Personal Finance

How to will your assets right

| Updated on May 05, 2018 Published on May 05, 2018

A good succession plan provides clarity on the overall assets and other aspects

Succession planning is always an emotional subject for Indian families. In some situations, your choice of successor may not be an easy one and may lead to controversies. To avoid any confusion or arguments at an already stressful time, it is vital to ensure that a formal hand-over and succession plan is in place.

Such plans should include agreed contingency- management arrangements in case of an event such as death or incapacity. This ensures fairness and transparency for all family members.

A good succession plan provides clarity on the overall assets of the individual (property or wealth), who will take over the business (if any) and who would be the executor of financial affairs in the event of death or incapacity. While talking about succession planning, the first thing which comes to one’s mind is a ‘will’.

A written and registered will is the best way to a smooth and legal succession. By executing a will, one can not only distribute his wealth, but also assign responsibilities. An individual who has attained majority and is of sound mind is free to execute a will.




Dying without a will

If one dies without making a will (called ‘intestate’ in legal parlance), the wealth is inherited by the heirs, according to the inheritance laws applicable. In India, the rules of succession differ across religions. Succession to the property of Hindus, (also including Buddhists, Sikhs and Jains) is governed by the provisions of the Hindu Succession Act, 1956, whereas Muslims are governed by Muslim law, which is not yet codified but is based on religious texts (Sunni and Shia laws).

Succession of persons other than Muslims and Hindus is governed by the Indian Succession Act, 1925.

Under the Indian Succession Act, the order of succession prescribed for the distribution of property upon the death of a person who dies intestate is as follows:

b If the deceased leaves behind a spouse and lineal descendants, the spouse will be entitled to a third of the estate, while the remaining two-thirds will be divided among the lineal descendants.

b If the deceased leaves a spouse and persons who are closely associated to him/her, but no lineal descendants, the spouse inherits half of the estate, and those closely associated shall inherit the other half (subject to special provision).

b If the deceased leaves behind none who are closely associated, the whole property shall belong to the spouse.

b If there is no spouse or lineal descendant or persons closely associated to him or her, the estate passes to the Government.

Separate rules

The Hindu Succession Act has a separate set of rules for men and women. The property of a Hindu male dying intestate will be first distributed to heirs within Class I (immediate blood relations such as spouse, son, daughter, etc).

If there are no heirs categorised as Class I, the property will be given to heirs within Class II (distant blood relatives such as father’s brother, mother’s brother, etc). If there are no Class I or II heirs, the property will first go to agnates (distant blood relatives of male lineage) and if no agnates are available, to cognates (distant blood relatives of male or female lineage). And if there are no cognates, the estate will go to the government.

The property of a Hindu female dying intestate shall devolve firstly upon the sons and daughters and the husband, secondly, upon the heirs of the husband, thirdly, upon the mother and father, fourthly, upon the heirs of the father, and lastly upon the heirs of the mother.

There is no concept of forced heirship in Indian succession laws in respect of self-acquired properties. However, certain laws such as Muslim laws, are exception to this rule.

Some countries have the concept of levying estate duty on inheritance whereas in India, there is no estate duty (inheritance tax) payable. Estate duty on property that is passed on to the legal heirs on death of a person was removed in 1985.

With proper succession planning, you could ensure that your assets are safely handed over to your near and dear after your demise.

The author is Tax Partner and India Mobility Leader, EY. Views expressed are personal.

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Published on May 05, 2018
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