Ask AasaanWill: Settlement Deed vs. Will — What Should You Do?

When speaking about estate planning and passing off the assets, a good understanding of the distinction between a settlement deed and a Will can save your family numerous headaches in the future. Think of a Will as your Personal Roadmap. It's your personal guide to how you would like your assets to pass to whom you wish upon your passing. A Will is a flexible document, and you can change your Will as many times as you want during your lifetime, and it will only become effective upon your death.

On the other hand, a settlement deed is usually an irrevocable legal instrument that transfers ownership of property instantly to the transferee upon its execution while the transferor is alive. Commonly, settlement deeds are utilized between family members in possession of ancestral property as a result of an HUF arrangement, or between relatives with a desire to resolve the transfer of their respective rights to the property amicably, so that no dispute arises during the lifetime of the transferor. Under Indian law, Wills are governed by the Indian Succession Act, 1925, which prescribes detailed provisions and rules regarding testamentary succession. Settlement deeds, however, fall within the ambit of the Transfer of Property Act, 1882, and related property laws regulating immediate transfers of ownership.

Consider a Will as your Last Word. A Will is your final word; it is a means for you to ensure everything is taken care of the way you want it to be after you have passed away. But a Settlement Deed? That's like handing over the keys to your property today and ensuring that everyone knows who owns and controls what, and locking it in a legally binding manner, while you are still alive.

Example Scenario:

Take Mr. Reddy, for example. Mr. Reddy is the owner of a long-standing ancestral property that has been passed down through generations under the umbrella of HUF. Mr. Reddy wants to divide the ancestral property equitably between his family members to prevent any potential legal action or dispute in the future. Therefore, Mr. Reddy executes a Settlement Deed, through which he transfers shares to his coparceners. Upon this transfer, coparceners receive immediate full ownership and control of their shares. At the same time, Mrs. Reddy decides to draft a Will for her personal movable assets, i.e., bank account, jewelry, etc., and thus assure her children that these will go to them but only after her demise. Therefore, a combination of a Settlement Deed (to immediately transfer property) and a Will (for future inheritance) is among the most common ways in which families can maintain both family harmony and also be clear on their wishes.

The Hindu Succession Act of 1956 is a law that addresses issues related to HUF property. It also outlines the ownership-related rights and succession rules among coparceners.

Most families do not consider this: Wills have to go through probate, which is a court procedure that verifies the validity of the Will and may cause a delay of months or even years in transferring assets. Since Settlement Deeds are registered and transfer of ownership occurs immediately upon registration, this issue does not arise; however, once a Settlement Deed is executed and recorded in writing, it becomes difficult to revoke.

Additionally, don't forget Stamp Duty. Stamp Duty—Stamp duty is payable at the time of registration of settlement deeds, and the amount differs from state to state, along with separate registration charges. This is because state governments regulate stamp duty on immovable property transactions, including settlement deeds. Contrasting with settlement deeds, A Will does not incur any stamp duty since it does not transfer ownership during the lifetime of the testator. Registration of Wills is optional under the Indian Registration Act, 1908; however, when the Wills are registered, there are nominal registration charges that are levied to verify the document. The process of registration makes the Will legally enforceable and authentic without any stamp-duty related liabilities.

You may wonder, why use both estate planning tools at once? Estate planning is not about making one choice or another — it is about combining them to meet the needs of your family. Your movable assets (such as investment accounts and/or bank account balances) are best used in a Will so that you have control over them until the time comes for you to give them up to someone else. However, when dealing with an immovable asset (i.e., real property), particularly an asset held in a Hindu Undivided Family (HUF), it is generally better to use a Settlement Deed to immediately define who has what rights in the property and therefore minimize potential future disputes among members of your family.

Pro Tip:

Here’s a little food for thought— do you want the flexibility to make any changes to your asset distribution as many times as you want during your lifetime? If yes, then a Will is the way to go. However, do you want to ensure that your immovable property is settled today and that every party knows their place in terms of ownership? Then, a Settlement Deed is the way to go. Sometimes the most effective way to achieve your goals with your Estate Planning is to develop a multi-faceted approach by using a combination of both Will and Settlement Deeds to protect all aspects of your Estate and make the process of developing an Estate Plan simple and seamless.

Feeling overwhelmed? Don’t stress! Creating your legally valid Will has never been easier thanks to AasaanWill. With AasaanWill, you can create your customized Will as well as be able to create a family settlement deed so that everything goes smoothly and without any complications. If you are planning to start drafting your Will or you want to create a Settlement Deed, the services of AasaanWill can allow you to do so both easily and reliably. 

Book a consultation or start drafting your Will and/or Settlement Deed today at AasaanWill and give your family the comfort of knowing exactly what will happen after you’re gone.

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