For every well-intentioned parent who wants to leave a legacy for his/her progeny, there are thousands of legal disputes over inheritance across the country. According to a 2017 study by a Bengaluru-based civil society organisation, Daksh, nearly one-third of all disputes in the country relate to land or property, with 80% of these about inheritance or ownership. It also found that 66% of all civil litigation involved land and property cases.
Many of these disputes can be attributed to the absence of wills or testamentary ambiguity, disagreements among multiple heirs in complex family structures, perceived unfairness in the distribution of assets, gender disparities, and forged or fraudulent wills, among other reasons.
Though a will is universally acclaimed for its efficacy, it can still be contested and trigger family conflicts after one passes away. Is it then better to distribute assets while one is still alive? Or should one resort to instruments other than wills?
While several succession tools can be used to pass on assets—gift deed, family trust, testamentary trust will, settlement deed, joint ownership—it ultimately depends on one’s financial situation, relationship with heirs, type of assets (movable or immovable), as well as one’s awareness about the suitability of instruments.
The waiting game
Though distributing assets during one’s lifetime seems like an easy solution to family friction and legal disputes after death, it does not come without its share of problems. “Transferring assets during one’s lifetime can ensure smooth succession and minimise the possibility of disputes or challenges to the will after one’s demise,” says Sneha Makhija, Head of Wealth Planning, Products & Solutions, Sanctum Wealth.
However, it must be done with careful consideration. “Once an asset is transferred, the owner permanently loses control and ownership, a decision that may have long-term implications if relationships or circumstances change,” asserts Raj Lakhotia, Managing Partner, LABH & Associates.
Right time to distribute assets
Hence, it is important to focus on safeguarding one’s own financial security and independence. Ensure you have a home to live in and means to support yourself before distributing assets. Neha Pathak, Managing Partner, Trust & Estate Planning, Motilal Oswal Wealth Limited, believes that only surplus or non-essential assets—those not required to maintain one’s lifestyle and future needs—may be considered for transfer during one’s lifetime.
“In many families, certain assets such as jewellery or heirlooms are often gifted at significant life events like a child’s marriage or the birth of a grandchild, which can be both emotionally meaningful and financially practical,” says Makhija.
If you do not want to transfer assets during your lifetime, at least identify the assets you want to pass on, and begin the process of consolidation, preferably with the help of financial and legal experts. Completing the documentation for each asset and keeping these ready for transfer will save the children time and effort.
TRANSFERRING WHILE ALIVE
Liquidation of assets
Selling assets and converting these into a financial legacy may seem like a simple exercise, resulting in fair distribution and keeping friction at bay. For instance, if parents want to bequeath a residential property among multiple children, liquidation may be the best option as a split later may be difficult. It could also be challenging as joint ownership can complicate future use and sale of property. “If the family feels the heirs may be unable to manage assets effectively, in case they live abroad, have demanding careers or are not interested in maintaining them, it may be wiser to liquidate and distribute the proceeds,” says Pathak.
“With advancing age, it may become difficult to maintain immovable assets, and a security threat could be a concern. In such scenarios, individuals liquidate and distribute the wealth while alive,” says Rajat Dutta, Founder and Initiator, Inheritance Needs Services.
On the flip side, selling assets can attract capital gains tax and stamp duty (real estate), and may be affected by prevailing market conditions that don’t always reflect their true value.
Gift deed
Gifting assets also helps avoid acrimony among family members and assets are passed on to the intended beneficiaries. Besides, it’s easy to execute and helps avoid probate. “It allows immediate and disputefree transfer of ownership,” says Rohan Mahajan, Founder, LawRato.com.
Gifts to relatives are tax-exempt, making them an efficient tool for early succession and asset protection, says Pathak.
However, gifts to non-relatives can be taxable in the recipient’s hands. “A Hindu also has the option to gift personal property to the family HUF or his own HUF. While this is not taxed in the hands of the HUF, any income from the asset is clubbed with the income of the individual under Section 64 (2) of the Income Tax Act,” says Dutta.
More importantly, once a gift deed is executed, it is irrevocable and the donor loses control of the asset. For immovable property, one may also incur hefty stamp duty and registration charges.
Private family trust
One of the most effective and robust structures, a family trust can be formed during one’s lifetime, with oneself and the heirs as beneficiaries. It allows the creator to specify how assets are to be managed and distributed, maintaining confidentiality and avoiding probate.
“It allows the owner to retain structured control over assets, plan for tax efficiency, and ensure continuity of management even in case of incapacity or absence,” explains Lakhotia. This also helps provide financial support to children with special needs or minor kids. Besides, it protects the beneficiaries from creditors, especially in case of an irrevocable trust.
However, there can be high initial set-up costs and you would incur administrative expenses, such as trustee salaries. Moreover, only specified relatives of the settlor who are beneficiaries are taxexempt. If you transfer your personal assets to the trust, you lose control over these because a trustee manages them. It also requires effort and time to set up a trust and may not work for small estates with few assets.
Settlement deed
This legal contract made during one’s lifetime helps avoid future legal disputes over real estate by clearly outlining the terms for division or transfer of property. The parties involved, along with their signatures, are mentioned to avoid any ambiguity. This ensures a consensual distribution of property among heirs or beneficiaries.
However, once registered, it cannot be revoked without a court order and can be challenged in court. There is no tax liability or capital gain for any party as there is no transfer involved.
Tools used for transferring assets
Gift deed
It is a legal document that allows a person to voluntarily transfer movable or immovable assets without any consideration.
Private family trust
It is an instrument that allows individuals to transfer assets to a legal entity, which is managed by a trustee, to benefit specific individuals.
Settlement deed
It’s a legal document that gets all family members to agree to the terms of distribution of assets.
Will
This is a legal document that specifies how a person’s assets should be distributed among beneficiaries after his demise.
Testamentary trust will
This is a private trust that can be formed through a will and it becomes operational only after the individual’s demise.
Succession laws
In case there is no will, these laws pertaining to specific religions come into force for the distribution of assets to legal heirs.
Joint ownership with survivorship clause
The assets held jointly, with the right of survivorship, automatically pass to the surviving joint owners on the death of the owner.
TRANSFERRING AFTER DEMISE
Will
A will is the most commonly used and effective modes of succession. “It is easy to make and cost-effective. Individuals are concerned about the probate process, but the concern is overhyped,” says Dutta. With a registered will, you can not only be in control of your assets while you are alive, but also ensure the assets are distributed to the beneficiaries you want, even if they are not legal heirs. Besides, you can change the will any time and any number of times before your demise.
On the flip side, it can be easily challenged in court if it is ambiguous, resulting in long delays for distribution of assets. While inheritance through a will does not incur tax, the sale proceeds from assets or income from these are taxable.
Testamentary trust will
This is a private trust that can be established via a will and takes effect only on the death of the individual. “A testamentary trust will offers an added layer of structure and protection by creating a trust after the testator’s demise, allowing continued management of assets for beneficiaries, such as minors, dependants, or in complex family situations,” says Lakhotia.
All the details of the assets in the trust can be outlined in the will as per the testator’s terms, and managed professionally. “It offers privacy, continuity, and control over how and when beneficiaries receive assets, though it can involve upfront structuring and costs,” says Makhija. Management costs can be high and tax is exempt only for beneficiaries.
Succession laws
This is a default process that is set in motion if there is no will or any other succession instrument in place before one’s death. For Hindus, Sikhs, Buddhists or Jains, the Hindu Succession Act, 1956, is applicable. For Christians and Parsis, the Indian Succession Act, 1925, governs the asset distribution, and for Muslims, the Muslim Personal Law (Shariat) comes into force.
Legal heirs are taken care of and there is little conflict as the distribution is in accordance with the law. The drawback, however, is that if you wanted to pass on assets to beneficiaries other than the heirs, or in a manner you would have liked, you would not be able to do so. Inheritance is also not taxable, but the heirs may have to incur costs in legal procedures.
Joint ownership/ nomination
This is a simple way to transfer movable assets— bank and investment accounts, life insurance, retirement accounts—especially to class I legal heirs, as it requires only documentary proof of the deceased and the heirs. “Joint ownership simplifies access to funds and investments, and enables quick transfer to the surviving owner,” says Mahajan. However, it might be tricky if you have multiple bank accounts and investments to be distributed among various legal heirs. Also remember that a nomination does not confer direct ownership as a nominee is only a custodian. If beneficiary designations are not updated, assets may pass to unintended beneficiaries. If the nominee is also a legal heir, it can be the best method for transferring movable assets.
ET Wealth recommends writing a will at the very least. While liquidating assets, especially real estate, is advisable, particularly if your children live abroad, it is better to distribute the money after death. Since medical expenses rise due to inflation, your assets are best used for your own benefit. If you have disabled kids, a special trust, besides a will, may be the best option.
Many of these disputes can be attributed to the absence of wills or testamentary ambiguity, disagreements among multiple heirs in complex family structures, perceived unfairness in the distribution of assets, gender disparities, and forged or fraudulent wills, among other reasons.
Though a will is universally acclaimed for its efficacy, it can still be contested and trigger family conflicts after one passes away. Is it then better to distribute assets while one is still alive? Or should one resort to instruments other than wills?
While several succession tools can be used to pass on assets—gift deed, family trust, testamentary trust will, settlement deed, joint ownership—it ultimately depends on one’s financial situation, relationship with heirs, type of assets (movable or immovable), as well as one’s awareness about the suitability of instruments.
The waiting game
Though distributing assets during one’s lifetime seems like an easy solution to family friction and legal disputes after death, it does not come without its share of problems. “Transferring assets during one’s lifetime can ensure smooth succession and minimise the possibility of disputes or challenges to the will after one’s demise,” says Sneha Makhija, Head of Wealth Planning, Products & Solutions, Sanctum Wealth.
However, it must be done with careful consideration. “Once an asset is transferred, the owner permanently loses control and ownership, a decision that may have long-term implications if relationships or circumstances change,” asserts Raj Lakhotia, Managing Partner, LABH & Associates.
Right time to distribute assets
Hence, it is important to focus on safeguarding one’s own financial security and independence. Ensure you have a home to live in and means to support yourself before distributing assets. Neha Pathak, Managing Partner, Trust & Estate Planning, Motilal Oswal Wealth Limited, believes that only surplus or non-essential assets—those not required to maintain one’s lifestyle and future needs—may be considered for transfer during one’s lifetime.
“In many families, certain assets such as jewellery or heirlooms are often gifted at significant life events like a child’s marriage or the birth of a grandchild, which can be both emotionally meaningful and financially practical,” says Makhija.
If you do not want to transfer assets during your lifetime, at least identify the assets you want to pass on, and begin the process of consolidation, preferably with the help of financial and legal experts. Completing the documentation for each asset and keeping these ready for transfer will save the children time and effort.
TRANSFERRING WHILE ALIVE
Liquidation of assets
Selling assets and converting these into a financial legacy may seem like a simple exercise, resulting in fair distribution and keeping friction at bay. For instance, if parents want to bequeath a residential property among multiple children, liquidation may be the best option as a split later may be difficult. It could also be challenging as joint ownership can complicate future use and sale of property. “If the family feels the heirs may be unable to manage assets effectively, in case they live abroad, have demanding careers or are not interested in maintaining them, it may be wiser to liquidate and distribute the proceeds,” says Pathak.
“With advancing age, it may become difficult to maintain immovable assets, and a security threat could be a concern. In such scenarios, individuals liquidate and distribute the wealth while alive,” says Rajat Dutta, Founder and Initiator, Inheritance Needs Services.
On the flip side, selling assets can attract capital gains tax and stamp duty (real estate), and may be affected by prevailing market conditions that don’t always reflect their true value.
Gift deed
Gifting assets also helps avoid acrimony among family members and assets are passed on to the intended beneficiaries. Besides, it’s easy to execute and helps avoid probate. “It allows immediate and disputefree transfer of ownership,” says Rohan Mahajan, Founder, LawRato.com.
Gifts to relatives are tax-exempt, making them an efficient tool for early succession and asset protection, says Pathak.
However, gifts to non-relatives can be taxable in the recipient’s hands. “A Hindu also has the option to gift personal property to the family HUF or his own HUF. While this is not taxed in the hands of the HUF, any income from the asset is clubbed with the income of the individual under Section 64 (2) of the Income Tax Act,” says Dutta.
More importantly, once a gift deed is executed, it is irrevocable and the donor loses control of the asset. For immovable property, one may also incur hefty stamp duty and registration charges.
Private family trust
One of the most effective and robust structures, a family trust can be formed during one’s lifetime, with oneself and the heirs as beneficiaries. It allows the creator to specify how assets are to be managed and distributed, maintaining confidentiality and avoiding probate.
“It allows the owner to retain structured control over assets, plan for tax efficiency, and ensure continuity of management even in case of incapacity or absence,” explains Lakhotia. This also helps provide financial support to children with special needs or minor kids. Besides, it protects the beneficiaries from creditors, especially in case of an irrevocable trust.
However, there can be high initial set-up costs and you would incur administrative expenses, such as trustee salaries. Moreover, only specified relatives of the settlor who are beneficiaries are taxexempt. If you transfer your personal assets to the trust, you lose control over these because a trustee manages them. It also requires effort and time to set up a trust and may not work for small estates with few assets.
Settlement deed
This legal contract made during one’s lifetime helps avoid future legal disputes over real estate by clearly outlining the terms for division or transfer of property. The parties involved, along with their signatures, are mentioned to avoid any ambiguity. This ensures a consensual distribution of property among heirs or beneficiaries.
However, once registered, it cannot be revoked without a court order and can be challenged in court. There is no tax liability or capital gain for any party as there is no transfer involved.
Tools used for transferring assets
Gift deed
It is a legal document that allows a person to voluntarily transfer movable or immovable assets without any consideration.
Private family trust
It is an instrument that allows individuals to transfer assets to a legal entity, which is managed by a trustee, to benefit specific individuals.
Settlement deed
It’s a legal document that gets all family members to agree to the terms of distribution of assets.
Will
This is a legal document that specifies how a person’s assets should be distributed among beneficiaries after his demise.
Testamentary trust will
This is a private trust that can be formed through a will and it becomes operational only after the individual’s demise.
Succession laws
In case there is no will, these laws pertaining to specific religions come into force for the distribution of assets to legal heirs.
Joint ownership with survivorship clause
The assets held jointly, with the right of survivorship, automatically pass to the surviving joint owners on the death of the owner.
TRANSFERRING AFTER DEMISE
Will
A will is the most commonly used and effective modes of succession. “It is easy to make and cost-effective. Individuals are concerned about the probate process, but the concern is overhyped,” says Dutta. With a registered will, you can not only be in control of your assets while you are alive, but also ensure the assets are distributed to the beneficiaries you want, even if they are not legal heirs. Besides, you can change the will any time and any number of times before your demise.
On the flip side, it can be easily challenged in court if it is ambiguous, resulting in long delays for distribution of assets. While inheritance through a will does not incur tax, the sale proceeds from assets or income from these are taxable.
Testamentary trust will
This is a private trust that can be established via a will and takes effect only on the death of the individual. “A testamentary trust will offers an added layer of structure and protection by creating a trust after the testator’s demise, allowing continued management of assets for beneficiaries, such as minors, dependants, or in complex family situations,” says Lakhotia.
All the details of the assets in the trust can be outlined in the will as per the testator’s terms, and managed professionally. “It offers privacy, continuity, and control over how and when beneficiaries receive assets, though it can involve upfront structuring and costs,” says Makhija. Management costs can be high and tax is exempt only for beneficiaries.
Succession laws
This is a default process that is set in motion if there is no will or any other succession instrument in place before one’s death. For Hindus, Sikhs, Buddhists or Jains, the Hindu Succession Act, 1956, is applicable. For Christians and Parsis, the Indian Succession Act, 1925, governs the asset distribution, and for Muslims, the Muslim Personal Law (Shariat) comes into force.
Legal heirs are taken care of and there is little conflict as the distribution is in accordance with the law. The drawback, however, is that if you wanted to pass on assets to beneficiaries other than the heirs, or in a manner you would have liked, you would not be able to do so. Inheritance is also not taxable, but the heirs may have to incur costs in legal procedures.
Joint ownership/ nomination
This is a simple way to transfer movable assets— bank and investment accounts, life insurance, retirement accounts—especially to class I legal heirs, as it requires only documentary proof of the deceased and the heirs. “Joint ownership simplifies access to funds and investments, and enables quick transfer to the surviving owner,” says Mahajan. However, it might be tricky if you have multiple bank accounts and investments to be distributed among various legal heirs. Also remember that a nomination does not confer direct ownership as a nominee is only a custodian. If beneficiary designations are not updated, assets may pass to unintended beneficiaries. If the nominee is also a legal heir, it can be the best method for transferring movable assets.
ET Wealth recommends writing a will at the very least. While liquidating assets, especially real estate, is advisable, particularly if your children live abroad, it is better to distribute the money after death. Since medical expenses rise due to inflation, your assets are best used for your own benefit. If you have disabled kids, a special trust, besides a will, may be the best option.
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