Family Settlement

What is a Family Settlement Deed?

A family settlement deed is also known as a family compromise agreement. It is an arrangement or a legal document between the family members that records that all family members agree to common terms and conditions in the event of any disagreements.

Benefits of forming a family settlement deed?

A family settlement deed is a contract that is used to resolve all family disputes outside of the courtroom. It does not involve any significant third-party approvals or acceptance. The following are some of the advantages of forming a family settlement deed.

Inter-Rights

It settles inter-rights in a property matter among family members without causing conflicts.

Preserving Family Rights

Preserving family rights and settling peace by preventing lawsuits or saving honor is general and fair for the sake of the family.

Consideration for a promise

Since consideration for a promise is essential in a contract, it is legally binding on all family members, much like any other contract or arrangement, and must be followed in order to keep the peace in the home.

Provisions

As informed above, post demise of the owner of the property, his legal heirs inherit the property he left behind, either according to his preferences as stated in his Will or, if he dies without leaving a Will, according to the rules of the Succession Act applicable to such individuals.

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Fundamental Rules

The agreement must follow the fundamental rules of Contract Law. It is impossible to force a family arrangement.

Agreement

This agreement is an instrument of partition and therefore is required to be stamped under Schedule 1 of Article 45 r/w Section 2(15) of the Stamp Act. However, an oral family agreement dividing the property does not require stamping.

Transfer

The courts have ruled that any property transferred as part of a family arrangement or division is not subject to capital gains taxation. A family arrangement in which property is given away cannot be interpreted as a ‘transfer’ for capital gain purposes. As a result, no capital gain tax is due under Section 45 of the Income-tax Act of 1961.

Difference between a

family settlement and partition

Family Arrangement

Arguments

Based on disputed, probable, or even hypothetical arguments between family members.

Relationship

There is a degree of relationship involved.

Arrangements

A family arrangement can be in the nature of re-aligning, re-distributing or even consolidating certain claims and rights.

Oral

It can be even oral in which case it does not require registration and stamping.

Partition

Pre-Existing Rights

There are very clear pre-existing rights.

Co-Owners

It is made between people who are not related by blood but are co-owners of land.

Division or Property

Recording past transactions of division/ partition of property.

Registration

It requires compulsory registration as it creates, assigns, limits, or extinguishes rights or title in a property.

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