A family settlement agreement offers a hassle-free solution
Source: Livemint.com

The Private Client team at Cyril Amarchand Mangaldas shares their comments and opinions in an article in the  following Q&A which was published by the Mint Newspaper on 13th October, 2021 and the online edition of the same can be found here.

We are two brothers and one sister. In the event of our parent’s demise, we brothers stand to inherit some immovable property and we plan to pay some amount to our sister in settlement. What is the right way to execute this?

⁠— Name with held on request

We assume that the immovable property in question is self-acquired and not coparcenary property/Hindu undivided family (HUF) property. We assume that the family members are in alignment with your proposal. If so, the family could consider a family settlement for the asset(s). The structure of the family settlement agreement (FSA) could envisage either a transfer of the property to the brothers during your parents’ lifetime (which would be optimal), or upon their demise (vide their respective Wills). The first option will attract stamp duty and registration charges, while the second option does not. The second option only comes into effect upon the parent(s)’s demise, while the first can be undertaken immediately. But the second option does crystalize the rights among all of you. It is worth exploring this with your attorney.

In either case, your sister would be provided a monetary settlement amount as consideration under the FSA and for renouncing her potential rights in the property. To ensure alignment with the FSA, your parents must also simultaneously execute their respective Wills to record their intention to bequeath the property in favour of you and your brother only, and the payment of the cash amount to your sister in lieu of the property. Registering the executed Wills with the registrar may be useful. Given that the process of amending a registered Will can often be procedurally tedious, it may dissuade your parents to alter their Wills on an impulse later. In the event their Wills record a contrary bequest in respect of the property, the executed FSA (and the consideration transferred thereunder) will provide you strong grounds to challenge the validity of the bequest.