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Succession Planning Family Settlement Wills
Succession Planning Family Settlement Wills
SUCCESSION PLANNING, FAMILY SETTLEMENT, SETTLEMENT WILLS AND THE INCOME-TAX LAW
By
SUBHASH SU S LAKHOTIA O
TAX & INVESTMENT CONSULTANT
TAX GURU: CNBC Awaaz
Succession S i Planning, Pl i Family Settlement, Will Wills and d The Income-tax Law
By SUBHASH LAKHOTIA
Here comes to you a practical seminar dealing with practical aspects connected with Succession Planning, Family Settlements and Wills with special reference to Tax Planning in the context of the Income-tax & Wealth- tax provisions. The seminar discusses various facets of tax planning benefits through Wills and explains step by step the various aspects connected with when when, why why, where and how of Wills Wills . The Seminar would also discuss various aspects connected with Succession Planning in different situations as also the role of Family Settlement in planning family matters and the taxes of your group.
Lakhotia College of Taxation & Management S 228 G S-228, Greater t K Kailash il h Part-2, P t2 N New D Delhi-110 lhi 110 048 Phone : 011-29215434, 29215420, 29217768, 9810001665
E-mail :
slakhotia@satyam.net.in; lakhotia49@gmail.com.
1 I 1. Intestate t t t Succession S i - As p per Chapter p II of The Hindu Succession Act. 1956. 2 T 2. Testamentary t t Succession S i per Will of a person p - As p
1(2)Intestate Succession
General Rules of Succession in the case of Male Hindus
The property of Th f a male l Hi Hindu d d dying i i intestate shall h ll devolve according to the provisions of Hindu Succession Act as under :(a) Firstly, upon the heirs, being the relatives specified in class I of the Schedule; (b) Secondly, Secondly if there is no heir of class I I, then upon the heirs, being the relatives specified in class II of the Schedule; (c) Thirdly, if there is no heir of any of the two classes, then upon the agnates of the deceased; and (d) Lastly, Lastly if there is no agnate agnate, then upon the cognates of the deceased.
1. Prepare a list of social organisations you are attached with. 2 See the aptitude and jot down the 2. list of persons who can be considered to take over your social activities. 3 Groom 3. G such h successors in i advance.
contd..
Succession to y your unfulfilled tasks in Life :1. Prepare a list of your unfulfilled agenda of Money Matters and Non-Money Matters. 2. Groom the successor. p by y Share and Care to the successor to 3. Explain do all that remains to be fulfilled by you. 4. Do remember that your Successor is going to inherit all that you posses, why not then he should also become a party to execute your unfulfilled f lfill d cherished h i h d missions i i whether h th Monetary M t or Non-monetary.
contd..
Succession to family obligations : :1. Prepare a chart of your ongoing yearly and other
periodical family obligations and rituals. Explain th them with ith monetary t i li ti to implication t the th successor. 2. Explain the concept to the successor Rights and obligations go together together, , so when he inherits your fortune he should also be a party to your Family Obligations both Financial & NonFinancial Obligations. Obligations 3. A Family cash Obligation Chart for various ceremonial obligations should be prepared with guidelines id li f future for f t i fl ti inflation adjustment dj t t to t make k life easy and smooth for the successor.
contd..
1(14) Succession
4. If interested to retain business within the family then put conditions for Business Buy Sell at a latter date and the terms. Invoke the concept of Right Right to First Refusal Refusal. 5. It is time now to stat grooming the successor well p y with p powers in advance. Give more responsibility so that you can judge the capability of the successors. 6 If successors are not 6. t very competent t t to t carry forward the business then it may be worthwhile to sell and dispose off the business during your life time. Concept very popular in USA.
Business C td Contd..
7. Succession Planning g of a business in special p circumstances and situations e.g., (a) Only Daughters in family. (b) Only Daughters with instable family life. (c) ( ) Only y Daughter g who is a widow. (d) Only Daughter with disciplined / indisciplined children. (e) Only Daughter with a spend thrift and drunkard life partner. (f) Only Mentally Retarded child or a Handicapped child.
Business
C Contd.. d
8. Succession Planning of Business with multiple branches in India and abroad :(a) Business can be divided amongst legal heirs and branches, units, factories etc in different locations can be given away to different legal heirs. (b) Better to create right separate Tax entities through mergers, mergers amalgamations and slump sale so that succession of business is smooth. (c) ( ) To think of closing g down little less p profitable branches and units with the aim of consolidating for effective management.
1(17)
Succession Planning of
Business
Contd.. C td 9. Succession Planning of Registered Trade Marks, Secret Formulas, Logos etc., etc.
(a) Let free use be made available to all legal heirs subject bj t to t certain t i norms like lik territory t it demarcation etc.. OR (b) Let Trade Mark be owned by a separate entity and a specific p condition that only y legal g heirs the blood relatives alone would be entitled to be the Shareholder/Partner of such tax entity. OR (c) Pay and use Trade Mark based on Turnover.
Business
C Contd.. d
10. As far as p possible clear cut demarcation of business activities amongst son and daughter. Try not to make them joint owners of a business or else lot of future problems expected, expected may be a decade later. 11 Take care of Company Law provisions regarding 11. Shareholding and appointment of Directors etc., in the process of Succession Planning. 12. Never let go your control right now in Business by share transfer etc., or else shattered succession i planning. l i J t peep into Just i t the th real l life lif business instances to shock you.
Business
C Contd.. d 14. Start grooming in advance. 15. Start judging the aptitude of the legal heirs. heirs 16. Continue on regular intervals the evaluation of successors. 17 Try to develop a Technical 17. Technical brain for your business from amongst successors or else l start t t thinking thi ki about the substitute for the same.
Business
Contd..
18 Business Succession in favour of Wife to 18. plan or not to plan depending upon various factors including :(a) The Capacity of handling business by wife. (b) The Th inclination i li ti of f wife if to t run business. b i (c) The control by wife on the emotions front. (d) The Capacity of handling finance and investment related business decisions (e) The strong task master or otherwise.
Business
C Contd.. d
19. Watch the size of the family y of the successor and other connected matters matters. 20.Time 20 Ti t join to j i 24 Hour H I t Introspection ti Camp p for y your clear cut road map to Succession Planning of Business. Business
own
Bliss
and Happiness
close
your
Would the successor waste the money? Would he really implement your desires; would he take care of your emotions and (B) ( ) Just do y your Krishnas sentiments. duty y to g groom the successor, think not of Gita.
how much of what you wanted would be achieved as per g in message (C) Just surrender to God and relax.
1. In case the Family arrangement / settlement is reduced in writing as a formal record of the arrangement as per the Registration Act the same should be Registered. 2. In case the Family Settlement order by th Court the C t then th th there i no separate is t Registration required.
In case a Family Settlement or a Family Arrangement is arrived at to avoid continuous family friction and to maintain family peace amongst the family members there would be no Transfer in terms of C it l Gains, Capital G i h hence no tax t li bilit as per liability section 47 of the Income-tax Act, 1961
3(2) Will The Definition Contd. Will means the legal declaration of intention of a Testator with respect to his Property which he desires to be carried into effect after his death. -Section 2 (h) of the Indian Succession Act, 1925
3(16)
1. Tax Planning g vs. Tax Evasion & Tax Avoidance. 2. Tax Planning of Will for maximum i t benefits tax b fit for f beneficiaries legatees, beneficiaries, legatees successors and the estate.
3 (17) Easy Distribution of ones wealth ealth via ia WILL to save sa e tax. ta
1. Desired distribution of wealth by Will is possible. 2. New tax entities can be created by Will. 3. Gift G f to spouse and daughter-inlaw & no section 64 clubbing through h h Will. Will 4. Charitable trust via Will.
3(18) 3(
1. Section 168 : Will & executor of a Will for the estate 2. Separate assessment executor t of f Will apart t ones personal assessment 3. Rate of tax, etc. of f from
3(19) 3(
4. In calculating the total income the Executor is entitled to deduct any y specific p legacy g y distributed or applied for the benefit of a specific legatee. However, the legacy amount shall be included in the total income of the specific legatee [section 168(4)]. 5. The assessment on the Executor would be made until and unless the estate is completely administered. Therefore, the assessment of the undistributed di t ib t d portion ti of f the th income i of f the th estate t t of the deceased would be on the executor as per s.168 of the I.T.Act Gobindlal Bangur v. ITO 79 ITR 364
3(20) 3(20
6. Even if the Executor is the sole 6 beneficiary, it does not necessarily f ll follow th t he that h receives i th income the i i in latter Capacity. The executor retains his dual Capacity and hence he must be assessed as an Executor - CIT v. Bakshi Sampuran Singh 133 ITR 650
3(21) 3(2
7. No deduction of expenses p on obtaining probate of Will. Likwise, no deduction of Sradh expenses incurred in pursuance of the obligation imposed by the Testator out of the income of the estate coming to their hands. - V. Ramaswamy Ayyangar v. CIT 11 ITR 597 - P.C. Mallick v. CIT 6 ITR 206
3(22) 3(22
8 The payments made perodically to the 8. beneficiaries mentioned in the Will from out of the estate by way of obligatory directions mentioned by the Testator cannot be excluded in computing the Executors chargeable income of the estate as it could only be application of income and not diversion by an overriding title of the income - Re. P.C. Mallick & D.C. Aich 8 ITR 236
Generally Gifts Gifts in excess of Rs.50,000 in a year from Non Relatives are taxed as income as per section 56 of the Income-tax Act, 1961 but all Gifts both movable and immovable received from Non Relatives also under a Will or by Inheritance is not taxed as Income. Income
The Clubbing provisions of section 64 of the Income-tax Income tax Act, 1961 not applicable pp on g gifts through g Will to Spouse and D Daughter h I In L Law.
3(25)
1.
One separate I.T. entity & file Will as per section 164 for the discretionary
2 No maximum rate for Discretionary Trust but taxation like 2. AOP / individual : exception to section 3. Conditions of section
maximum rate.
5 Trust for unborn child is valid- CIT. 5. CIT v. v L.P. L P Lakhar (1996) 220 ITR 100 (Gawhati H.C.). Also see CIT v. Brig. Kapil Mohan (2001) 252 ITR 830 (Delhi HC)
3(27)
50 plus both for Men and Women. Women (2) If you are critically ill or suffering from any serious illness, it is time to do your Will irrespective of your age. (3) If you are going to have a major surgery it is time to do the Will.
3(28)
(4) If you are in the process of developing marital problems with your spouse. (5) If you are expecting a threat to your life irrespective of the reason (business rivalry, bitterness of friends & relatives). relatives) (6) If you are going to a foreign land for a long time (either for business or service).
3 (29)
Why
the
WILL ?
(1) To express in words your emotions to be translated into money only through the preparation of the Will. (2) To provide a financial safety net to your wife as well as to weak and financially not so strong relatives. (3) To translate into action your financial rights in favour of exclusively those whom you like. (4) To T continue ti providing idi freedom f d of f residence to wife through life interest.
3(30) ( )
put your all movable and immovable assets in favour of all those whom you desire to give in the ratio you desire. (6) To debar a particular family member from all your assets. (7) To confer the monetary benefit even to those persons who are not your relatives. (8) To sell a property on Power of Attorney.
3(32)
(5) ( ) The Will may y be Registered g or Unregistered but the legal effect is the same. same (6) If is always better to Register the Will. (7) ( ) Will can be Registered g in any y part of India and not necessarily in the town you live. live
the
3(39)
Take adequate safeguard to comply with procedure for Probate of your Will. N No P b t Probate f formalities liti t to b be complied with in Delhi Delhi and Certain other states of India.
It is possible for you to safeguard your primary house by giving guidelines in the Will g relating g to TITLE preservation.
Reverse Mortgage & th the Will If a person has opted for Reverse Reverse Mortgage Mortgage for a property p p y he can still p pass on the Property to a legal heir with the bundle of R Reverse M t Mortgage.
3(41)
Always mention in the Will Will that it is y your last Will and that any new Will prepared by you will be recognised only if f it is a Registered Will. Will A Formula to avoid fabricated Will.
VIDEO Your
WILL. WILL
RECORDING Will
3(50)
3(51)
11.The ownership p of Joint Bank Fixed Deposits, Joint Shares & Mutual Fund g can be changed g through g the WILL Holding 12.The NOMINATION of Life Insurance policies etc. can be changed through the WILL. 13.WILL should be kept in a very safe placeBank Locker, Almirah, with the Lawyer, etc. Prepare an extra zerox copy of the WILL to be kept with the Lawyer and /or your Spouse/Executors.
3(52)
1. After the death of the Executant of the WILL the Executor to the WILL should proceed to distribute the assets of the p deceased in terms of the WILL. 2.The executor after distribution should prepare an affidavit to this effect. 3. Bank, Income-tax Dept- and others to be informed. 4. Better prepare a file-What my family should Know giving details of assets, original papers, lockers etc.
B. Movable Assets.
(a) Cash & Bank Balances. (b) Loans & Advances (c) Gold & Diamond Jewellery. (d) ( ) Household Goods & Personal effects. (e) Bank Fixed Deposits. (f) Bonds and units of Mutual funds. ( ) Relief (g) R li f bonds b d of f Reserve R Bank B k of f India. I di (h) Capital Account with Partnership Firm of M/s ... (i) Shares and Debentures of various companies. (j) Silver Utensils. (k) . (l) ..
I have provided the undermentioned legacies to be spent and given out of my Estate and my desire shall be carried out by my Executor. I desire that after my demise y Immovable and all my movable assets shall be distributed in the following manner and my desire shall be carried out by my Executor:-
A. Property atto be given to.. B. Property at. to be given away to . C. My share in the partnership firm of M/s. .. shall be given away to D. The shares of various companies owned by me as on the date of my death shall be given away to
E. The Gold & Diamond Jewellery to be given away to the following:Name . . . Item .. ....
F.
be given away to my ... .. G All my other assets other than mentioned above G. shall be given away to . ..
(7) I hereby also declare that after my death the Income-tax, Wealth-tax and Gift-tax liabilities, if any, shall first be paid out of my Estate. (8) I further declare that this is my last and final Will and that no other Will, if unregistered, should b treated be t t d as my Will at t any point i t of f time ti and d that th t in i future I will continue to have full right and power to change my Will as many times as I like but from now onwards my subsequent Will would be valid only y if the same is a Registered g Will. I am making g my intention very clear that none of my unregistered Will should be treated as valid.
In
WITNESS WHEREOF, I the said SHRI , put my signature to this Will, the day, month and year first above written.
SIGNED BY THE ABOVE NAMED TESTATOR SHRI . as his last will at New Delhi in the joint presence of himself and us who at his request and in such joint presence have h hereunder d subscribed b ib d our names as witnesses:it
1.
2.
Shri Subhash Chandra Lakhotia Income-tax Practitioner S-228, Greater Kailash-2, New Delhi-110048
Thank You
SUBHASH LAKHOTIA
Tax Consultant & Motivator Tax Guru CNBC Awaaz Lakhotia Niwas, S-228, Greater Kailash-2, New Delhi-110048 Ph : 011-29215434, M-09810001665 E-mail : lakhotia49@gmail.com