Settlement deed with life interest
Chandrika Subramaniyan
(Querist) 16 January 2013
This query is : Resolved
Grateful for your guidance on following.
Settlement Deed in Tamilnadu/Chennai
Situation
We are 3 of us, and with three properties. Mother(84 yrs),Son & a daughter, each of us own one property. We all live in the property owned by Son. The the other two properties fetch rent. However Mother wishes to settle the property she owns in her daugter’s name after her time, as daughter is in the process of selling her property within 6 months or so. Son has no objection to it. The reason we are planning the above route is to avoid the high cost of registration at the time of legal heir settlement after my Mother
My questions are as follows.
1.Is this the best method and is there a provison to do so?
2.We want that the property continues to be in Mothers name transferrable to daughter only after her time to avoid taxes on rent income and other taxes concerned.Is this possible ?
3.Also to avoid high registration costs involved on legally inheriting the property.
4.What would be the applicable charges involved for registration of settlement deed ? Total Extent of land is 3175/2 = 1588 Sq Ft and guideline value of land is approx 9500 p sq Ft and the extent of built up area is about 1400 Sq Ft
5.How do I word the Deed or rather what are the must inclusions clauses for a smooth settlement as above.
Thank you
SC
R.K Nanda
(Expert) 16 January 2013
contact local lawyer.
Chandrika Subramaniyan
(Querist) 16 January 2013
Thank YOu Mr> Nanda....I am in touch with a lawyer....however grateful for second opinion....grateful if you would kind leave the query open....Thank you....SC
R.K Nanda
(Expert) 16 January 2013
query is open.
Anirudh
(Expert) 17 January 2013
Ask your mother to execute a WILL in your favour and get it registered. Ask your brother to be one of the Witnesses. (This will obviate any possible objection about the veracity of the genuineness of the WILL from your brother in future). There should be one more Witness to the WILL.
In this case, there is no cost involved at all. The WILL will come into effect after the demise of your mother. Therefore, it goes without saying that during her life time, she will continue to be the owner and enjoy the fruits of her property.
In view of the option of the WILL route available to you, you can forget the SETTLEMENT DEED route.
(It is a wonder though you have been contemplating selling of your property for the past more than one year, you have not done so far.)
ajay sethi
(Expert) 17 January 2013
agree with Anirudh will is the best option .since your mother is 84 years old
let one of the witness be a doctor
Chandrika Subramaniyan
(Querist) 17 January 2013
Thank you Mr. Anirudh and Mr.Ajay Sethi. Could you please explain the regisration costs on inheriting a property through a Will and that of Settlement Deed. I heard that registering the property later in my name , the registration costs would be much higher than that of settlement deed which could be much lower (15K to 20) or so in Tamilnadu.Hene I chose the settlement Deed route. I also understand that settlement deed is possible with retention of life interest in the property by Mother/Thank you Sirs,...Rgds....SC
Anirudh
(Expert) 17 January 2013
The following article that appeared in THE HINDU on 17.5.2004 would be useful to you.
Will and settlement of property
C. H. Gopinatha Rao
There is a large gap in the amount to be spent after death compared to settling when one is alive. It is high time the Law Commission took initiatives to set right this discrimination.
A WILL is the disposition of the assets made by a person during his lifetime intended to take effect after death. When a person dies without making a will, he is said to have died intestate, that is, the property is inherited by the heirs according to the law of succession. In this case the heirs need to obtain a legal heir certificate.
When a person dies after making a will, it can be enforced only after a probate is issued. A probate is identified as the copy of the will certified under the seal of the court of competent jurisdiction. No right as executor or legatee can be established unless a court of competent jurisdiction in India has granted probate of the will under which the right is claimed or has been granted. Probate can be granted only to the executor appointed by the will.
A petition for the probate is to be filed in the court concerned along with the will. The petitioner should remit court fees of value equal to specified percentage (3 per cent in Tamil Nadu) of the value of assets to be inherited. The assets may include immovable properties for which to arrive at the stamp duty the value should be worked out.
In Gorhandas Hargoindas vs Municipal Commissioner Ahmedabad (1964) 66 Nm LR 68, 78 AIR 1963 Sc 1742 1747, the Court stated that "... annual value or rateable value is arrived at by one of the three methods:
Annual rent fetched by land or building where it is actual let,
Where it is not let, rent based on hypothetical tenancy, particularly in the case of buildings, and
Where either of these two methods is not available, by valuation based on capital value... "
It has been held by the Bombay High Court, in a petition filed by Madhusudhan Dwarkda Vora vs Superintendent of Stamps that the wealth tax rules provide a method for assessing the value of unutilised surplus land where the difference between the unbuilt area and specified area is less than 20 per cent of the aggregate area. The same method must be applied for the grant of probate.
Relevant extract of Rule 3 of Wealth Tax Act
Where Rule 3 is applicable the value of the immovable property being a building or land appurtenant thereto or part thereof shall be amount arrived by multiplying the net maintainable rent by 12.5.
The net maintainable rent in relation to an immovable property shall be the gross maintainable rent as reduced by
The amount of taxes levied by any local authority in respect of the property, and
A sum equivalent to 15 per cent of the gross maintainable rent.
Gross maintainable rent
Where the property is let the amount received or receivable by the owner as annual rent or the annual value assessed by the local authority in whose area the property is situated for the purpose of levy of the property tax or any other tax on the basis of such assessment whichever is higher.
Where the property is not let the annual rent assessed by the local authority in whose area the property is situated for the purpose of levy of property tax or if there is no such assessment or the property is situated outside the area of any local authority, the amount the owner can reasonably expect to receive as annual rent had such property been let.
Where the owner has accepted any amount as deposit (not being advance payment towards rent for three months or less) by the amount calculated at the rate of 15 per cent per annum on the amount of deposit outstanding from month to month for number of months (excluding part of a month) during which such deposit was held by the owner in the previous year and if the owner is liable to pay interest on such deposit the increase made in this clause shall be limited to the sum by which the amount calculated as afore said exceeds the interest actually paid.
Rent received or receivable shall include all payments for the use of the property, by whatever name called, the value of all benefits or prerequisites whether convertible as money or not obtained from the tenant or occupier of the property and any sum paid by a tenant or occupier of the property in respect of any obligation which but for such payment would have been payable by the owner.
Example for the adjustment to value arrived at under Rule 3 for unbuilt area of plot of land:
Mr X was the owner of a property at Chennai with an extent of 7,200 sq ft of land and a building with 3,000 sq ft on the ground floor and 1,500 square feet in the first floor. X passed away in 2002 leaving a will and the Registrar valued the property in 2003 at Rs 40 lakh as per their guidelines.
Valuation of the property as per Rule 3 of the Wealth Tax Act
Extent of land: 7,200 sq ft
Extent of building in the ground floor: 3,000 sq ft
Extent of unbuilt area 7,200 sq ft - 3,000 sq ft = 4,200sq ft.
Percentage of unbuilt area = 4,200sq ft/7,200sq ft*100 = 58.33 per cent
Specified area for Chennai = 60 per cent.
Percentage of unbuilt area is less than the specified area. Hence Rule 3 is applicable without adjustment.
The property is owner occupied throughout.
Annual value filed by the Corporation of Chennai: Rs 16,380
Gross annual income: Rs 16,380.91 - 18,000
Deduct property tax and other taxes: (-) Rs 3,000
15 per cent of gross annual income: Rs 2,700
Net annual income = Rs 18,000 - Rs 5,700 = Rs 12,300
Value of the property: Rs 12,300*12.5 = Rs 1,53,750
The value of the property is only Rs 1,53,750 when worked out by application of Rule 3 of the Wealth Tax Act against Rs 40 lakh assessed by the Registrar.
According to the Tamil Nadu Court Fees and Suits Valuation Act the fee chargeable for the grant of probate or letters of administration shall comprise a fee at the rate of 3 per cent on value if it exceeds Rs 5,000.
When the application is made within one year of the death of a person, the market value of the estate on such a date is to be worked out for payment of fees.
A circular released on January 11, 2002 by the Inspector-General of Registration, Government of Tamil Nadu (Circular No. 45794) mentions, "The stamp duty payable for the instrument of settlement in favour of a member or members of a family is based on the value as set forth in the settlement and not the market value." Incidentally, gift tax has also been abolished under the Income-Tax Act.
This means that a man seeking settlement in his lifetime ends up spending far less on stamp duty to be paid than when he is dead. The court fees payable at the rates prescribed under the Court Fees Act may vary in the other States.
Besides this, immovable property in territories other than West Bengal, Mumbai and Chennai require no probate for wills made by Hindus.
A living person making a settlement in favour of his family members has to pay a stamp duty of 5 per cent (4 per cent stamp duty and 1 per cent registration) for the property valued at his discretion and not the market value. If the property changes hands after his death through probate the court fee paid is 3 per cent of its market value of the property.
For example, if the market value of the property is Rs 50 lakh, he can settle at 5 per cent of Rs 1 lakh or even less, which will cost only Rs 5,000. In the latter case the amount to be spent is Rs 1.5 lakh. Thus, there is a large gap in the amount to be spent after death compared to settling when one is alive. It is high time the Law Commission took initiatives to set right this discrimination by recommending to the government, an amendment to the Act.
(The author is former National President, Institution of Valuers.)
Going by the above, settlement deed would be the best choice in your case.
Chandrika Subramaniyan
(Querist) 17 January 2013
Thank you so very much Mr.Anirudh.Indeed a very useful article and is most relevant to answer my questions and doubts.Thanks for being so helpful....Thank You....Rgds....SC
Raj Kumar Makkad
(Expert) 19 January 2013
I also do endorse the advice of Anirudh.
