The complex nature of estate and succession planning requires careful assessment of myriad considerations, such as the nature of estate (composition and location), family type (nuclear, joint or hybrid), and potential cost outlay (taxation and stamp duty) in order to achieve the objectives in an efficient manner.
However, while determining the costs associated with planning, an oft-overlooked factor is the court fees that may be payable when the components of the succession plan are set into motion post demise. If not evaluated when devising the estate plan, court fees might come as a rude shock to heirs seeking to implement the succession plan of a deceased family member.
‘Court fees’ – what and why
When a person approaches a court to initiate a legal proceeding, they are required to pay a certain fee to the court as filing charges. These charges are called court fees and are payable on all manner of court filings ranging from civil suits, to rent petitions, to probate proceedings. Court fees are borne towards administrative charges of the court.
Court fees are imposed and computed as per the following laws:
- Court Fees Act, 1870 (Act), which is a central legislation, applicable to filings before the Supreme Court of India and courts in states which have not enacted separate court fees laws (such as Chhattisgarh, Madhya Pradesh, and Orissa). Some of these states have, however, enacted amendments to the Act which are applicable to courts in such jurisdictions; and
- State-specific laws enacted in certain states (such as Maharashtra and Tamil Nadu).
The quantum of court fees, therefore, could vary depending on the state in which the estate and succession plan takes effect. Typically, such state would be the one in which the deceased resided or owned immovable property.
Computation of court fees
Court fees are either fixed (not dependent on the quantum/value of subject matter of the legal proceeding) or ad valorem (variable, based on such value).
Where court fees are imposed ad valorem, appropriate valuation of the property becomes critical. The filing party is required to ascertain the value of the property in question and compute the requisite court fees, in the first instance. However, the court may have the value of the property reassessed, if it has reason to believe that it has been wrongly estimated by the party.
Impact on estate and succession planning
Court fees become relevant when a person’s estate and succession plan is to be enforced after their demise, through filing of legal proceedings for obtaining probate, letters of administration or a succession certificate.
When the deceased leaves behind a Will, a court application for probate will typically have to be made. A probate is a certificate granted by the court to the executor of a Will, which establishes the validity of the Will.
Given that most estate and succession plans entail a Will, we have analysed the implications of court fees on probate petitions in this article.
Probate and court fees
Court fees on probate petitions are computed ad valorem. Therefore, the fees payable are a certain percentage of the value of the estate inheritable under the Will to be probated. In some, but not all, states, there is a maximum limit or cap on court fees. In states where there is no cap, the court fees could constitute a significant portion of the value of the estate.
When devising an estate and succession plan, it becomes relevant to compare whether such court fees on a probate petition is likely to result in a greater cost outlay than if the property had been gifted to the potential heir during lifetime and therefore, did not form part of the Will. Effectively, this comparison is between court fees for testamentary bequests on the one hand and costs on lifetime gifts (being stamp duty, registration charges, and income tax (if any)) on the other hand.
This can be suitably explained through an example: Ms. X is a resident of Mumbai. Her estate consists of a self-acquired flat in Mumbai (valued at INR 5 crore). If Ms. X were to gift the flat to her child during her lifetime, she would have to bear stamp duty of around INR 1.5 lakh (plus certain registration charges) but if she bequeathed it through her Will, the court fees on the probate petition would be only INR 75,000. However, if the same flat was in Kolkata, the court fees would be INR 2.75 lakh as against stamp duty of only INR 25,000 (plus certain registration charges).
Probate of a Will is mandatory in Mumbai, Chennai and Kolkata if: (i) the Will is executed in any of these cities; or (ii) if the Will relates to immovable property situated in any of these cities. In other Indian cities, probate is not mandatory.
In cities where probate is compulsory:
After the demise of the testator (person who has made the Will), executors must file a probate petition on which court fees will have to be paid.
In Mumbai and Chennai, such court fees are capped at INR 75,000 and INR 25,000, respectively. As these are fairly low figures, it is likely that the cost outlay on account of stamp duty and registration charges on a lifetime gift of property would exceed the court fees on a probate proceeding had the property been gifted.
In Kolkata, however, court fees are not capped; instead, they are quite high at 5.5% the value of the property comprised in the Will. Compared to this, the stamp duty on gift of immovable property within Kolkata is 0.5% if made to a relative. Therefore, it would likely be more cost effective to make a lifetime gift of immovable property in Kolkata to relatives rather than bequeath the property under a Will.
In cities where probate is not compulsory:
While probate is not mandatory in all jurisdictions, it may have to be sought in certain cases, such as on the request of regulators or financial institutions. In such an event, families with immovable property in cities with lesser stamp duty rates, can consider lifetime gifts. For instance, the stamp duty payable on a lifetime gift of immovable property in Delhi is 2-3% of the consideration, whereas the uncapped court fees are payable at 4% of the value of the estate.
However, this situation may be reversed in other jurisdictions, depending on the value of the assets. In the event of the stamp duty amounting to a substantial sum, families can consider making testamentary gifts.
Although court fees ought to be evaluated for optimising the costs associated with succession planning, they are rarely considered in devising estate plans.
That said, court fees are also only one of the several factors that must be considered to formulate a holistic and cohesive estate and succession plan. The relative status of each factor would depend on the individual’s preference. Some may prefer not to make lifetime gifts, even though more cost effective than testamentary gifts, owing to a desire not to lose control of the property during their lifetime. Others may prefer to systematically gift properties during their lifetime rather than leave the process to after their demise.
Each of these matters must be thoughtfully considered in formulating the estate plan to avoid any outcome which might have been undesirable to the individual had he been aware of all the considerations while planning.