An inheritance is usually a windfall in the form of assets—real estate property such as commercial or residential buildings and vacant plots of land, besides shares, jewellery and even money. Some of these assets can be disposed of easily unless there is an emotional attachment involved. Thus, while inheriting a property can significantly bump up the value of your assets, it can also come with a host of challenges and costs. For instance, a vacant plot of land may gain value over the years. But if the inherited property is an old building, the cost of renovation and repairs could prove to be a financial setback.
Similarly, if the property is located far from your own residence, its maintenance could prove to be a cumbersome task. This is one of the reasons why many people prefer to sell their inherited property. Yet, others hold on to the property for various reasons such as the sentimental value attached to it, lower realty prices that don’t meet their expectations, and the higher costs associated with buying new property.
The deciding factors
There are several factors to consider once you come into an inheritance, says Rajat Dutta, founder and initiator of Inheritance Needs Services.
“The beneficiary needs to assess whether the property is fit for use by his family either at present or in the future. If it is not, then selling the property would be better. If the individual is in need of funds to meet any future requirements, the property can be sold and the sale proceeds used for this purpose,” Dutta says.
The beneficiary should also take into account the maintenance costs associated with property. “Beneficiaries will have to bear any outstanding dues pertaining to taxes or levies or clear any debt if the property is mortgaged. Then, there can also be legal hassles of getting the property transferred in the beneficiaries’ names. However, emotional and sentimental value can be a strong reason for individuals to retain the property, regardless of the costs involved,” he adds.
Kavitha Menon, founder of Probitus Wealth, says she advises her clients to liquidate their properties in their own lifetime since their children can have a tough time getting the properties transferred after their deaths. “With financial assets like bank fixed deposits, mutual funds, bonds, etc. the process is simpler, but when it comes to property and land, it can become a complex exercise,” she says.
Menon relates the case of a client who had donated all his assets to a trust with his three nieces as beneficiaries. The entire process took more than three years after his death as the property was still registered in his name. The property had to be first transferred to the trust before it could be disposed of and the proceeds distributed among the nieces. But that was not the end of the problem. It was a very high-value transaction and so the beneficiaries faced certain tax issues.
“This was a 1968 property and indexation is only available from 1981-1982. So, this required another legal step of getting the property valued by a registered valuer to compute the capital gains,” Menon adds.
Sentiments and costs
After their grandmother died in 2016, Prakhar and Sunny Dungarwal found that they had been willed her property. They decided to fulfil her dream and construct two additional floors at the ancestral home, where both the brothers could live together with their families.
The brothers started work on renovating the property in January 2019 and completed it in October the same year. They spent ₹8 lakh and also took a home loan of ₹30-35 lakh. “Either one of us could have taken up this work independently, but since we inherited it jointly, we wanted to do the work together,” says Sunny Dungarwal, 32, who is currently working in Dubai. Both Prakhar (who works in Pune) and Sunny stay at the house when they visit Indore. Eventually, they want to stay there after their retirement. Sunny even plans to retire early, when he is in his late 30s.
Unlike the Dungarwal brothers, some people find it difficult to retain the property. Menon of Probitus Wealth says she has had to deal with a case of property inheritance in her own family.
Menon, who lives in Mumbai, had to take a decision on her father’s property in Kerala after he died in 2017. To begin with, getting the property—a huge bungalow—transferred in her mother’s name was a challenge as all the documents were in Malayalam. Finally, a translator helped them with the paperwork. The bungalow is located on a large plot of land in Irinjalakuda town near Thrissur. So, it requires regular maintenance and someone has to be physically present there to look after the property.
“There is a fertile patch of land in our backyard, where my father grew vegetables. That needed tilling. There is a well which needed to be cleaned and kept in working condition. The plants and trees around the land need to be watered regularly. So, it all boils down to labour costs. And, in a state like Kerala, it is difficult to find labour or good caretakers for all this. Since we had no relatives or friends there, it became even more difficult to get certain basic things done from Mumbai,” she says.
She recalls an incident where the boundary wall of the property was damaged during heavy rains in the state. “Fortunately, we found a local person there who helped us with the repairs and other work. But once all the renovation works were completed, we realized that it made no sense to keep the house empty. My mother usually stays with my brother in the US for six months every year. But, selling the house was out of question as long as my mother was around. The property means a lot to my mother. Besides, getting a good price for the house is very difficult at the moment. And we don’t want to sell it at throwaway prices. So, we have given it on rent,” Menon says.
Heena Joshi, 31, faced a different set of problems with her inherited property at Ulhasnagar. She had a choice. Either sell it and buy a new property or renovate it.
Joshi decided on the second option due to the huge costs that she would incur on buying a new property despite selling the old one. Even after taking into consideration the sale proceeds, a new property would cost around ₹50 lakh more and come with a loan burden. She was able to renovate the old property for ₹5-7 lakh.
Legal and tax issues
For any beneficiary, inheriting a property is the easiest part. Disposing it of is tough.
US-based Fazal Bandukwala, 64, a non-resident Indian, is still seeking clarity on the impact of taxation as per US laws if he sells his inherited property in Mumbai and shifts the proceeds to the US. So, for now he has decided to give the property on rent.
Bandukwala would prefer to sell his house but wants to be sure about the tax implications as per US laws before doing so.
Bandukwala says that he can move all his inherited money to the US only once, as per information available with him.
It is not just international laws that can be troublesome. In some cases, local government laws can also lead to challenges. Take the case of Subham Thakur, 29, who has inherited a land parcel in Jharkhand. He wants to sell it but he says that laws related to tribals make it difficult to buy and sell land in the state.
Updated: 11 Jun 2023, 10:30 PM IST