PROPERTY SETTLEMENT AMONG FAMILY MEMBERS AND OTHERS

PROPERTY SETTLEMENT AMONG FAMILY MEMBERS AND OTHERS

Settlement of property among family members and others is a mode of distributing both movable and immovable properties and has been defined under Section 2 (24) of the Indian Stamp Act and Karnataka Stamp Act. A settlement deed is a non-testamentary disposition, in writing, of movable, or immovable property made - 

a)    in consideration of marriage,

b)    for the purpose of distributing properties of Settlor among his family or those for whom he desires to provide for, or for the purpose of providing for some person dependent on him, or

c)    for any religious or charitable purposes;

Settlement also includes an agreement in writing to make such a disposition or where a disposition is not made in writing, any instrument recording, whether by way of a declaration of a trust or otherwise, the terms of any such disposition. The Karnataka Stamp Act has similarly defined settlement.

The essential ingredients are:

(1)    It is a non-testamentary disposition, that is it is not a Will, as such it operates immediately on execution, where as a Will comes into operation only after the death of its author. However, a settlement may also contain a clause for reservation of life estate. 

(2)    The Act specifies it must be in writing; so an oral disposition is not a settlement

(3)    There may be an agreement to make such a disposition

(4)    If it is not in writing, any record evidencing such disposition is also a settlement

(5)    There must be a settlor i.e. the owner of a movable or an immovable property.

(6)    There must be people that is family members or other persons who are dependent on the settlor in whose favour the property is to be settled. It may be for religious or charitable purposes.

Trust V/s Settlement.

A settlement deed should not be mistaken for a trust deed. In case of trust, the author vests the property in favour of its trustees, who manage, and administer the property / properties as per the direction of the author for the benefit of third person/s called beneficiaries. The trustees will act only as per the directions of the author of a trust deed and the beneficiaries do not have any say in the management of the said properties.

However, in settlement, there is no intermediate person, like a trustee and the beneficiaries have complete control over the administration, management of the property settled in their favour and enjoy the property as absolute owners, subject to the conditions of the settlement deed.

Will V/s Settlement

Settlement deed is different from Will, since a Will is a testamentary document, which becomes operative after the death of its author, where as a settlement becomes operative immediately. Another distinguishable feature is that a Will is revocable and that any number of Wills may be executed its author in respect of a single property during his life time, though only the last Will executed becomes operative. Whereas, settlement is not revocable and after the proper execution of a settlement deed, the Settlor relinquishes all his rights, title and interest over the said property, subject to the terms conditions contained in the settlement deed.

Partition V/s Settlement

Usually partition of joint properties is mistaken for settlement. However, partition constitutes division of properties between the joint owners as well as the division of joint interest ownership in the property. Thus, the division amounts to severance of the joint interest in the ownership of the common properties and the common property is thus divided among them. Each partner becomes the absolute owner of his share and each partner’s share is subject to a pre-determined percentage, governed by either the inheritance laws or by the partnership deed as the case may be. In settlement, however, the property is owned by a third person and his settled in favour person’s who do not have any previous interest in the said property and the share of the beneficiary is as per the wishes of the settlor.

Gift and Settlement

There are marked differences between gift and settlement. Gift is not made for any consideration, where as settlement may be in consideration of marriage. Like-wise gift may be made to any person, where as a settlement is mostly made in the favour of dependents. Also gift requires acceptance whereas settlement does not. The gift is revocable or may be suspended as per section 126 of the Transfer of Property Act on happening of any specified event, which does not depend on the will of the donor unlike that of settlement, which is final & binding once it is executed by the settlor.

Advantages

Settlement is very simple procedure, where the properties are distributed to the dependents or for religions charitable purposes during the lifetime of the settlor. This avoids future misunderstanding between the beneficiaries / recipients. Settlement can be made only in respect of self-acquired properties.

Stamp duty-Registration

The deed of settlement attracts stamp duty and registration of the settlement deed is compulsory. The Article 58 of Indian Stamp Act and Article 48 of Karnataka Stamp Act refer to stamp duty payable on execution and registration of settlement deeds.

Since, settlement amounts to conveyance of property, the stamp duty payable is similar to that payable on a sale deed, i.e. based on the market value of the property. However, concessions are available in case of settlement made in favour of family members, i.e. Rupees One thousand as stamp duty and a cess of Rupees Fifty. Family members include the spouse, son, daughter-in-law and grand children of the Settlor.