Succession Planning Family Settlement Wills

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Welcome to a Special Power Packed Seminar on

SUCCESSION PLANNING, FAMILY SETTLEMENT, SETTLEMENT WILLS AND THE INCOME-TAX LAW
By

SUBHASH SU S LAKHOTIA O
TAX & INVESTMENT CONSULTANT
TAX GURU: CNBC Awaaz

For the First Time in India Special power packed seminar on :

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 :

[email protected]; [email protected].

KNOW THE SEMINAR FACULTY Subhash Lakhotia
• Mr. Subhash Lakhotia is the Director of R.N. Lakhotia & Associates LLP. He is an Income-tax Practitioner for the last over 40 years. He regularly writes in various i national ti l dailies. d ili He H is i the th Director Di t of f Lakhotia L kh ti College C ll of f Taxation T ti & Management. He is practising as a consultant on tax planning, tax documentation and investment planning. He has also addressed a number of seminars and lecture meetings on taxation and tax planning and is conducting the popular course known as ‘Zero Zero to Hero in Direct Taxes’ Taxes . He was selected as the best youth of India by the Lions International to represent India at the World Youth Congress held at Atlantic City, USA in 1970. He is Secretary General of Investors Club and President of Spiritual Club International and Unite to Invest ( (UTI). ) He is Chief Strategist g of Real Estate Strategy Group and is actively associated with various professional bodies connected with real estate. He has written books on Income-tax, Investment, Real Estate and Spirituality. He is actively associated with Lions Clubs International. He has been awarded the “Sahityashree” award and “The Suryadatta National Award Award, 2010” 2010”. He is on the Governing Council of Proton Business School. Mr. Subhash Lakhotia is conducting a very popular show “Tax Guru” on every Wednesday, Saturday and Sunday on “CNBC AWAAZ” a popular TV Channel from the house of CNBC. CNBC Recently the 300th episode of Tax Guru was aired on the TV Channel. The National Television Awards, 2010 for “Best Business Talk Show of the Year” has been awarded to the Tax Guru programme.





1(1) Intestate Succession Versus T t Testamentary t Succession S i
Two Succession modes : :-

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(3) ( ) Intestate Succession – contd..
General Rules of Succession in the case of Female Hindus : The property of a Female Hindu dying intestate shall devolve according to the Hindu Succession Act as Under :(a) Firstly, Firstly upon the sons and daughters (including the children of any pre-deceased son or daughter) and the husband; (b) Secondly, upon the heirs of the husband; (c) Thirdly, upon the mother and father; (d) Fourthly, upon the heirs of the father; and (e) Lastly, upon the heirs of the mother.

1(4) Intestate Succession – contd..
HEIRS IN CLASS I AND CLASS II
CLASS I Son; daughter; widow; mother; son of a pre-deceased son; daughter of a predeceased son; son of a predeceased daughter; daughter of a pre-deceased daughter; widow of a pre-deceased son; son of a predeceased son of a predeceased son; daughter of a pre-deceased son of a pre-deceased son; widow of a pre-deceased son of a pre-deceased son son. CLASS II I. Father. II. (1) Son’s daughter’s son, (2) son’s daughter’s daughter, (3) brother, (4) sister. III. (1) Daughter’s son’s son, (2) daughter’s son’s daughter, (3) daughter’s son, (4) daughter’s daughter’s daughter. IV. (1) Brother’s son, (2) sister’s son, (3) brother’s daughter, (4) sister’s daughter. V Father’s V. Father s father; father’s father s mother mother. VI.. Father’s widow; brother’s widow. VII. Father’s brother; father’s sister. VIII. Mother’s father; mother’s mother. IX Mother’s IX. M th ’ brother; b th mother’s th ’ sister. i t Explanation : In this Schedule, references to a brother or sister do not include references to a brother or sister by uterine blood

1(5) Succession Planning
• Do remember the areas where Succession Planning is needed :1. Succession of your Wealth. j and activities 2. Succession of Charitable Projects undertaken by you. 3. Succession to your Social Activities. 4. Succession to your Ideals and Mission of Life. your unfulfilled tasks in life. 5. Succession to y 6. Succession to family obligations.

1(6) ( ) Succession Planning g contd..
Succession of your Wealth :1. To be achieved through successful preparation of the Will 2 Appointment of Executor. 2. Executor 3. Fair and Judicious distribution of your Wealth amongst legal heirs.

1(7) ( ) Succession Planning g contd..
Succession of Charitable Projects and activities undertaken by you. 1. It is time to implant a successor in your place in various Trusts which are engaged in charitable activities 2 Try to induct a set of new “Trustee/s 2. Trustee/s in the Trusts and societies with which you are attached. 3. Start giving more powers and responsibilities to your successor Trustees. 4. Start grooming a successor right now. 5. Judge the successor by application of aptitude test.

1(8) ( ) Succession Planning g contd..
Succession to y your social Activities

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.

1(9) Succession Planning contd..
Succession to y your Ideas and Mission of Life : 1. You wanted to bring certain Ideas/ideals to be part of Mission of your life. Now is the time to tell all about it to your successors. successors 2. Discuss your action plan with the successors for carrying forward your Ideas, your ideals and your Mission of life. life 3. Advance grooming of the successor to your ideas p y towards y your Mission of Life. and ideals specially 4. Prepare a Chart of your “Policies” for family like the Charter of a Chamber of Commerce, Business Group Social Organisation and frame it, Group, it put your photo and signature and display it in your Drawing Room.

1(10) ( ) Succession Planning g

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.

1(11) Succession Planning

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.

1(12) ( ) Succession Planning g

contd..

Handing over to the Successor ::
1. Keep ready the char of placement of various documents, etc. for the Successor. 2. Keep handy the copy of the Will, the original Will, etc. 3 Keep 3. K h d the handy th Property P t papers to t be b handed h d d over to the Successor. 4. Keep a file entitled – “My My money money-My My Wealth Wealth” with small little details of all your investments, original papers re ; the investment maturity details & phone and investment, mobile number of the concerned person etc.

1(13) Succession Planning of B i Business
1. Think and p plan and p plan and think how y you could like your business empire to be succeeded. 2. For long long-term term perspective better distribute the different businesses to different family members g now about “Equity q y Division” for that think right in the name of a particular family member who will succeed to a particular business. Remove the equity of other equity holders. g formula for distribution of 3. Think of the balancing business amongst more than one legal heir.

1(14) Succession

Planning of Business C td Contd..

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.

1(15) Succession Planning of

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.

1(16) Succession Planning of

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.

1(18) Succession Planning of

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.

1(19) Succession Planning of

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.

1(20) Succession Planning of

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.

1(21) Succession Planning of

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

1(22) Succession Planning of P f Profession i
All professional persons to Carefully craft the road d map of f successful f l Succession S i Planning of the Profession by considering :(a) The suitable candidates for Profession Succession. (b) Inclination of the successor towards taking forward the Profession. (c) If family member not found suitable for succession i of f your Profession P f i then th think thi k of f alternatives including taking of a new Partner or selling with goodwill. (d) Time to follow the American concept of succession of Profession.

1(23) Succession Planning of Profession Contd Contd..
Close your Eyes …….
(A) Yes,

for your eyes

own

Bliss

and Happiness

close

your

to what the successor would do :

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 Krishna’s 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.

2(1) Family Settlement
General Principles

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.

2(2) Family Settlement contd…
Salient Family Features of Taxation of Settlement :

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

2(3) Family Settlement contd..
The essentials of Family Arrangement as per the Supreme Court of India :1. The Family Settlement must be bonafide one so as to resolve family disputes and rival Claims by a fair and equitable division or allotment of properties p p between the various members of the family. 2. That the said Settlement must be Voluntary and should h ld not t be b induced i d d by b fraud, f d coercion i or undue influence. - Kala v v. Deputy Director of Consolidation AIR 1976 SC 807

2(4) Family Settlement contd..
Important Court Decision
Consequent to family dispute assessee was to receive certain sum of money and certain lands g and in return he was to Transfer half shareholding in certain companies. Assessee claimed that the agreements were in pursuance of Family g and hence the Capital p Gains from Arrangement these transactions could not be assessed to Capital Gains Tax. The Income-tax Officer was of the view that the Transaction amounted to transfer of f title titl i respect in t of f which hi h Capital C it l Gain G i was exigible to tax. Finally the High Court came to the conclusion that the Family Arrangement involved i the in th above b case did not t amount t to t transfer t f – CIT v. Ramanathan 245 ITR 494

2(5) Family Settlement contd..
Important Court Decision
Though conflict of legal claims is generally a condition for the validity of a Family Arrangement, it is not necessarily so. Even bonafide disputes, disputes present or possible, possible which may not involve legal claims will suffice. Members of a joint Hindu Family to maintain peace or to bring harmony in the family, enter into such a family arrangement. If such an arrangement is entered into bonafide and the terms thereof are fair in the circumstances of a particular case, case courts will more readily give assent to such an arrangement then to avoid it. -Supreme p Court of India in the case of Maturi Pullaiah v. Maturi Narasimhan AIR 1966 SC 1836.

2(6) Family Settlement contd..
Important Court Decision
The Family arrangement brought about by i t intervention ti of f Panchayatdars. P h td If the th assessee found it worthwhile to settle the di dispute t b t between h herself, lf her h sons and d daughters by making the family arrangement, th said the id family f il arrangement t could ld not t be b ignored by a tax authority and there was no T Transfer f of f Property P t was involved. i l d - CIT v. R. Ponnammal 164 ITR 706

2(7) Family Settlement contd..
Important Court Decision The consideration for a Family Settlement is the expectation that such a settlement will result in establishing or ensuring amity and goodwill among all relations hence the family transfer does not amount to a Transfer. Transfer -Supreme Court of India in Ram Charan Das v. Gi ij Girija N di i Nandini D i AIR 1966 Devi SC 323.

2(8) Family Settlement contd..
Important p Court Decision The amount received by the assessee on Transfer of various shares in the course of family arrangement at the price determined by the Arbitrator would not result into any Capital Gain within the meaning of the Income-tax Act as it did not amount to a Transfer. Transfer - Mrs. P. Sheela v. ITO 308 ITR (AT) 350

2(9) Family Settlement contd..
Important Court Decision
It is a settled law that when parties enter into a family arrangement, the validity of the family arrangement is not to be judged j dged with ith reference to whether hether the parties who ho raised disputes or rights or claimed rights in certain properties had in Law any such right or not. Rearranging shareholding of assessees to avoid possible litigation amongst themselves for necessity to control companies effectively by major shareholders to produce better prospects and active supervision hence such a family arrangement could not be transaction, which was eligible to Capital Gains -CIT v. Kay Arr Enterprises & Others 299 ITR 348.

3(1) Will – The Definition
“A will is an ex-parte p document and is written from one point of view; it is the expression of the wishes of the testator regarding the work of a lifetime; upon its legality depends the future happiness and welfare of the persons and objects most dear to the t t t testator; and d whether h th viewed i d from f a property t or a family standpoint, it is often the most important document a man of large or small means is ever called to make.” - The Internet definition

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(3) ( ) Will – The Definition Contd.
In Del Grande v. Sebastien(1999) 27 ETR 2d 295, the Ontario Court endorsed this definition :“A will is a document which is of no effect until the testator’s death and until then is a mere declaration of his intention and is at all times until such death subject j to revocation or variation. The execution of a will leaves the testator free during his life to dispose of his property as he pleases and operates subject to any such disposition inter vivos; and; on the other hand, a person named as a beneficiary in a will takes no interest whatever under it until the death of the testator and he will not then take any interest unless he is alive at that time.

3(4) Will – The Definition Contd.
In California Jurisprudence Jurisprudence, 3rd edition :“A will is an instrument in or by virtue of which a qualified person legally and intentionally directs the disposition of his or her property, to become effective only following the death of the person”.

3(5) ( ) Will – The Definition Contd.
The Uniform Probate Code of USA defines Will as under :“A Will must t be b in i writing, iti signed i d by b the th testator t t t or in i the th testator’s name by some other individual in the testator’s conscious presence and by the testator’s direction, and signed by at least two individuals, individuals each of whom signed within a reasonable time after having witnessed either the signing of the will… or the testator’s acknowledgement of that t at s signature g atu e o or ac acknowledgment o edg e t o of t the e will. “A will that does not comply with (the above)… is valid as a holographic will, whether or not witnessed, if the signature and material p portions of the document are in the testator’s handwriting. “Intent that the document constitute the testator’s will may be y extrinsic evidence, including, g for holographic g p established by wills, portions of the document that are not in the testator’s handwriting.”

3(6) ( ) Will – The Definition Contd.
Definition of “Will” Harris(1911) Book :: as per Virgil
In short, a will may be a man’s monument or his folly Prudence, folly. Prudence therefore, therefore demands that the testator plan wisely, and frame his testamentary provisions with great care.That is, he should, if possible, ibl use such h words d that th t his hi plan l shall h ll not t be misunderstood and shall be carried into effect without dispute p or litigation, g , for unlike instruments between living persons, it is only after the testator is dead and cannot explain his meaning that his will can take effect, effect or be open to dispute.

3(7) ( ) Will – The Definition Contd.
The Holograph Will -A will written entirely in the Testator’s Handwriting and not Witnessed. In USA some states recognize this Will. In India non witnessed will not recognised. The Mystic Will - A sealed and secret will requiring strict formalities. E Even f from Wit Witnesses th contents the t t of f the th Will are kept hidden. The Unnatural Will - Will which differs from what might been otherwise expected of a Testator like large gift to a stranger, or the exclusion of his children from his estate. estate Unnatural Wills are not illegal.

3(8) ( ) Will – The Unnatural Will
In the Estate of Lacey case, the Supreme Court of Oklahoma held :The will of the testator was an unnatural will. He left the bulk of his estate to one child, Agnes Mielke, to the exclusion of his seven other children. While not conclusive, and unnatural disposition of property by the testator may be considered in determining his testamentary capacity. The fact that the will is unjust or unnatural does not of itself establish testamentary incapacity, but it is a circumstance which may be considered in connection with other evidence, and which may have weight in determining the capacity of the testator; and an unnatural or unjust disposition coupled with other evidence indicating incapacity may justify a verdict against the will. It is natural for a person to make provisions in his will for those who were particularly close and helpful to him during his lifetime, and more especially to those within his own family. especially, family In some instances, instances where one member of the family has completely devoted his efforts and energies to the care and attention of a testator, it is only natural that this one be preferred in the will. But in the instant case the record does not show any particular reason, reason purpose or motivation for the testator to devise the bulk of his estate to his daughter, Agnes Mielke, and to disinherit his other children.

3(9) ( ) Will – The Unnatural Will Contd.
The writing of an unusual will is not per se invalid unless l circumstances i t shows h th t the that th testator’s t t t ’ disinheriting one of his sons or daughters is due to the undue influence exercised on him by his pet son or daughter. In the case of Smt. Sushila Devi v. Pandit Krishna Kumar Missir 1971 SCD 296 the Testator bequeather his property to only one of his two daughters. The attesting witness advised him to bequeath some to the other daughter also. also The Testator silenced him by saying – No, I won’t, give her property. I have already given some money. I do not intend to give, give her any more. more So on this evidence the Supreme Court held that there was nothing unnatural and the Will was valid.

3(10) ( ) Some Special p Will Bequests q
Real estate mogul leaves dog $ 12 m N New Y k :Leona York L H l l ’ dog Helmsley’s d will ill continue ti t live to li an opulent life, and then be buried alogside her in a mausoleum. But two of Helmsley’s grandchildren got nothing from the late luxury real estate billionaire billionaire’s s estate. estate Helmsley left her beloved white Maltese, name Trouble, a $ 12 million trust fund, according to her, which was made public in surrogate court. court She also left millions for her brother, brother Alvin Rosenthal, who was named to care for Trouble in her absence, as well as two of four grandchildren from her late son Jay y Panzier – so long g as they y visit their father’s g grave site once each calendar year. Otherwise , he wrote, neither would get a penny of the $ 5 y left nothing g to two of Jay y million she left for each. Helmsley Panzirer’s other children Craig and Meegan Panziere for “reasons that are known to them,” she wrote. - Financial Express Dated 30-8-2007

3(11) Some Special Will Bequests C td Contd.
1.A leading g Advocate in Rome in his Will wrote that any person who laughs maximum at his Death should be appointed the Chairman C of f his Assets and those who weep should be paid nothing. 2 Wilson from 2. f Texas engraved the contents of Will on his back. 3 A leading 3. l di f furniture i d l in dealer i London L d did not like moustache and beard and so in his Will he gave away all assets to those Craftsmen who were without moustache and beard.

3(12) Some Special Will Bequests C td Contd.
4. Anderson loved his Cats. He had in all 17 Cats. After his death, his Will was read out. The 17 Cats were each paid US$ 600000. His total assets US$ 135 lakhs. lakhs The will was read in the presence of all relatives. His son Alice died due to shock as he did not receive even a single penny. 5. Madam Kalara of France donated all her assets to someone who returns from space. 6. Fedrik Richard of Finland wrote all his assets in the will in the name of a ghost. After a long time “Gh t” did not “Ghost” t turn t up so the th Government G t got t hold of his entire estate.

3(13) Some Special Will Bequests C td Contd.
7. A leading g businessman of Scotland distributed his assets amongst his children on the basis of their weight. 8. Italy's Vetinary Doctor Baromareio had 135 sheep. He loved them so much that half of his assets were given i away for f the th benefit b fit of f Sheeps. Sh 9. Valdekar a Photographer from Denmark gave away 19 Lakhs Crones for the Welfare of Cows. Cows 10. James Moore of Australia died on 23rd July, 1988. As per his desire all his assets were given away for the Welfare of Kangaroo.

3(14) Some Special Will Bequests C td Contd.
11. One London based Craftsman killed a snail with his motor cycle. He felt very sorry. He gave away all his assets for the welfare f of f snails. 12. A heavy drunkered man in Yugoslavia in his will wrote that after f his demise everyday his coffin be washed with wine and on his death anniversary all the drunkers of the town be served wine as per their choice. choice

3(15) Some Special Will Bequests Contd. Contd
13. Jacquies q Chickad from Switzerland, an engineer by profession gave away his p entire assets to an Animal Hospital. 14 Indore based Ramniwas Choudhury made 14. a Will to give away all his assets for the benefit of Monkeys. Monkeys 15. Now, what is your action plan Well, as you like it.

3(16)

TAX PLANNING BENEFITS THROUGH WILLS

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 one’s 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(

IT FILE of a Dead Person can be continued. continued

1. Section 168 : Will & executor of a Will for the estate 2. Separate assessment executor t of f Will apart t one’s personal assessment 3. Rate of tax, etc. of f from

like the testator.

3(19) 3(

IT FILE of a Dead Person can be continued. continued

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

IT FILE of a Dead Person can be continued. ti d

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

IT FILE of a Dead Person can be continued. continued

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

IT FILE of a Dead Person can be continued. ti d

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 Executor’s 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

3(23) ( ) No addition for Gifts through g Wills

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

3(24) Clubbing Provisions of s.64

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.

Discretionary Trust Th Through h WILL. WILL
is possible through trust. 164 (1) 164.

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

4. CBDT Circular No. 577 dated 14.9.90 for no

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(26) New HUF Through WILL
1. Transfer to a new HUF through Will is possible. 2 M.P.P. 2. M P P Chettier v v. C C.I.T. I T 99 ITR 1 (SC) – Intention of maker/author of Will is important. 3. Several tax advantages of a new HUF filefile- separate exemption, sections 80L & 88 benefits.

3(26) New HUF Through WILL
1. Transfer to a new HUF through p Will is possible. 2. M.P.P. Chettier v. C.I.T. 99 ITR 1 (SC) ( ) – Intention of maker/author of Will is important. g of a new 3. Several tax advantages HUF file file- separate exemption, sections 80L & 88 benefits.

3(27)

WILLS - WHEN, WHY, WHERE AND HOW TO DO IT

When to do the WILL
(1) Get ready with your Will, generally if you are

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)

When to do the Willcontd. td

(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) ( )

Why y the WILL- contd.

(5) To enjoy the full financial freedom to

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(31) Yours first lesson in the preparation ti of f your WILL. WILL
(1) ( ) Will is on a p plain white p paper. p (2) Will can be Typed or Handwritten. (3) Will can be b written itt in i any language. l (4) It is not necessary that the person preparing the Will must himself write down the Will in his own handwriting. It can be written by any person and signed by the Executor.

3(32)

Your first lesson in the preparation of your Will - contd.

(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

3(33) Your first lesson in
preparation ti of f your WILL WILL.
(8) You can even notarize the Will by a “Notary Public”- a cheaper Registration. (9) Y You can change h your WILL as many times as you like. The new WILL supersedes the old WILL. Do write the details of previous WILL in the latest WILL. solution for

3(34) What should the WILL contain? t i ?
1. Preliminary y details about the p person preparing the Will, namely Name, Age, religion, g , caste, , Profession and address 2.The name and address of the Executor or Executors or Executrix of the Will. 3. Broad list of Movable and Immovable assets, as on the date of writing of the Will.

3(35) What should the Will contain? t i ?
4. Distribution p plan of Movable & Immovable Assets- item- wise or on percentage basis. 5. General clause about distribution of assets which are not specifically mentioned. 6 Payment of Income-tax, 6. Income-tax Wealth-tax, Wealth-tax Gift- tax and other liabilities. 7 Names and addresses & signatures 7. of two witnesses.

the

3(36) Practical display of Wisdom i Wills. in Will
1. Don’t Don t over appreciate some one. 2. Don’t add superlatives and adjectives in the Will Will. 3. Do write in the Will the “Asset” distribution plan in respect of assets acquired after execution of Will. 4 Wife’s 4. Wif ’ right i h of f Residence R id to safeguard f d with clear cut guidelines.

3(37) Conditional Will
1. It is p possible to prefix p conditions in the Will as per your desire. 2. The Husband can put conditions on Daughter-In-Laws behavior to achieve succession to Wealth as per Will. 3. Conditions for Gifts to staff, servants, workers. 4 Conditions can be put for Wealth inheritance or 4. otherwise particularly for matters relating to Remarriage g etc. 5. Illegal conditions should not be part of the Will.

3(38) Joint Wills
1. Yes, it is possible to Register a Joint Will by Husband & Wife. 2 One single Joint Will will be Registered 2. Registered. 3. Please mention clear cut details of Executors. Executors 4. Clear cut division of Assets. 5. Also do write Asset distribution plan if the spouse were to pre-decease.

3(39)

Probate & Will

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.

3(40) Let Will safeguard your Primary Pi House H

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)

3(42) Disinheritance P Possible ibl Through Th h Will
The property of a person must go to the legal g heirs – the g general theme. However, through Will, one can implement the theme of “Disinheritance” amongst all or a particular group of legal heirs.

3(43) One Million Dollar advice on Will

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.

3(44) A to Z procedure about Registration of f the WILL.
1. Get the Will typed yp or hand written on a p plain paper. 2. Please sign on each and every page of the Will. Also the Thumb impression to be affixed on the Will. 3 Two witnesses must also sign the WILL on the 3. last page. 4. Take out one Xerox copy of the Will. Will.- For Registration 2 copies of the Will are required. The Registrar would keep one copy for their record and return the original.

3(45) A to Z procedure about Registration of the WILL- contd.
5. Please carry y two copies p of y your Photograph g p to be affixed on the Will. Also carry a copy of your Voter Card for identification. 6 Present 6. P t the th WILL for f Registration R i t ti in i the th office ffi of f the Sub-Registrar- the place where we normally go for Registration of our immovable property. 7. After te receiving ece g you your WILL for o Registration eg st at o in the office of Sub-Registrar, the dealing clerk would give you a receipt on the basis of which you would get back the original Registered Will after about 15 days.

3(46) Special new innovative id for idea f your WILL :•••• It is time to

VIDEO Your
WILL. WILL

RECORDING Will••••

- To avoid challenges to the

3(47) Miscellaneous aspects t of f th the WILL. WILL
1. You can write in the WILL all y you want to write. Length of the WILL is not relevant. 2. You can write about your emotions and feelings g in the WILL with reference to family members, relatives and friends who will inherit your assets. 3. You can write in the WILL the reasons for distribution of assets to selected legal heirs.

3(48) Miscellaneous aspects of f the th WILL. WILL
4. You can also write in the WILL the reasons of not giving assets to some of the legal heirs. 5. You can also put various conditions in your Will with special reference to. (a) The cremation ceremony. (b) The charities to be give to various charitable and religious organisations. (c) The obligations to be discharged by various i heirs h i to t inherit i h it the th assets t like lik marriage etc.

3(49) Miscellaneous aspects of f the th WILL. WILL
6. Time p period can also be mentioned in the WILL when the assets have to be distributed. 7. The WILL should contain distribution plans of whole-world assets. 8. Separate WILL can be prepared for separate property if the person desires to divest real estate to different legal heirs and desires original WILL to be kept with each co-owner.

3(50)

Miscellaneous aspects of the WILL

9. An illiterate person can also execute
the WILL by merely affixing the Thumb Impression. In such cases these words should be written:written: “Read over and explained by me”: and then the Name and signature of the legal adviser who has explained the contents. 10. If the WILL is written in English but the person executing does not understand d t d English E li h then th also l follow f ll the above formalities.

3(51)

Miscellaneous aspects t of f th the WILL. WILL

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)

How to implement the WILL?

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.

3(53) SAMPLE DRAFT OF WILL
I, Shri/Smt. ….……………son/wife of Shri ………….. aged about about……years, years by religion Hindu, Hindu by occupation merchant/ housewife, residing at …………………………………declare this to be my last and final Will (revoking all previous Wills) which I make this, the……….day of ………..2012 (…….2012) without any persuasion or coercion and out of my own Will only. 1. I hereby revoke all former Wills and Codicils made by me including my earlier Will dated…………………… . 2. I appoint Shri ………………of………………………..to be the executor of my this Will. In the event Shri ……………………… were to predecease me, then Shri ………………, will be the executor of this will. will 3. The executor will be incharge of my entire estate after my demise. 4. The Executor will have all the powers under the law to implement the directions regarding the bequests as also for the administration of the Estate in accordance with the provisions of this WILL.

The following are my assets:assets:A Immovable Properties A. (a)………………………………………………… (b)…………………………………………………………… …………………………………………..…………………… ……………………………….. (c)………………………………………………….………… …………………………………………..

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 at……………………………to 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.

My household goods and personal effects shall

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 : [email protected]

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