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FAQ on settlement

Many have doubts about going in for a Settlement on property. Here is a series of clarifications from R.L.Narayanan.

This is an FAQ on settlement and would be helpful to resolve various doubts, which are frequently raised in this regard.

1.What is a Settlement?

A Settlement is a non-testamentary disposition relating to movable or immovableproperties.

It should be in writing. Normally, the consideration is relationship between the parties. It is employed for the purpose of distribution of property.

A Settlement is like a gift and can be effected in favour of parents, spouse, children,grandchildren and between brothers and sisters as well.

2.What are the other circumstances in which a Settlement can be made?

A Settlement can be made for religious or charitable purpose also. Properties can be settled in favour of Trusts. These entities can be existing entities or created by the Deed by which Settlement is made.

3.What are the basic features relating to a Settlement?

It must be made voluntarily and without coercion or pressure of any kind. The particulars of properties to be settled should be specific and clear.

It must be made within the permitted degree of relationship failing which it will be treated as gift if made without consideration. It must be accepted by the person in whose favour it is made.

4. What is the difference between Settlement and Trust?

A Settlement is an immediate distribution of property. At times, the absolute enjoyment can be postponed.

The relationship between the parties is a must for settlement to operate.

A Trust, on the other hand, is the setting out of objectives by the Author of the Trust and a property can be vested in the hands of the Trustees for pursing the objectives.

It can be for public or private purpose and the manner of application of the property is set out in the Trust Deed and the Trustees are charged with an obligation to execute the objects of the Trust.

5.What is the difference between a Deed of Settlement and a Will?

The Settlement takes effect immediately. It is a transaction which comes into force on execution and if required, registration of the deed. The beneficiaries who are called “Settlees” acquire an immediate interest in the property.

A Will takes effect only after the lifetime of the Testator or the person who makes the Will. During the lifetime, it can be revoked, changed or altered.

There are restrictions and conditions attached to revocation of Settlement Deed.

6. What other precautions can the Settlor take in executing a Settlement Deed?

A Settlor can reserve a life interest for himself or herself in the property. Reserving a life interest means reserving an interest or estate, which is determined on the termination of life of the Settlor.

This means that after the lifetime of the Settlor, the property will pass on to the beneficiary without any further act on the part of the Settlor.

The Settlor can also reserve a life interest in favour of the Settlor’s spouse or child, if so required.

The ultimate benefit can be vested in favour of the spouse or a child or children or even grandchildren depending on the manner in which the Settlor is desirous of distributing his or her property.

7.What are the other advantages in effecting Settlement?

The present stamp duty structure contemplates a very reasonable stamp duty and registration charges for settlement of immovable properties.

The effect of leaving a Will can be achieved during the lifetime of the Settlor himself or herself and see that the property is properly distributed. The contests on a Settlement Deed are much less as compared to a Will.

The Settlement Deed can be used as a good tool for implementing estate planning. The Settlor can continue to receive benefits like rent, etc and directions in this regard can also be given clearly in the Settlement Deed.

8.In what circumstances can Settlement be employed?

Depending on the facts and circumstances on which one may be involved, it has to be first determined as to whether a Settlement Deed will be a proper deed to be executed.

It has to be kept in mind that it shall come into operation immediately. Therefore, in circumstances where there is insecurity for the Settlor or apprehensions that the Settlor may not be treated properly by his or her near relatives after the Settlement or if there is any threat to the safety or security of the Settlor, in the estimate of the Settlor, then it is not desirable to execute a Settlement Deed.

On the other hand, if the relationship is predictably stable and if the Settlor is comfortable in making the transfer operational with immediate effect, then a Settlement Deed can be contemplated. It is advisable to take a professional consultation before effecting the Settlement.

9. What other precautions can the Settlor take in executing a Settlement Deed?

A Settlor can reserve a life interest for himself or herself in the property. Reserving a life interest means reserving an interest or estate, which is determined on the termination of life of the Settlor.

This means that after the lifetime of the Settlor, the property will pass on to the beneficiary without any further act on the part of the Settlor.

The Settlor can also reserve a life interest in favour of the Settlor’s spouse or child, if so required.

The ultimate benefit can be vested in favour of the spouse or a child or children or even grandchildren depending on the manner in which the Settlor is desirous of distributing his or her property.

Partner, RANK Associates
Email: rank@vsnl.com

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