The complex nature of estate and succession planning requires the careful assessment of myriad factors, such as:
- the nature of the estate (eg, its composition and location);
- the family type (eg, nuclear, joint or hybrid); and
- potential outlay costs (eg, tax and stamp duty).
However, when determining the costs associated with planning, an often-overlooked factor is the court fees which may be payable when a succession plan is set into motion. If these are not evaluated at the outset, court fees might come as a shock to heirs seeking to implement the succession plan of a deceased family member.
When a person initiates legal proceedings, they must pay a fee to the court as filing charges. These charges (known as 'court fees') are payable on all manner of court filings ranging from civil suits and rent petitions to probate proceedings. Court fees are borne towards administrative charges of the court and are imposed and calculated under:
- the Court Fees Act 1870 – a central law applicable to filings before the Supreme Court and courts in states which have not enacted separate court fee laws (eg, Chhattisgarh, Madhya Pradesh and Orissa). However, some of these states have enacted amendments to the Court Fees Act which are applicable to their courts; and
- state-specific laws enacted in certain states (eg, Maharashtra and Tamil Nadu).
Therefore, court fees vary depending on the state in which the estate and succession plan takes effect. Typically, such state is the one in which the deceased resided or owned immovable property.
How are court fees calculated?
Court fees are either:
- fixed (ie, not dependent on the value of the legal proceedings' subject matter); or
- ad valorem (ie, variable based on the value of the legal proceedings' subject matter).
Where court fees are imposed ad valorem, appropriate valuation of the property becomes critical. The filing party must ascertain the value of the property in question and calculate the requisite court fees in the first instance. However, the court may have the value of the property reassessed if it has reason to believe that the value has been wrongly estimated by the filing party.
How do court fees affect estate and succession planning?
Court fees become relevant when a person's estate and succession plan is to be enforced after their demise, through the filing of legal proceedings to obtain:
- probate (ie, a certificate which the courts grant to the executor of a will establishing its validity);
- letters of administration; or
- a succession certificate.
When a deceased leaves behind a will, a court application for probate will typically have to be made. Given that most estate and succession plans entail a will, this article analyses the implications of court fees on probate petitions.
Court fees on probate petitions are calculated ad valorem. Therefore, the fees payable are a certain percentage of the value of the estate inheritable under the will to be probated. In some states, there is a cap on court fees. In states where there is no cap, the court fees could constitute a significant portion of the estate's value.
When devising an estate and succession plan, testators should determine whether court fees for a probate petition will likely exceed the outlay costs of gifting the property to the potential heir during the testator's lifetime. Effectively, this is a comparison of:
- court fees for testamentary bequests; and
- costs on lifetime gifts (eg, stamp duty, registration charges and income tax (if any)).
By way of an example, Ms X is a resident of Mumbai. Her estate consists of a self-acquired flat in Mumbai (valued at Rs50 million). If Ms X were to gift the flat to her child during her lifetime, she would have to bear stamp duty of around Rs150,000 (plus certain registration charges). If she bequeathed it through her will, the court fees on the probate petition would be only Rs75,000. However, if the same flat was in Kolkata, the court fees would be Rs275,000 compared with stamp duty of only Rs25,000 (plus certain registration charges).
Probate of a will is mandatory in Mumbai, Chennai and Kolkata if the will:
- was executed in any of these cities; or
- relates to immovable property situated in any of these cities.
In other Indian cities, probate is not mandatory.
In cities where probate is compulsory
After the demise of a testator, the executors of the will must file a probate petition on which court fees must be paid.
In Mumbai and Chennai, such court fees are capped at Rs75,000 and Rs25,000, respectively. As these figures are fairly low, the stamp duty and registration charges on a lifetime gift of property would likely exceed the court fees on a probate proceeding if the property was gifted properly.
However, in Kolkata, court fees are not capped; instead, they are quite high at 5.5% of the value of the property comprised in the will. In comparison, the stamp duty on a gift of immovable property within Kolkata is 0.5% if gifted to a relative. Therefore, in Kolkata, it would likely be more cost effective to make a lifetime gift of immovable property to relatives rather than bequeath the property in a will.
In cities where probate is not compulsory
While probate is not mandatory in all jurisdictions, it may have to be sought in certain cases, such as on the request of regulators or financial institutions. In such an event, families with immovable property in cities with lower stamp duty rates may wish to consider lifetime gifts. For instance, the stamp duty payable on a lifetime gift of immovable property in Delhi is 2% to 3% of the consideration, whereas the uncapped court fees are payable at 4% of the estate's value.
However, this situation may be reversed in other jurisdictions, depending on the value of the assets. If stamp duty amounts to a substantial sum, families may wish to consider making testamentary gifts.
Although court fees should be evaluated to optimise the costs associated with succession planning, they are rarely considered when devising estate plans.
That said, court fees are only one of several factors that must be considered in order to formulate a holistic and cohesive estate and succession plan. The relative status of each factor will depend on the individual's preference. Some may prefer not to make lifetime gifts, despite being more cost effective than testamentary gifts, owing to a desire to maintain control of the property during their lifetime. Others may prefer to systematically gift properties during their lifetime rather than leave the process to after their demise.
Each of these matters must be considered when formulating an estate plan to avoid an undesirable outcome.
Hita Agarwal assisted in the preparation of this article.
