The Will and Way towards financial closure

When a loved one departs, the bereaved family needs to sort out financial matters. Here’s a check-list to ensure a smooth transfer of assets and liabilities

Dealing with the processes and documentation related to investments, assets and liabilities is not everyone’s cup of tea. While you can get by with jumbled paper-work, dealing with occasional reminders from banks and other institutions as they come, when you are around, it can get pretty difficult for your survivors if you are the disorganised sort.

Similarly, for those dealing with the loss of a loved one, financial matters usually take a back seat. But there are a few essential procedures that need to be followed to prevent compliance and other legal issues from impeding smooth transfer of assets.

A will is a must

The most important document needed to ensure a smooth passage of inheritance is a Will. A Will needs to clearly describe the assets and the share of each beneficiary. Besides tangible assets, intangibles such as copyright and trademark as well as other intellectual property rights can also be transferred through a Will.

While many believe that creating a Will is all that is needed, it is very important to register it. This is required to ensure that the terms in the Will are legal and enforceable by law. For example, one cannot Will an ancestral property to a different beneficiary.

An ancestral property is something that has been passed on for four generations, says Anilesh Tewari, Advocate, Allahabad High Court, also associated with Kaanoon.com. These are inherited under the applicable laws and this position cannot be changed by a Will as the right to a share in ancestral or coparcenary property accrues by birth itself.

After the death of the estate owner, the Will needs to be probated by the legal heirs. While authenticating the Will, the court will send notices to other potential claimants.

A probate is a copy of the Will that is certified under the seal of a court of a competent jurisdiction and is conclusive evidence of the validity of the Will.

If there is no Will, i.e., the person dies intestate, then the inheritance will be based on applicable laws. In this case, the legal heirs will have to obtain a Succession Certificate. The process typically takes six months to one year, if it is not contested by anyone. There may be long delays if it is opposed by someone and litigation commences.

Key documents

The legal heirs need a Death Certificate to start the process of transferring ownership. Also, it is mandatory to register death within 21 days, as per the Registration of Births & Deaths Act, 1969. In case of delays, there may be additional paperwork and charges, warns Anilesh.

The Death Certificate is generally issued by the Municipal Corporation in urban areas or Gram Panchayat in rural areas. All institutions such as banks, mutual funds, brokerages, insurance providers and Government agencies would ask for a copy of this.

The probate or Succession Certificate is another document that will be required to effect asset transfers. These documents must be submitted along with the claims form provided by the organisation. Copies of documents that establish account or asset ownership should also be provided, along with ID and other proof for the person in whose name it needs to be transferred.

Handling liabilities

While claiming assets and transferring or closing accounts may seem the main work, there is another side to getting closure — handling taxes, loans and other liabilities.

The obligation to pay off debt rests on the legal heirs. As per the Hindu Succession Act, 2005, the liability of the heirs to discharge debts is based on the proportion of the assets inherited by them. Before this Act came into force, the son had the pious obligation to discharge his father’s debts.

For asset-backed loans such as home loans, the lender’s first recourse is the co-borrower and then the guarantor, if any. Only if these do not exist will the lender approach the legal heir. If the beneficiary of the property in the Will is someone other than the legal heir, the lender shall engage with such a beneficiary, says Anilesh.

For unsecured loans such as personal loans and credit card dues, the recovery depends on each bank’s terms and conditions. In most cases lenders have the right to claim the outstanding loan from legal heirs or successors. Anilesh notes that as the loans are unsecured, the liability should not be attached to the personal assets of the legal heirs or executors of the Will.

Statutory liabilities, such as outstanding income tax, have the first charge on the estate. The income tax return of the deceased also needs to be filed by the executor or legal heir, and the Permanent Account Number of the deceased should be returned to the department.

Other taxes like those on the property are passed on to the legal heirs who inherit the property. Likewise, any business liabilities — salaries and tax dues of sole proprietorship – should also be paid by the legal heirs.

Getting closure

There may be other loose ends to tie up. For example, if the deceased person had entered into agreements, they would have to be transferred. Tenancy agreements typically continue even after the death of the owner and whoever inherits the property should honour the agreement.

However, one should consult a local lawyer in this regard as tenancy laws vary from State to State, says Anilesh. If the deceased was a tenant, the owner can enter into a new agreement with the legal heir of the tenant.

Business interests such as partnership firm must be closed to avoid liabilities to legal heirs. A partnership firm with two partners is deemed dissolved on the death of one of them and therefore it is good to engage with professionals such as Company Secretaries to follow due process and not leave any loose ends.

Points to remember

A few simple safeguards taken early on can save a lot of time and hassle. For one, it is important to have agreements for loans, even to friends and family, rather than just verbal promise. The legal heirs inherit both the assets and liabilities, so having documentation will help them in settling and claiming dues.

Likewise, there must be proper paperwork such as purchase price, terms and agreement, in any asset-related transactions.

When creating a Will, it is important to let the concerned people know about its content. The Will and other important documents must be organised and kept in an accessible place so that the inheritors can access it.

Also, when entering into agreements, you must make sure a nominee is always given. This will avoid a lot of hassle as the transfer to the nominee is quite straightforward.

When purchasing a home, it is also prudent to take an insurance cover on the life of the borrower for settling the loan and avoiding unnecessary financial burden on the legal heirs. Also, it is good to ensure that the beneficiary of the insurance policy and the property are the same persons and have the share in the same proportion to avoid unequal share of assets and liabilities.

No matter what the Will says, discharging liabilities takes precedence over transferring assets. For example, money can be given to charity only after loans and other dues are settled.

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