Estate & Succession Planning through Wills, Private Trusts & Nomination (I)

Wealth is built to be enjoyed and passed on to the next generation. It takes years to accumulate wealth. Careful succession planning of the estates & business would avoid the probable disruptions and conflicts amongst the family members. There are numerous instances where lack of succession planning has resulted in irreparably damage to the family glory and reputation. Wealth accumulated over generations has either been squandered or reached outsiders; endless litigation between the family members has taken up significant time and efforts. Taking conscious steps to protect this wealth as well as business considering the temperament & mindset of different family members ensures that legacies remain alive with minimum conflict & impact on business. Succession planning is a necessity and not an event or an option.

How should a person do succession planning? What are the options & factors which should be considered for effective succession planning? These are a few of the most common questions which are often asked.

Before we discuss various options for succession planning through Will, Private Trust, etc, one need to know what if the person dies without making any will. If any person dies without making a “will”, it is referred to as intestate succession. The law of intestate succession is different for different communities. For instance, Hindu, Sikh, Buddhist and Jains are governed by Hindu Succession Act-1956 (HAS), Indian Succession Act would be applicable in case of Christian, Parsi, Jew whereas Muslim Law is applicable for Muslims.

Let us know the provision of the HAS if a Hindu dies intestate.

Hindu Male Dying Intestate (Without Will):
Under HSA, the property of an intestate Hindu male devolves on the following heirs in the order specified below:

1. Class I heirs
2. If there is no Class I heir then upon his Class II heirs.
3. If there is no Class II heir then upon the Agnates.
4. If there is no Agnate, then upon the Cognates.
5. If no one is there in above categories, then the Government

 

The order of succession is in the order specified above. If there is anyone in Class I, the entire estate will be divided amongst class I heirs only and nothing will go to the next categories of the persons. It’s only if there are no Class I heirs that the property will go to class II heirs. If there are no Class II heirs then the property will go to Agnates take and if there is no agnates then it will go to Cognates. Let us know about Class I heirs, Class II heirs, Agnates & Cognates.

Class I heirs:

The following 16 heirs are the Class I heirs under HSA:

1. Son
2. Daughter
3. Widow
4. Mother
5. Son of a predeceased son
6. Daughter of a predeceased son
7. Widow of a predeceased son
8. Son of a predeceased Daughter
9. Daughter of a predeceased Daughter
10. Son of a predeceased son of a predeceased son.
11. Daughter of a predeceased son of a predeceased son.
12. Widow of a predeceased son of a predeceased son.
13. Son of predeceased Daughter of a predeceased Daughter
14. Daughter of predeceased Daughter of a predeceased Daughter
15. Daughter of predeceased Son of a predeceased Daughter
16. Daughter of predeceased Daughter of a predeceased Son

 

The above Class I heirs take the property simultaneously in equal ratio and in priority succession to all other heirs. one may note that Mother is a class I heir whereas Father is not.

Class II heirs:

The following heirs are Class II heirs –

1. Father
2. Son’s daughter’s children; Brothers; Sisters

III. Daughter’s grandchildren

1. Children of Siblings
2. Father’s parents
3. Father’s widow (step-mother), Brother’s widow

VII.  Father’s siblings

VIII. Mother’s parents

1. Mother’s siblings

Among the heirs specified in Class II, those in the first entry take the property simultaneously and in exclusion to those in the subsequent entries and so on and so forth. In short, if the father is surviving, he takes the property in exclusion to all other Class II heirs. All the heirs specified in one entry get an equal share in the property.

Agnates:

Agnates refer to the person wholly related through males. Thus, a father’s brother’s daughter is an Agnate but a father’s sister’s son is not an Agnate because the relationship is not entirely through males.

Cognates:

Cognates refer to the persons related but not wholly through males.

Hindu Female Dying Intestate (Without Will):

The property of an intestate Hindu female devolves on the following heirs in the order specified hereunder:

(a)                  Firstly, upon her sons and daughters (including the children of any predeceased children) and husband;

(b)                 Secondly, upon the heirs of her husband;

(c)                  Thirdly, upon her parents

(d)                 Fourthly, upon the heirs of her father

(e)                  Fifthly, upon the heirs of her mother

The succession is in the order specified above. Thus, the heirs in the first entry take the property simultaneously and in exclusion to all others and so on and so forth.

In the case of a Hindu female dying intestate without any children or any children or any predeceased children then any property inherited by her from her parents shall devolve upon the heirs of her father.

Above mode of succession in case of Hindu male comes into play only if the persons die intestate. The above process of succession is time consuming, complex, unplanned and doesn’t ensure the distribution of assets by choice. It doesn’t take care of the individual needs & contribution of the family members. Will, Private Trust, Nomination, etc could play an important role in effective & desired succession planning. We will discuss it in the next issue of The Tax Talk.