Law of Gifts and Settlements
If you want to present immovable property to someone whom you care for, you may do so by way of a transfer for inadequate consideration. Such transfers can be in the form of Gifts or Settlements. Some details of the law governing the same...
IF YOU have always wanted to provide for someone whom you care for or love, and if you wish to do so by giving them some immovable property without charging from them the market value thereof, you may do so by way of a transfer for inadequate consideration. Such transfers can be in the form of gifts or settlements.
Now, the law governing Gifts and Settlements can be divided into two distinct and entirely separate branches. One branch is the law of Gifts and Settlements insofar as it applies to Indian Muslims. The other branch is the law of Gifts and Settlements insofar as it applies to others. The former branch is governed by a separate set of rules, which flow from the sources of Muslim Law of which I have already written in these columns earlier.
For now, I propose to deal with the latter.
A "Gift" is the transfer of immovable property, made voluntarily and without consideration, by one person (who is called the Donor) in favour of another person (who is called the Donee). The Donee must accept the gift, or if the Donee is unable or incapable of accepting the Gift, someone must accept the Gift on behalf of the Donee. Such acceptance of the Gift must be made during the lifetime of the Donor, and while he is still of such mental capacity as to be capable of giving.
The concept of acceptance of the Gift is of paramount importance. If there is no valid acceptance, there is no Gift.
A Gift Deed must be in writing, witnessed by two competent persons, and registered before the competent authorities. The Donor must have title to the properties sought to be gifted.
A "Settlement" is any non-testamentary disposition, in writing, of immovable property made by one person (known as the "Settlor") in favour of another person (known as the "Settlee") in any one of the following circumstances:
in consideration of the marriage of the Settlee and to provide for him or her thereupon
for the purpose of distributing property of the Settlor amongst his family or those for whom he desires to provide, or for the purpose of providing for some person dependent on him or her, or
for any religious or charitable purpose.
A Settlement may be drawn up for some consideration, although it normally would never reflect the true market value of the property in question.
In the State of Tamil Nadu, there are certain types of Settlement Deeds that carry with them a concessional rate of stamp duty. A Settlement Deed executed by a person in favour of a father, mother, husband, wife, son, daughter and grand child, (including an adopted child) is a transaction attracting a lower rate of stamp duty, than any other kind of a Settlement.
The rationale behind this is that the Government has, as a policy decision, decided to provide that transactions between persons who are in very near relation to one another, should be able to freely settle property in favour of one another, without the constant fear of having to pay a heavy stamp duty or a registration charge. Thus, there is a different stamp duty tariff applicable for Settlement Deeds in favour of "family members", and the term "family members" has been defined as inclusive of the father, mother, husband, wife, son, daughter and the grand child (inclusive of adoptive children).
The relationship should be traced from the owner of the property prior to transaction.
The stamp duty on Settlement Deeds in favour of such "Family Members" is 4 per cent on the value set forth in the document plus the registration charge, while the stamp duty on Settlement Deeds in favour of other persons is 8 per cent of the market value of the property so settled plus registration charges.
Please note that you are entitled to impose conditions when you give a Gift or a Settlement, and you are entitled to reserve the right of revocation to yourself in the event that those conditions are not performed.
Therefore, if you wish to settle a property upon your grandson or grand daughter, subject to him or her discharging certain filial obligations properly, you may certainly impose such conditions in the document, and you may also reserve to yourself the right of revocation in case you find that the conditions are not being duly discharged. Once the gift or settlement is revoked in the exercise of this power, the title to the property reverts back to you. Please note that in the meanwhile, if the property has been conveyed to an innocent third purchaser, it may be difficult to get the property back thereafter.
In the absence of imposition of any such conditions, a Gift or a Settlement cannot be revoked.
A Gift or a Settlement can also be challenged on the ground that the Donor or the Settler was either compelled or coerced into giving such Gift or Settlement, or that he did not have the mental or the contractual capacity to give such Gift or Settlement.
In the absence of disputes within a family, and in view of the very favourable stamp duty tariffs applicable, a Settlement is surely the best way of conveying property within a family.
(The author holds a Masters Degree in Corporate Law from New York University and is a Partner in the Law Firm, Sridevan and Krishnaswami, Chennai)
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