How to dissolve a Hindu Undivided Family2 min read . Updated: 25 Aug 2020, 12:23 PM IST
- An HUF comprises ‘karta’, who, typically, is the eldest male in the family. The sons, daughters and grandchildren are coparceners, who have equal right in the property.
The Supreme Court on 11 August 2020 clarified that daughters have equal rights over her father’s side of the ancestral property right from birth, just like sons. According to lawyers, the clarification could lead to families dissolving Hindu Undivided Family (HUF) structure. Many are likely to transfer their rights into trusts.
For an ancestral property, an HUF automatically comes into existence. But dissolving it requires some paperwork. Here’s how a family can dissolve an HUF.
An HUF comprises ‘karta’, who, typically, is the eldest male in the family. The sons, daughters and grandchildren are coparceners, who have equal right in the property. An HUF can only be dissolved on the partition of the property. “The family must execute a deed of partition and distribute properties amongst the members (karta and coparceners) of the HUF," said Varghese Thomas, partner, J Sagar Associates.
Thomas further added, “Based on the assets comprised in the HUF property, requisite documents will have to be executed, such as the share transfer forms in case of physical shares of companies, or conveyance deed in case of immovable property with the registration of the same with the concerned sub-registrar, to record the transfer of the said properties."
All family members must be part of the deed.
“The deed should spell out all the properties that are part of the HUF and that are being divided amongst the family members. The division of assets must be in line with the provisions of the Hindu Succession Act read with the Supreme Court judgment," said Nirav Shah, litigation partner at DSK Legal.
The process could also start when any of the coparceners ask for a partition. It is their legal right. In case a coparcener asks for partition and a family wants to continue with the HUF, they can give the share that belongs to the member who asked for the partition.
“A coparcenary has the right to seek partition of the HUF property. Upon receiving an intimation for such partition, the karta can take steps to transfer a part of the HUF property to such coparcenary (based on his or her interest as on that date) and upon partition the said coparcenary shall cease to be a member of the HUF or have any interest to the remaining property thereof. The remaining members of the HUF can continue the HUF with the balance property," said Thomas.
Once a coparcener gives a notice to exit the HUF, it stands partitioned. The family would need to draw the deed of family arrangement which will specify the distribution of all the assets. “If the deed of family arrangement or settlement involves transfer of immovable properties, then the appropriate stamp duty must be paid on the document and the same should be registered with the sub-registrar of assurances," said Shah.
He also pointed out that it is advisable to take advice from a tax planner or chartered account to plan the dissolution of the HUF. “This will also provide clarity to each and every member of the family of their respective tax implication on such dissolution of HUF," he said.
Once this document is stamp and registered, it eliminates any disputes or controversy. In the event a dispute were to arise in the future, then the fact that the deed of family arrangement or settlement is registered, it would help the courts decide the disputes more easily.