Inherited wealth is often referred to as a windfall gain, until you realise that it comes with transfer formalities, court visits, perhaps a tax incidence, repairs and the decision to sell or not.
If you are the sole inheritor and already have all the details of asset ownership, the process of claiming may be simple. But this isn’t always the case. Data from RBI and The Ministry of Finance shows that at least ₹72,454 crore in bank deposits, ₹8,974 crore in insurance and ₹3,749 crore in mutual funds lie unclaimed.
What happens if you don’t know of the assets where you are a legal heir and don’t know where they are parked?
It’s not just about unclaimed assets. Rather, even those that are willed to you need to be managed in a way that doesn’t cost thousands of rupees to begin with and months in effort and time.
At the outset, it matters whether you are a nominee, if a well-defined will exists for transfer of assets or there is neither a will nor nomination. This status then defines the process of asset transfer. However, independent of the situation, as a legal heir who must claim assets, the responsibility is yours to complete the process.
If there is a will in place, the list of assets in the will is where you would begin. However, in its absence you have to dig through bank accounts, shares, mutual funds, deposits, provident fund and bonds or any other assets which can be identified in documents left behind by the deceased. Once found, you need to ascertain for each asset whether there is a nominee and proceed from there.
A legal heir can use the unclaimed assets portal (www.unclaimedassetsportal.in/public/) to find out if the deceased has any financial assets which are not known to them.
In case of physical assets like property you have to rely on looking through documents, ownership deeds and official land registries, whatever you can find.
Inheritors can get stuck in a quagmire of official documentation and processes if there is no will and no defined list of assets left behind by the deceased.
According to Jitendra Solanki, SEBI RIA and estate planning specialist, “The younger generation of inheritors is learning from experience. Recently, we worked with a sibling duo who have completed the process of helping their 84-year-old mother draft her will. Their father passed away a couple of years ago without one and they had to undergo tedious processes for asset transfers. Now they are being proactive so that the transition in future is smooth.”
For financial assets, nomination facility is available which is the first layer for asset transfer. In most cases, nominee is the custodian of funds who then must transfer them to the legal heir, except in case of a beneficial nominee in life insurance where the nominee is the owner of the funds received.
The financial institution will ask for a death certificate, do the required KYC for the documented nominee and then transfer assets into the nominee’s account.
Once received, funds should be transferred to the legal heir as per the will. In the absence of a will, transfer happens as per succession law.
“The biggest problem we come across is when a nominee doesn’t transfer assets to the legal heir and it becomes a family dispute. This can happen irrespective of the presence of the will,” says Solanki.
If you are a legal heir but another family member is the sole nominee, even if there is a will which states that you should receive a share of the financial asset, the nominee may refuse. The way forward often ends in the courts. It’s easier for the inheritor if the nomination and the legal heirs in the will are aligned.
In the absence of both a will and nomination, it becomes an intestate succession. Legal heirs must obtain a legal heir certificate proving their position or a succession certificate.
Asset distribution is then governed by the deceased’s personal succession law, according to the religion followed.
This process can be long drawn out and could take a lot of time and effort. Transfer of financial assets with a valid and aligned nomination plus will is the smoothest and can happen in a matter of weeks.
This is where transition of assets, particularly in the absence of a will, gets complicated. There is no nomination for property so it’s only the will or succession act that applies. Will can be an easier process but even then, there might be challenges. One may need to probate the will along with showing a legal heir certificate and succession certificate, and this can be a costly affair.
Family disputes invariably arise in case of property transfer. For one, a no-objection certificate must be signed by all legal heirs even if the property has been willed to a particular heir.
Sharing the troubles of a family they worked with, Solanki says, “The husband passed away leaving behind property that needed to be sold, but there was no will. He was succeeded by his wife and an adult, neuro-disabled son. She couldn’t sell the property by herself as the court recognised her son as a legal heir too, but given his condition he was not able to sign any documents. In order to sell the property, his wife had to first become her son’s legal guardian and only then could she go ahead.”
Sometimes, there is no alternative and an inheritor must be prepared to face a long process which requires effort and money. It can be emotionally draining at a time which is already a difficult personal transition.
While we are only discussing the financial fallout of death, let’s recognise that it’s also a time of grief. Grief driven financial decision making might be too quick and lacking clarity. Allow yourself to feel the emotions of grief without having to make any rushed financial decisions.
Once assets are transferred, wait a few months before transacting. The pause may bring clarity on the way ahead. Selling assets can have a tax impact which you will have to bear.
According to CA Mayank Mohanka, partner, SM Mohanka and Associates, “Anything received in inheritance is excluded from the definition of ‘transfer’ and not liable to being taxed. But if there is a gain on subsequent sale of these assets, tax liability gets triggered. If you inherit and sell the asset, the cost of acquisition is not taken as zero. The previous owner’s holding period is also taken into consideration to determine whether the gains qualify as long term or short term capital gains.”
If you are selling house property, then reinvesting proceeds in a manner that is tax efficient is also important (refer to this Your Money article www.hindustantimes.com/business/beyond-80c-smarter-ways-to-save-on-taxes-101789038743099.html).
It’s easier to hold on to financial assets. In case of property with multiple heirs or high maintenance costs, it may not make sense to wait.
Plus, along with assets, debts can also be inherited and you may need money to pay those off. Ultimately, the decision to sell or hold will also be dictated by the family dynamics and diversity of assets.
For any income accrued, pre-death, on the inherited assets, income tax return should be filed under the deceased’s name. “The legal heir of the deceased is required to file the last return of the deceased, on their behalf — if the return filing threshold gets triggered — even if they haven’t inherited the asset,” says Mohanka.
However, any income that comes from inherited assets after death should be reflected in your income tax return.
Inheriting assets or wealth is rarely the hard part, the thousands of crores lying unclaimed across financial assets tells you that perhaps claiming assets and managing them is where families could lose both time and money.
Don’t rush, but also don’t freeze. It’s important to find the assets, establish claim and then thoughtfully make any transactions or financial decisions with your inheritance.
Lisa Pallavi Barbora is a freelance writer and author of Money & Her