India - ‘In Terrorem Clause’ Is Used To Reduce Chances Of Challenge To A Will.
Legal News & Analysis - Asia Pacific - India - Regulatory & Compliance
10 July 2020
The Private Client team at Cyril Amarchand Mangaldas shares their comments and opinions shared in an article in the following Q&A which was published by the Mint Newspaper on 7th July, 2020 and the online edition of the same can be found here.
I live in the US. I have made a Trust deed before a notary in Texas, with my children as beneficiaries. The deed has a foregoing clause, which says claims filed by my heirs challenging the conveyance of my assets to my children will result in the forfeiting of the rights of the claimants if they fail to prove that the conveyance transactions were effected on the legal grounds of fraud, coercion etc. Is the foregoing clause valid in India?
We would need more facts to give an appropriate answer. As the Trust has been executed in the US, the deed would contain a jurisdiction clause saying that disputes would be handled by the US courts, and that the Trust is governed by US law only. We assume that the Trust only provides for your US or foreign assets.
We do not know the Indian residential status—either under tax or foreign exchange laws. Even the US assets being transferred to the Trust would be under the US laws. Hence, the premise of the question regarding the said clause being challenged under Indian law is not clear. We are unable to determine the basis on which the same will be challenged in India.
However, a comparison can be made to Indian laws. The clause above is commonly known as “in terrorem”. It is a Latin term, which means “in fear”. This is added to a Will or to a Trust to prevent someone named in the Will or Trust from challenging the same.
An in terrorem clause says that if any of the beneficiaries challenges or contests the Will or Trust, he or she would forfeit their interest. When a testator is fearing an attack from a disgruntled family member or beneficiary, usually because the Will or Trust may not provide what the beneficiary hoped for, the testator adds this to reduce the chance of a challenging the same and making his intent clear. However, just by having such a clause does not prevent a legatee from attacking an estate.
The Indian Succession Act, 1925, and the Hindu Succession Act, 1956, govern the rights of inheritance for Hindus and neither of them recognize the concept of an in terrorem clause. Also, in relation to trusts, the rights of a beneficiary are governed by the Indian Trusts Act, 1882, which also does not recognize this clause. Hence, these clauses are inserted as a precautionary measure to have a more persuasive value with the courts. Accordingly, unless specifically given up, the right is always available to a legal heir to challenge an (Indian) estate.
For further information, please contact:
Rishabh Shroff, Partner, Cyril Amarchand Mangaldas