Life interest clause
Your property-related legal queries answered by S.C. RAGHURAM, Partner, RANK Associates, a law firm
I own a flat jointly with my daughter and I had transferred my share of property to her under a registered settlement deed. The deed contains a life interest clause i.e., the benefits from the flat (rent) will be enjoyed by me and my wife during our lifetime and my daughter will enjoy full benefits of ownership after our lifetime, and that the flat should not be sold during our life time.
When presented to the Chennai Corporation for a name change, the Asst. Revenue Officer refused to comply with the request saying that the settlement deed with a life interest clause cannot be entertained. Is this legally correct?
Retaining a life interest is valid provided that the property was transferred to your daughter at present subject to your life interest. If the recitals are to the effect that the settlement will take effect after your lifetime, then the document has to be construed as a Will.
The Madras High Court, while adjudicating whether the document was a settlement deed or a Will, has held that ‘the broad tests or characteristics as to what constitutes a Will and what constitutes a settlement have been noticed in a number of decisions. The main test to find out whether the document constitutes a Will or a gift is to see whether the disposition of the interest in the property is in praesenti in favour of the settlees or whether the disposition is to take effect on the death of the executant. If it is the latter, it would be a Will.
But if the executant divests his interest in the property and vests his interest in praesenti in the settlee, the document will be a settlement’.
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