A landmark judgment given on August 11, 2020 by a three-judge bench of the Supreme Court addressed a key aspect in gender inequality. The court held that daughters would have equal coparcenary rights in Hindu Undivided Family (HUF) properties even if they were born before the 2005 amendment to the Hindu Succession Act, 1956. Justice Arun Mishra’s words: Daughters have to be given equal share of coparcenary rights in the share of property like the son, hammered out all the ambiguity around the previous amendment done in 2005. It granted equal rights to daughters in the inheritance of ancestral property with retrospective and retroactive effect. The daughters are entitled to equal share in HUF properties even if their father has died before the amendment of the Act in 2005.

The only exception to this rule is the HUF partitions that took place before the cut-off date of December 20, 2004. However, the judgment keeps the onus of proof of such partition on the person who claims that such a partition took place.

Though the decision is of historical significance, there is a fear that it will open a Pandora’s box. Many sham partitions may get questioned and many beneficiaries of ancestral properties may have to fight long drawn court battles. This decision hence, will open a new chapter in the succession planning practices in India. Families holding assets in HUF need to revisit their succession planning to ensure that there is clarity on beneficiaries and their beneficial interests. To achieve that objective it makes sense to go for a better arrangement — Private Family Trust.

Beneficiaries & their interests

In an HUF which is defined by Hindu Law, all coparceners and other family members become beneficiaries by the virtue of being the lineal descendant of the common ancestor. This includes married as well as unmarried daughters. These family members acquire rights by birth. There is no way a particular family member can be excluded. Beneficial interests are dictated by provisions of the Hindu Succession Act, and the same cannot be altered, unless the HUF itself is dissolved or the deed of partition is affected by following a time consuming process. An individual can create only one HUF at a time, which further restricts the management of interest of the family members.

Private Family Trust, governed by the Indian Trust Act, however, is a more evolved solution. The creator or author of the trust can spell out specific present and future beneficiaries. Family members can be excluded from the list of beneficiaries of the Trust. If the creator of the Trust believes that exclusion of a particular family member is essential to allow the rest of the family members to peacefully enjoy the Trust property, then the same can be achieved through the Trust route. The Trust deed can specify the extent of beneficial interest of each beneficiary. More than one Trust can be set up and each can be devoted for specific purposes, such as carrying out charity, and / or to look after a particular beneficiary or set of beneficiaries having common beneficial interest.

Documentation offers comfort

HUF — is a creation of circumstances and there is no document that is binding on the coparceners. Since there is no documentation, the beneficiaries’ interests are also not defined.

Trust deed — the brain of the Private Family Trust is a written document that specifies beneficiaries and binds them together with clear mention of their beneficial interest. The creator of the Trust appoints the trustees to look after the beneficiaries’ interest and the trustees can also be changed if they are not looking after the beneficiaries’ interest by using the provisions of the Trust Deed. The Trust Property can be released from the Trust to benefit any specific individual or individuals at a specific event and all this can be provided in the Trust Deed.

Effective succession planning

After the Supreme Court decision, the families have to prepare for avoiding unnecessary litigation; however, that cannot be the sole focus area. Estate planning has to be done taking into account needs of all family members. Private family trust can eliminate the speculation around succession, which is difficult to achieve in an HUF. Benefits such as asset ring-fencing can be achieved by a carefully created Trust structure that can protect the beneficiaries’ beneficial interests.

As times change, the succession plan needs to evolve and Private Family Trusts can cater to the dynamic needs of family members.

Also, one can create a revocable or an irrevocable private Trust. A revocable Trust is one where the terms of the Trust deed can be altered or modified by the author of the Trust. A revocable Trust converts into an irrevocable Trust post the life of the author of the Trust. Further, an author can create an irrevocable Trust. An irrevocable Trust is one where the terms of the Trust deed cannot be modified or amended by the author. Depending upon the objectives, the family can chose to create either revocable or irrevocable Trust.

(The author is Head-Trust & Estate Planning, Motilal Oswal Private Wealth Management)

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