Most women don’t do any sort of succession planning, and even fewer understand its importance. This is due to lack of awareness, and because they usually look to their husbands or other family members to deal with their property. This needs to change, especially at a time when women are becoming wealth creators in their own right and increasingly running large businesses. Many women continue to run and inherit valuable parts of their family businesses today.
Indian succession laws are governed by the person’s religion – a Hindu by faith would be governed by the Hindu Succession Act, 1956. These also govern the law relating to intestate succession, and usually include a strict set of rules as to who will be entitled to a person’s entire estate upon his death, and in what proportion the property is to be divided. Only a proper will can override an intestate succession, and so it’s important to draw it up correctly.
For Hindu women, the rules of intestate succession are extremely regressive – their husband’s heirs are given precedence over their own parents and other family members. This can be avoided or changed by making a will which states how his property or assets should be dealt with upon his death.
For most of India’s history, Hindu women were given partial rights over their property, with limited or no transferable or managerial rights over it. Their access to ‘ancestral property’ or hereditary title to certain types of property did not exist until recently. In 1956, women finally obtained full rights to property in their possession, but such rights did not extend to ancestral property. However, his brothers and fathers enjoyed this right.
Nearly 50 years later, in 2005, India gave women rights over their ancestral property, finally allowing them to become full owners of their self-acquired property and have equal rights over their ancestral property. In August 2020, the Supreme Court ruled that Hindu daughters have equal rights in the family’s ancestral property. In January 2022, the Supreme Court gave daughters equal rights in their father’s property before certain dates.
While developments in ancestral laws continue to dominate the limelight, ‘real’ succession planning takes place outside these boundaries. The two main tools at their disposal are wills and trusts.
Wills: At a minimum, every woman is required to execute a simple will, to ensure that her property is bequeathed to her loved ones (most likely her children and other immediate family) according to her wishes. This is the easiest to understand option available.
Very few formalities are required in a Will. One can execute a Will by signing it and getting it attested by two witnesses. There is no need to compulsorily register the Will in India. A Will can be easily amended or revoked at any time.
Unless the Will is being executed in Chennai, Mumbai or Kolkata or pertains to immovable properties located in these cities, it will not be mandatory to obtain probate (a court based process).
Trusts: Large business families will require a more complex system of succession planning than simply executing a will. This is to help ensure that their assets are protected for future generations and that their assets are adequately ring-fencing against creditors’ claims as well as any unforeseen contingencies.
In reality, most personal assets including ownership in valuable family businesses are held either in the personal names of VCs/promoters or in private trusts or holding companies/Limited Liability Partnerships. In practice, most families use private family trusts to protect the interests of their married daughters. Older business families may have some ancestral property in Hindu undivided families, or HUFs, but the scale and materiality of such holdings are usually limited.
Contrary to popular belief, trusts are also easy to set up and extremely useful in creating an organized holding structure, as different trusts can be set up for different types of assets.
Women should realize the importance of estate planning and the discussion about it needs to start at an early stage. Relying on intestate laws or his relatives will not yield the best results.
Rishabh Shroff is Partner and Co-Head, Private Clients, Cyril Amarchand Mangaldas
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