Leave A Legacy, Not A Legal Battle: 5 Estate Planning Mistakes To Avoid

For many parents, one of the primary objectives of building wealth, beyond what they need in their own lifetimes, is leaving a legacy behind. But what if you end up leaving behind a legal battle instead? If you are not careful enough, that may well be the case.

The trouble often begins with assumptions. Parents assume their children understand their wishes and wouldn’t mind sharing with each other. One child may assume that the family home will eventually be his because he has lived with and cared for his parents. Another may believe that the money she put into a family business entitles her to a larger share. A sibling named as a nominee in bank accounts may think that money belongs to him, and so on.

When a parent dies, the family discovers that what they assumed is not necessarily what the law recognises. “Very few” inheritance disputes begin with ill will, says Adnan Siddiqui, partner at King Stubb & Kasiva, Advocates and Attorneys. “Many start with a missing document or a conversation that was repeatedly postponed.”

If you do not want your family to bicker after your passing, it’s best to plan ahead. Here’s how to go about it.

Make A Will

You have a right to bequeath what you have built to one or multiple members of the family, partner, friends and so on. A Will is a straightforward way to do so. This way you get to exercise what you wish and also remain in control of your assets during your lifetime.

Without a Will, assets will pass according to the succession law applicable to the deceased and the outcome may differ from what you had planned.

For Hindus, for instance, when a person dies intestate, the widow, sons, daughters and mother generally fall within the first category of heirs and share the estate in accordance with the applicable rules. Other communities follow different succession frameworks. Muslim personal law, for instance, places restrictions on testamentary freedom: generally, a person can bequeath up to one-third of the estate without the consent of the heirs, subject to the applicable rules.

A Will, however, is only as effective as its drafting and execution. Property must be identified clearly, beneficiaries named correctly and the instructions made unambiguous. Vague references such as “my house in Bengaluru” or leaving out an executor can invite questions when the Will is acted upon.

Further, under Section 63 of the Indian Succession Act, a person making the Will (testator) must sign the Will, must be an adult of sound mind, and at least two witnesses must attest it in the prescribed manner.

Registration is not compulsory for a Will, but it can provide a useful record. Independent witnesses and, where appropriate, medical evidence of mental capacity can help establish that the document reflects the person’s genuine wishes.

Siddiqui advises families to be particularly careful when the parent is elderly or unwell. A principal beneficiary who is closely involved in preparing the Will can be seen with suspicion later. An independent executor, such as a lawyer, chartered accountant or neutral relative may help reduce the scope for allegations of undue influence.

It is equally important to ensure that someone trustworthy knows where the original document is kept.

Consider Other Options

A Will operates after death. Until then, the parent generally retains ownership and can revise the document. Says Siddiqui: “A Will works well for self-acquired property. It can be contested, but only on limited grounds such as lack of capacity, coercion or suspicious circumstances.”

The right choice depends on the family’s circumstances. Some may need a combination of a Will, selected lifetime gifts, and Trusts.

Trust: Families with substantial assets, minor children, beneficiaries with special needs or complicated family arrangements may require a more structured solution than a Will.

A private family trust can allow assets to be managed for beneficiaries according to specified terms. It may be used to stagger distributions, provide for dependants or establish arrangements for several generations.

Rajani Tandale, partner at 1 Finance, says a trust can be useful where families want greater control over how and when beneficiaries receive wealth. An independent trustee and clearly defined distribution rules can help reduce friction among beneficiaries.

A trust, however, is not a free or automatic solution to inheritance disputes. It involves drafting costs, tax and compliance requirements, and potentially stamp duty when property is transferred into it. Depending on its structure, a trust may also face taxation at the maximum marginal rate. An irrevocable trust can mean giving up ownership and control over the assets settled into it.

For families with relatively simple needs, these costs and complications may outweigh the benefits. So, the decision should consider the estate, beneficiaries’ needs, and the degree of control the parents wish to retain.

Gift Deed: Parents may gift assets to their children during their lifetime for various reasons. It could be helping them buy a home, passing on property, or simplify the eventual distribution of their estate. A gift deed transfers ownership during the donor’s lifetime once the legal requirements are met.

For an immovable property, a gift generally requires a registered gift deed, the donor’s signature, attestation by at least two witnesses and acceptance by the recipient.

A gift deed gives children greater certainty and may allow them to use the asset when they need it. The risk is that parents can surrender control before they are ready.

Protect Yourself

Transferring wealth should not mean sacrificing financial independence during one’s remaining years. A house that provides shelter, investments that generate retirement income and savings reserved for medical needs should not be handed over casually in the hope that children will eventually take care of everything.

A parent who gifts their only house may later discover that they have limited practical leverage if relations with the child deteriorate. The expectation that the child will provide care or allow the parent to continue living in the property may not be enough unless the arrangement is properly structured.

Shruti Lohia, partner at AQUILAW, a legal firm, says that independent legal advice and clear documentation are particularly important when a parent depends on the recipient for financial or personal assistance.

Indian law does offer protection to senior citizens in certain condition. Under the Maintenance and Welfare of Parents and Senior Citizens Act, 2007, a transfer subject to the recipient providing basic amenities and physical needs may be declared void if the recipient fails to fulfil those obligations. Therefore, the conditions need to be clearly documented.

Cut The Confusion

Nominee Is Not The Sole Heir: Few aspects of wealth transfer create as much confusion as nominations. Parents commonly name a child as nominee in a bank account, mutual fund (MF) investment or shareholding because that child lives nearby or is best placed to handle the paperwork. The arrangement may make administration easier after death, but it does not necessarily settle the question of beneficial ownership.

The Supreme Court’s decision in Sarbati Devi v. Usha Devi established an important principle: a nominee is generally entitled to collect the asset, while the ultimate ownership is determined by the applicable succession law or the deceased’s Will.

As a result, a child named as a nominee in a parent’s bank account may still have to inform other legal heirs. The same broad distinction applies to several financial assets, including bank deposits, shares and MFs.

Nominees to insurance policies, though, require separate consideration. Following amendments to the Insurance Act in 2015, certain close relatives named as beneficial nominees may have stronger rights over policy proceeds than ordinary nominees. The precise position depends on the policy, the law applicable and the circumstances.

The practical lesson is simple. Says Lohia: “A nomination can help avoid administrative delays, but it does not eliminate inheritance disputes. If the intention is to ensure that assets pass to specific individuals, a clear and well-drafted Will remains the most effective tool.”

Joint Ownership Complications: Adding a child’s name to a property or financial account may appear to be a convenient way to avoid paperwork later. But, in practice, it can create fresh complications.

Says Lohia: “Once a child is added as a joint owner of a house, the parent may need the child’s involvement to sell, mortgage or otherwise deal with the property, depending on the ownership arrangement. The asset may also become exposed to issues arising from the child’s creditors or matrimonial disputes.”

If the child later becomes a non-resident Indian, additional foreign exchange, tax and compliance considerations may arise. Joint ownership can also create a false sense of certainty about what happens after death.

A surviving joint holder may be able to access an account or deal with an asset, but that does not automatically settle the beneficial ownership of the deceased’s share.

The distinction is particularly important where property has been acquired jointly with a spouse or funded by several family members.

Lohia says the question is not whose name appears on the title deed, but whether other family members have an existing ownership interest.

Under Hindu law, daughters have equal coparcenary rights in ancestral property, in accordance with the principles laid down by the Supreme Court in Vineeta Sharma v. Rakesh Sharma (2020). A parent cannot simply treat the entire ancestral property as their personal asset and distribute it without accounting for the rights of other coparceners.

Similarly, where several relatives have contributed money towards a property, the source and purpose of those contributions should be recorded. Unclear arrangements can lead to disputes over beneficial ownership and raise questions under the benami law or tax provisions.

Conversations Are Key

One of the most sensitive questions in estate planning is whether parents should divide their wealth equally among their children.

Life does not always unfold equally. One child may have taken a career break to care for ageing parents. Another may have received financial help to establish a business. A third may have greater financial or medical needs. Parents may want their estate plan to reflect such differences.

But the difficulty is often not the unequal division itself, but the lack of explanation. A child who discovers after a parent’s death that a sibling has received a substantially larger share may question whether the decision was voluntary, especially if the Will was changed shortly before death.

Where possible, parents should discuss their intentions with their children while they are alive and capable of explaining their reasoning. This does not mean every child must agree with the outcome but it’ll give them an opportunity to understand the decision before grief, uncertainty and competing expectations complicate matters.

Siddiqui recommends documenting the reasons behind an unequal distribution to avoid disagreements in your absence. For example, financial assistance, caregiving responsibilities and contributions to a family business can be recorded so that the decision is easier to understand.

“There are practical ways to balance interests. One child could receive the family home while another receives financial assets of comparable value,” says Siddiqui.

In a family business, separating ownership from day-to-day management can help prevent disagreements over who runs the company and who receives its financial benefits.

Wealth transfer is often treated as a subject to be discussed much later in life. Yet, the longer families wait, the greater the chance that an illness, sudden death or strained relationship will leave important decisions unresolved.

No estate plan can guarantee that siblings will never disagree. But it can reduce the scope for confusion, make genuine intentions easier to establish and prevent legal battles.

The Tax Angle

India does not levy a general inheritance tax. Gifts received from specified relatives as well as assets received under a Will or by inheritance are generally exempt from income tax in the recipient’s hands, subject to the applicable provisions.

However, a gift of immoveable property may attract stamp duty and registration charges. The rates and concessions for transfers among family members vary by state, so the location of the property matters.

Also, tax may accrue when the inherited or gifted asset is eventually sold. Neeraj Agarwala, senior partner at Nangia & Co. LLP, explains that the recipient generally inherits the previous owner’s cost of acquisition and period of holding for capital gains purposes.

sanjeev.sinha@outlookindia.com