While planning for succession one needs to identify each class of asset that a person owns or holds; identify the applicable law of succession for each asset class and accordingly take necessary steps to plan for its succession.
The succession laws for various types of assetsis discussed below.
I. Immovable Property
1. Sole Ownership – A person owning an immovable property such as land, flat, office space etc. in his sole name and having full title and ownership of the property, would have a right to bequeath the property to his legal heirs through his Will. In absence a Will, the property will devolve upon the legal heirs as per the applicable intestate succession laws.
2. Co-ownership – In case a person co-owns a property or holds it jointly with another person, then the holding pattern could be either tenancy-in-common or joint-tenancy as stated in the agreement. When the type of co-ownership is not specifically stated in the agreement, then a tenancy-in-common is likely to exist by default. Tenancy-in-common means that each co-owner 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 equal or unequal interest in the property. For e.g. A owns 25% interest in the property and B owns a 75% interest. Tenants-in-common do not have the right of survivorship. Therefore, upon the death of one tenant-in-common, his/her interest in the property is transferred to the legal heirs of the deceased tenant-in-common as per the Will or through the laws of intestacy. Such legal heirs would then become a tenant-in-common with the surviving co-owners.
Under joint tenancy the joint tenants have an undivided interest in the property and a right of survivorship which means that if any of the joint owners dies, his interest in the property will pass on to the surviving joint owner/owners. Unlike a tenancy-in-common, each joint tenant owns an equal share of the property. In joint tenancy the property interest will
pass to the surviving co-owners irrespective of what is mentioned in the Will. It is to be noted that in India ‘tenancy-incommon’ is prevalent form of ownership and if agreement between the joint owners specifies otherwise, it will be deemed that co-ownership is in the form of tenants-in-common.
3. Ancestral Property – A property inherited up to four generations of Hindu lineage is known as Ancestral property. The right to a share in ancestral property accrues by birth itself, unlike other forms of inheritance, where legacy opens upon the death of the owner. Prior to the 2005 amendment in the Hindu SuccessionAct, 1956 only male members of the family
were entitled to get share in the ancestral property but later daughters, too, were entitled to get a share in the ancestral property. The illegitimate child cannot claim any right over ancestral property.
The following are the requirements in terms of succession planning of ancestral property:
a. Ancestral property is inherited up to four generations.
b. It should not have been divided by the users in the joint Hindu family as once a division of the property takes place, the share or portion which each Coparcener gets after the division becomes his or her self-acquired property.
c. The right to share in ancestral or coparcenary property accrues by birth itself, unlike other forms of inheritance, where inheritance opens only on the death of the owner.
d. Property inherited through Will or Gift is not ancestral property. Property gifted by a father to his son cannot not become ancestral property in the hands of son simply by reason of the fact that he got it from his father.
e. The share of each generation is determined and then the successive generations in turn sub divide what has been inherited by their respective predecessor.
f. Properties inherited from mother, grandmother, uncle and even brother is not ancestral property.
g. With respect to the property law, a son may be disinherited from the self-acquired property of the father, but he will still have equal rights over the ancestral property of the Hindu Undivided Family as accrued by birth.
h. Self – acquired property can become ancestral property if it is thrown into the pool of ancestral properties and enjoyed in common.
4. Pagdi Property – Pagdi system is a renting system and parties’ share relationship of landlord and tenant. A person who owns Pagdi Property is considered as landlord and a person whom the property is given on rent is the tenant of Pagdi Property. Under Pagdi system, tenant becomes part owner of the premises and not of the land. In terms of succession planning of Pagdi Property, if landlord dies then the legal heirs of the landlord will take charge of such property and becomes owner of the property.
However, for the Pagdi Property, which is possessed by tenant, there is restriction on bequeathing the property, to person of his choice, through Will. The transmission of Pagdi Property in Maharashtra is governed under section 7(15)(d)(ii) of the Maharashtra Rent Control Act, 1999 which states that if a tenant dies, any member of tenant’s family residing with tenant at the time of his demise or in the absence of such member, any legal heir of the deceased tenant, will become the subsequent tenant of the premises. If Pagdi Property is given on rent for commercial purpose such as education, business, trade or storage purpose then
any family member of tenant, using the premises at the time of tenant’s death, will have right over the premises. In absence of such family member, legal heir of tenant will have the right over the premises.
II. Company Shareholding
The issue of rights of a nominee versus those of the legal heirs over shares of a company, upon death of a shareholder, have been largely debated over the last few decades.
Section 72 of the Companies Act, 2013 allows a shareholder to make nomination for the shares held by him/her in a company.Anomination is a written mandate given by a shareholder to a company describing a person, to whom the shares held in the company shall vest in the event of death of the shareholder. Nomination is a useful procedure that enables a company to identify a single legal representative of a deceased shareholder to transmit his/her shares and avoids the need to deal with a host of legal heirs who might be reeling under inheritance disputes. Broadly, Section 72 of the Companies Act, 2013 entitles the nominee to all rights in the shares upon death of the shareholder, notwithstanding any other dispositions under any other law, testamentary or otherwise.
Interpreting the above provision, initially, the courts placed the nominees on a superior pedestal than the legal heirs under a validly executed will. But in a recent judgement of the Division Bench of the Bombay High Court in Shakti Yezdani and Ors. Vs. Jayanand Jayant Salgaonkar and Ors. (“Salgaonkar Case”), where the Division Bench, on December 1, 2016, finally put the question of correctness of the view of various other courts at rest and it was held that the view taken in the earlier cases is per incuriam, and that nominations under Sections 72 of the Companies Act, 2013 cannot displace the law of succession or open a third line of succession.
At present, the legal position holding ground is that a nomination under the Companies Act does not create a third mode of succession. A nomination under the Act cannot override a valid testamentary succession. A nominee is a mere trustee for the legal heirs of the deceased shareholder. Nominees have a fiduciary relationship with the legal heirs to safeguard the shares and allied membership rights until the ‘Will’ of the testator shareholder is executed. Therefore, nomination alone cannot create ownership in shares. It is merely a device to enable hassle free transmission of shares for the benefit of
companies.
In case of Joint Shareholding if Joint Shareholder dies, the remaining Joint Holders will be entitled to the shares under Joint Shareholdings and not the legal representatives of deceased Joint Shareholder. One should also review the shareholder’s agreement, if it in existence, to check if there are any restrictions on transfer of shares while preparing a ‘Will’.
Appeal No. 313 of 2015 in Notice of Motion No. 822 of 2014 in Suit No. 503 of 2014 and Appeal No. 311 of 2015 in Testamentary Petition No. 457 of 2014, Decided On: 01.12.2016.
While planning for succession one needs to identify each class of asset that a person owns or holds; identify the applicable law of succession for each asset class and accordingly take necessary steps to plan for its succession.
III. BankAccount
a. Sole Account: – Where a bank account is opened in an individual’s name and a nomination is recorded, then the bank will pay the balance outstanding in the account of the deceased depositor to the nominee. As per RBI’s
Master Circular DBOD No. Leg.BC.21/09.07.006/2014-15, the nominee receives the payment from the bank as a trustee of the legal heirs of the deceased depositor, i.e., such payment to him shall not affect the right or claim which any person may have against the nominee to whom the payment is made. If no nomination is recorded, the bank will pay the money to the legal heirs only upon production of necessary documents depending on the amount of the balance in the account.
b. JointAccount: – It is common for joint accounts to be opened with a ‘survivorship clause’ (‘either or survivor’, ‘anyone or survivor’, ‘former or survivor’ or ‘latter or survivor’)/ “Nomination clause”. At the time of account holder’s demise, the balance in the account would be paid to the surviving holder. If all the joint holders have passed away, then banks would make the payment to the nominee of deceased account holder. In case there is no survivor/nominee clause, then the bank would provide access to such account to legal heir of deceased account holder. As per RBI Master Circular DBOD No. Leg.BC.21/09.07.006/2014-15, the survivor(s) receives the payment from the bank as a trustee of the legal heirs of the deceased depositor, i.e., such payment to him shall not affect the right or claim which any person may have against the survivor(s) to whom the payment is made.
IV. Bank Locker
As per RBI Circular DBOD No. Leg.BC.78 /09.07.005/2006-07 if a sole locker hirer nominates a person, banks should give to such nominee access of the locker and liberty to remove the contents of the locker in the event of the death of the sole locker hirer. In case the locker was hired jointly with the instructions to operate it under joint signatures, and the locker hirer(s) nominates person(s), then in the event of death of any of the locker hirers, the bank should give access of the locker and the liberty to remove the contents jointly to the survivor(s) and the
nominee(s). In case the locker was hired jointly with Survivorship Clause, then due regard needs to be given by bank to such clause in the event of the death of one or more of the locker-hirers and the access of locker must be given to one or more survivors as per the mandate given by the joint hirer under survivorship clause.
In case where the deceased locker hirer had not made any nomination or where the joint hirers had not given any mandate that the access may be given to one or more of the survivors by a clear survivorship clause, then bank
provides access to legal heirs of deceased locker hirer. As per RBI Master Circular DBOD No. Leg.BC.21/09.07.006/2014-15, Banks should make it clear to the survivor(s) /
nominee(s) that access to locker / safe custody of articles is given to them only as a trustee of the legal heirs of the
deceased locker hirer.
V. HUF
HUF is an entity that can be formed only by a married individual who is a Hindu, Sikh, Jain or Buddhist. All the family members of HUF who acquire an interest by birth in HUF property constitute a coparcenary and the eldest coparcener is considered as Karta. The property of HUF is jointly owned by coparceners and they cannot gift or transfer their rights in the assets of the HUF during their lifetime but are entitled to bequeath their share in the assets of the HUF through a Will. HUF can be dissolved through partition of HUF property where the coparceners and members would be entitled to a share.Alternatively, any of the co-parceners or members of HUF can execute deeds of release of their undivided share in favour of one or more coparcener and give his or her share in the HUF property to such
coparcener. Prior to amendment of the Hindu SuccessionAct, the rights of the coparcener (dying intestate) in the HUF property used to devolve on the surviving members of the HUF but now the situation is changed. As per the HSA, a partition is deemed to have occurred on the death of a coparcener and in a case where a coparcener has not made Will, the share of the deceased in the HUF property passes to the legal heirs as per the Hindu SuccessionAct, 1956.
VI. Partnership Firm
In case of death of a partner of the partnership firm, the legal heirs have the right to get the refund of the capital contribution as well as share in accumulated profits, if any. The claim of a legal representative of a deceased partner or partners under section 37 of Partnership Act, 1932 is either a claim for an account or a claim for a specific amount representing the deceased partner’s share together with interest thereon. A clause in a partnership agreement related to the death of a partner addresses as to what happens to the partnership afterwards and the rights of the partner’s estate in the partnership. Partnership deed may have a clause that the partnership firm will not be dissolved even after demise of any of the partners and legal heir of such deceased partner may become partner of the firm, while other agreements may provide that the partnership firm will terminate after the demise of any of the partners of the partnership firm. Hence, it is always advisable to review the partnership agreement to determine what it requires
the remaining partners do on the demise of any of the partners.
VII. LLP
The death of any partner of Limited Liability Partnership shall not cause the dissolution of the LLP The LLP and its business shall be continued by the remaining Partner or Partners and the Units owned by the deceased Limited Partner shall automatically be transferred to deceased Partner’s heirs. The legal heir will get the profit/contribution of the deceased partner. The legal heir may become a partner of the LLP, if LLP agreement provides for the same.
VIII. Sole Proprietorship
A sole proprietorship is a type of business organization that has a single owner. Legally, there is no distinction between the sole proprietorship and the owner himself; they are one and same entity. The sole proprietor’s heirs could choose to either continue the business or wind it up. If a sole proprietor has written a Will, then the sole proprietorship business shall pass on to the beneficiaries as mentioned in the Will. But, if no Will is in existence, the assets will pass on to the legal heir as per intestacy law.
IX. Insurance Policy
As per , if policy holder dies, the insurance company must Section 39 of Insurance Act, 1939 hand over the amount to the nominee mentioned in the policy. It is to be noted that nominee in a life insurance policy only acts a trustee of the proceeds. In a case of , Hon. Supreme Court has also ruled that Sarbati Devi vs Usha Devi “in case of insurance policies, the nominee does not inherit the amount and receives it only as a trustee of legal heirs.” Once the insurance company passes on the proceeds to the nominee, then the nominee will distribute it to the legal heirs as per the Will of policy holder, if it’s there, else the succession law comes into play.
X. Mutual Fund
The units of mutual funds can be held either singly or jointly on either or survivor basis. In case the units are held singly with nomination and the sole holder dies, the units shall be transferred to nominee. In case of joint holder if one of the holders dies, then the unit will be transferred to the surviving holder. In case there is no survivor/nominee clause, then the units would be transferred to the legal heir of deceased unit holder.
The above is the transmission procedure with no mention as to who is the rightful owner on the demise of unit holder whether it is the legal heir or the surviving member of joint holder or nominee. So, it can be assumed that surviving holder or nominee would only act as a custodian and is required to transfer the MFs to the legal heirs.
XI. EPF
EPF or Employee’s Provident Fund is a saving scheme available to all salaried employees residing in India. Upon the death of an EPF member, the EPF amount is paid to the nominee. The nomination shall be in favour of one or more persons belonging to his family. A nomination made in favour of a person not belonging to his family shall be invalid. Fresh nomination shall be made by EPF member on his/her marriage. If no nomination subsists on the death of the member the EPF amount shall become payable to the members of his family in equal shares.As per section 2(g) of The Employees’ Provident Funds Scheme, 1952, family of a male member includes his wife, children, dependant parents and his deceased son’s widow and children. For a female member, family includes her husband, children, dependant parents, husband’s dependant parents and her deceased son’s widow and children. It is to be noted that no share shall be payable to sons/grandsons who have attained maturity and to married daughters
whose husbands are alive unless they were nominated
