Recently, it was reported that billionaire Mukesh Ambani carved out definite roles for each of his three children at the annual general meeting of his $220 billion conglomerate. In stark contrast to the largely peripheral roles that other women from her family have played in the core business until now, Isha Ambani is set to lead the retail business of Reliance Industries.

Although the particulars of this wealth transfer are largely speculative, this is considered as a significant move that will set the tone for other business families.

While the Constitution of India guarantees the right to equality irrespective of gender, the right to property through succession navigates through personal laws and does not often treat genders equally.

In a patriarchal society, daughters are often expected to remain submissive when it comes to asserting their right in the self-acquired property of their parents and/or ancestral property, and/or business succession plans, as compared to sons. This often leads to conflict amongst the siblings and heirs after the death of head of the family, in absence of a will or testamentary declarations. This in turn results in the filing of competing claims amongst heirs and inter-se acrimonious relations.

The nuclear family, which makes up the majority of India's modern families, does not distinguish between sons and daughters. In all aspects of their upbringing, including schooling and financial advantages, children are treated equally. After getting married, a daughter is still not expected to actively participate in the family business. Despite this widespread misconception, business families desire to safeguard their daughters' property rights. Therefore, it is advised that parents take steps to create a succession plan for their assets that can be used both during their lives and after their deaths in order to protect their daughters' legal and moral rights. An asset protection mechanism to protect the rights of daughters can be summarized as follows:

A. Setting up a private trust and/or limited liability corporations

B. Testamentary declaration/execution of valid and enforceable will

C. Protection of assets through nomination in absence of will

Setting up a private trust and/or limited liability corporations

It is best to create separate trusts for each daughter, which can either start working right away or when the parents' will is signed. Thus, identified assets are given to the trust to be utilized for a variety of things, such as paying for their daughters' or their children's schooling, medical care, marriage, or the start-up of a new enterprise.

The Indian Trusts Act, 1882, governs private trusts in India. A trust is not a distinct legal entity under the law. A trust typically involves three parties – the settlor, who is also known as the author of the trust, the trustee, and the beneficiary. When the settlor transfers any property to the trustee with the intention that it would be utilized for the beneficiary's benefit, a trust is established. By use of a trust deed, this legal arrangement is codified. As a result, the trust deed has paramount significance since it establishes the fundamental structure for the governance, administration, and management of family enterprises and wealth over many generations. It must thus be worded with utmost care and consideration.

The trust deed can be customised to meet specific purposes, such as: 

(i) Right of first refusal to other family members in respect of sale of shares, which are transferred in trust for the daughter to ensure that business holdings are not sold to other parties;

(ii) Providing safeguard to daughters after marriage so that they are not financially exploited by in-laws; and

(iii) Valuation of properties and just and proper allocation among the children to achieve equitable distribution.

Incorporating a limited liability corporation (LLC) is another approach to organize your estate. An LLC is a desirable legal structure since it allows you to keep control of your assets while you are alive and pass them on to your loved ones. Using a family LLC enables the creator to maintain managerial control while allowing heirs to participate as shareholders and gain access to the assets held by the LLC. An LLC's members can run it however they see fit, unlike a corporation, and are subject to fewer compliance, formalities, and rules than a corporation. The members of an LLC report the business's revenues and losses on their individual tax returns, similar to a partnership, instead of the LLC itself being taxed as a business entity. Additionally, the LLC may be "profit" or "non-profit".

Testamentary declaration/execution of valid and enforceable will

To handle succession difficulties, a will is typically used. A will may be revised as often as desired, but according to the law, the testator's most recent will takes precedence.

The limitation of a succession plan through a will is that it

(i) can only be implemented after the deceased passes away,

(ii) can be disputed in the probate court, and

(iii) does not automatically dispose of property or assets because it must first be probated.

Protection of assets through nomination in absence of will

The rules governing succession can be roughly split into two categories: those that apply when a deceased person has a legal and enforceable will and those that apply when a person has passed away without such a will. It is still challenging to navigate the claims procedure for the decedent's successors, particularly when the family and those left behind are still grieving and dealing with the death of a loved one.

In these situations, nomination facilities offer some level of support to the successors. According to the current legal and regulatory structure, nominees for financial assets are typically viewed as trustees or custodians of the assets, holding them for the benefit of the legal heirs of the deceased financial consumer.

Non-testamentary succession in absence of any form of estate planning

When a person dies without any estate planning or without executing a will, his/her assets are then distributed according to the personal laws applicable to the deceased.

Hindu Personal Law

The Hindu Succession Act of 1956 codifies the law of intestate succession for Hindus, which includes Buddhists, Jains, Sikhs, and members of the Arya Samaj.

The provisions of the Hindu Succession Act regarding the devolution of property, however, differ for men and women. According to Section 8 of the Hindu Succession Act, Class-I heirs, which include a man's mother, wife, and lineal descendants, have the first claim to his property. Class-II heirs, who include a man's father, siblings, lineal descendants of those siblings, and the siblings of his parents, have a claim if there are no Class-I heirs left alive.

The Hindu Succession Act stipulates that the majority of a man's property be preserved within his birth family. The distribution of assets that a woman inherits from her husband, his family, and her mother and father is governed by Section 15(2) of the Hindu Succession Act. If a widow passes away without having children, whatever assets she inherited from her husband or his family are returned to the husband's heirs under Section 15(2)(a) of the Hindu Succession Act. A woman's other assets are covered by the overall devolution plan provided under Section 15(1) of the Hindu Succession Act.

A woman's husband and children have the first claim to her property under Section 15(1). If a widow dies without children, the heirs of the husband have a superior claim to all of her property - including any self-acquired assets, bequests via wills, gifts, and property received from siblings and other loved ones - than her mother, father, and siblings.

In Kamal Anant Khopkar v. Union of India, the Supreme Court of India directed the Solicitor General to provide the government's position on the unfair provisions of the Hindu Succession Act. The petitioners have challenged Section 15 of the Act on the grounds that it discriminates against women and creates distinct inheritance plans for intestate men. The resolution of this issue will provide much-needed clarity to the Hindu Succession Act's devolution provisions for an intestate Hindu female's self-acquired property.

Muslim Law

Depending on what school a Muslim family belongs to, different personal laws apply to them. The Zaidya, Ismailya, and Ithna Ashari schools are among the Shia, whereas the Hanafi, Maliki, Shafei, and Hanbali schools are among the Sunnis. Consanguinity or blood relationship is the main tenet on which succession is founded.

Christians

As regards Christians, the widow/widower inherits a one-third share and the balance goes to the lineal descendants. In case there are no lineal descendants, then one-half goes to the widow and the balance to the other relatives prescribed as kindred. Amongst the lineal descendants, each child or if pre-deceased, his children collectively will get equal shares. Among the kindred, the first preference is given to the father and in case he is predeceased, then the mother, brother and sister (or their children together if anyone is predeceased) equally get shares.

Parsis

The Parsi intestate are administered by the rules mentioned under Part V, Chapter III of the Indian Succession Act, 1925, which state the manner in which the estate is distributed among the legal heirs of the deceased.

Conclusion

In light of the above, estate planning should be commenced as soon as an individual has any assessable or computable assets. As per the individual’s needs, goals and principles by means of wills, setting up private trusts, gifts during lifetime, forming LLCs and placing nomination in respect of financial assets need to be put in place. A succession plan can be tailored to take care of contingencies involved, thereby leaving no room for any ambiguity or gaps, in order to protect rights of heirs as per the wishes of the deceased.

Aditi Prabhu is an Associate Partner at Mumbai-based law firm, Desai Desai Carrimjee and Mulla.