Insensitive as it may sound, financial matters crop up very soon after the demise of a loved one. And, if by any chance the person died intestate, that is without making a will, it could become complicated. If a person dies intestate, then the assets are distributed as per the succession laws of the religion the person belongs to. But if there is more than one heir, distribution of assets can lead to bitter battles, given that some assets are more lucrative than others, especially when you take into account the tax implication.
During the course of a lifetime, individuals acquire all kinds of big and small assets that need to be passed on to the rightful new owners. Says Anju Gandhi, partner, SN Gupta and Co., a law firm, “Today an average middle class couple in their 60s will have a portfolio consisting of at least one house and possibly a second house or a farmhouse as well, a car, some jewellery, gold and other artefacts. Apart from this, they may also have investments in mutual funds, fixed deposits and the proceeds from the insurance policy which could amount anything between Rs1 crore and Rs5 crore.”
Who can stake a claim?
All your class one legal heirs have equal rights to your assets. In case of Hindus, class one legal heirs include your mother, spouse and children. If any of your children has died, then their children and spouse have an equal share.
If you have no class one legal heir, then your class two legal heirs can stake a claim. Class two heirs include your father, siblings, living children’s grandchildren and sibling’s children, among others.
Usually, if a will exists, then at least there is record or list of all the assets the person owns. If not, the difficulties begin with consolidating assets.
“Consolidating the assets is by far the most important and difficult step,” says Gandhi. “How do you know what are the assets of the deceased, especially if he has been managing everything on his own? People don’t always reveal everything in their Form 16 or when they file income-tax returns.”
Graphic: Shyamal Banerjee/Mint
Sujoy Kumar, partner, Kocchar and Co., a Delhi-based law firm, has some suggestions on how to track the assets. “Those who hold sizeable assets tend to at least record them for their own convenience even if they don’t make a succession plan. But then there are others who are negligent or plain careless. If you look in the most obvious places such as their office drawer or files at home where they maintain the papers, or talk to their lawyer, consult the Form 16 or income-tax returns receipt, you are more or less likely to be able to consolidate all their assets.”
Consolidating the assets is just the first step. Once you have a list of assets, the next step is to approach each institution to get the funds or assets released. You will have to follow different procedures for movable and immovable assets.
These include bank deposits, mutual funds and other investments, such as post office schemes, made with financial institutions.
At the time of investment, almost all of these require the investor to fill up a nominee name. If the nominations are in place, then, in all likelihood, banks and financial institutions will release the funds, irrespective of the amount, to the nominee mentioned.
But remember that a nominee is only a trustee of the funds, which he is expected to safeguard till such time as the legal heir or beneficiary can be determined and the proceeds can be passed on to him. This means that although the banks or financial institutes release the money to a nominee, other legal heirs can stake claim.
Kumar adds, “This (nominee) is something the financial institutes have in place for their convenience. They don’t want to get involved in a dispute, and hence usually while releasing funds to the nominee, they get an undertaking signed from him.”
Even if there is no nominee and the amount is fairly small, banks will release the funds up to a limit, provided the person withdrawing the money signs an indemnity stating that he is in possession of the money and will be held responsible for payments in case a more authentic claimant appears. These limits vary from bank to bank, according to their internal policy. “The Reserve Bank of India has issued guidelines for banks asking them to determine their internal policy and thus arrive at a threshold to release funds,” says Gandhi.
If, however, the funds are in excess of this limit and there is no nominee, then the banks will ask the person staking a claim to produce a succession certificate. “If there is a nominee, then banks will release the funds to him after doing the prescribed documentation. However, if they have any doubts, suspect fraud or anticipate any dissent, they may ask you to produce a succession certificate,” says Gandhi.
A succession certificate establishes who the legal heirs of the deceased are and gives them the authority to inherit debts, securities and any other assets. The beneficiaries can file a petition for a succession certificate in a district or high court as the two have concurrent jurisdiction. The petition usually mentions the relation of the petitioner with the deceased, details of other surviving legal heirs, the time, date and place of death of the deceased and the fact that the deceased died intestate. The court, after examining the petition, issues a notice to all the respondents. It also issues 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 then it passes an order to issue a succession certificate to the petitioner. “If there are more than one petitioners, then the court may jointly grant them a certificate, but it will not grant more than one certificate for a single asset,” Kumar adds.
Once the assets are released, they can be handed over or transferred to the beneficiary. “Usually the nominee for each asset if different and they are more or less fairly distributed so families settle these matters verbally among themselves. However if any of the heirs is dissatisfied and takes the matter to the court, then the assets are distributed by the court as per the succession laws applicable to the deceased’s assets, according to the state and religion.” says Gandhi.
In case of an immovable property that is not disputed, only the title of ownership has to be changed. This can be done at the relevant district authority under whose jurisdiction the property falls.
For instance, says Kumar, “If it’s an agricultural land, then it will go to the revenue department concerned and if it’s an apartment in Delhi, it will go to the Delhi Development Authority.”
To get the holding transferred in you name, you would require a series of documents, such as a formal application and an affidavit, the death certificates of the deceased and any other deceased class one legal heir, relinquishment deeds from legal heirs who are willing to concede their share, indemnity bond and undertaking and anything else that may be demanded.
But if the matter goes to the court, the court will first ask the beneficiaries to determine if the property can be divided physically. For instance, if you own a three-storey house and have three children, then each son can be given one storey although the value of each floor will not be the same. For instance, the first floor may be expensive than the ground floor. The price of the entire property is, thus, evaluated and the cost of each individual share is valued and they are asked to pay each other the difference. If this is not possible, then one heir can buy out the share of the other. For instance, if you die leaving one house and two legal heirs, then the physical division of a single apartment is not possible. In this case, one heir can buy out the share of the other. This is called right of pre-emption.
Another solution is that the heirs sell off their shares to an outsider but there is a problem. Says Kumar: “If it is a Hindu undivided family, then the outsider cannot claim possession of his share till the time when the property is physically divided or liquidated. For instance, if out of three brothers, one sells his share to an outsider, then it is transferred to his (the outsider’s) name but he (the outsider) cannot use it, till such time when the property is somehow physically divided or sold off.”
The final resort is to liquidate the asset and divide the proceeds between the legal heirs. “These proceeds are again divided as per the succession laws applicable to the deceased’s estate. Besides, the court charges a fixed proportion of the estate as fee. So it is in the interest of the beneficiaries to reach an amicable solution among themselves as much as they can and take to court only those assets that they just can’t divide on their own,” says Gandhi.
The upper limit of the court fee is usually fixed. For instance, in case of the Bombay high court it is Rs75,000. Apart from this, you will have to bear the lawyer’s fees and the costs of various transactions. The entire process can take about six months to obtain simple uncontested certificates and permission. Besides, various intermediaries eat into the value of the estate.
You would never want that the assets you carefully built over a lifetime for your loved ones become the bone of contention among them after your death. Writing a will and having nominations in place may solve this and various other problems for your heirs.