securities and Exchange Board of India (Mutual Fund) Regulations. Mutual Funds are portfolios of stock market shares and other financial instruments built with funds collected from usually small investors whose primary concern is security 499

of investment. These funds are run by government trusts, banks, and now private financial institutions as well. These funds can be open–ended or closed–ended. b) REITS (Real Estate Investment Trusts) A REIT is an entity which pools in money and invests in real estate assets. It provides a similar structure for investment in real estate as mutual funds provide for investment in stocks. A REIT can be publicly or privately held and is generally listed on a stock exchange. Assets of such a trust are managed by a fund manager. Further to the 2014 Budget, REITs are eligible for a pass-through status for taxation purposes (although this is a partial pass through). The consequence is that long term capital gains on sale of units as well as dividends received by the REIT and distributed to the investor shall be tax exempt. Interest income received by the REIT is tax exempt and foreign investors shall be subject to a low withholding tax of 5% on interest payouts. II. Public Charitable or Religious Trust A public trust is created for the benefit of an uncertain and fluctuating body of persons who cannot be ascertained at any point of time, for instance; the public at large or a section of the public following a particular religion, profession or faith. A public trust is normally permanent or at least indefinite in duration. As regards public trusts, there is no Central Act governing formation and administration of such trusts. But various states such as Bihar, Maharashtra, Madhya Pradesh, Orissa, etc., have enacted their own legislations prescribing conditions and procedures for the administration of public trusts. These Acts are more or less similar in nature though there may be certain variations. A public trust is generally a non-profit venture with charitable purposes and in such cases it is also referred to as the charitable trust. A trust created for religious purposes is termed a religious trust and it can be either a private or a public trust. A religious endowment made via trustees to a specified person is a private trust and the one to the general public or a section thereof is a public trust. The creation of religious charitable trusts is governed by relevant personal laws.The administration of these religious trusts can either be left to the trustees as per the dictates of the personal law or it can be regulated to a greater or lesser degree by statute such as the Maharashtra Public Trusts Act, 1950. In case of Hindus, the personal law provisions regulating religious trusts have not been codified and are found dispersed in various religious books. There are four essential requirements for creating a valid religious or charitable trust under Hindu Law, which are as follows: i. valid religious or charitable purpose of the trust as per the norms of Hindu Law; ii. capability of the author of the trust to create such a trust; iii. the purpose and property of the trust must be indicated with sufficient precision; and iv. the trust must not violate any law of the country. Taxation of Trusts Income tax in India is governed by the Income Tax Act, 1961 (‘ITA’), which lays down provisions with respect to chargeability to tax, determination of residence, computation of 500