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Though a family agreement or settlement has not been defined statutorily under any India law. Halsbury’s law of England defines it as “an agreement among members of the same family. Intended to generally and reasonably for the benefit of family either by compromising doubtful or disputed rights. Moreover, by preserving the family property or the peace and security of the family by avoiding litigations and disputes related to family property. What it effectively means that the members of a family arrived at a mutually amicable understanding either in written or verbal regarding movable or immovable property to avoid any existing or future disputes.
When it comes to distribution of property, a family agreement need not be a single legal document but can be a series of documents describe the property rights of each other. As for taxation regarding the inheritance, since an agreement is not considered a gift or transfer under the income tax laws such a family agreement does not entail any capital gain tax.
A family settlement agreement is valid, legally binding and enforceable contract which is applicable to all the signatories. An oral agreement recorded as a memorandum between the family member is also admissible in court. If it is the written agreement, it should be signed by all the family members involved and should preferably be attested by two witnesses.
As per section 17 of the “Indian Registration Act” if it is a written agreement it should be registered to be admissible in court in case of a written agreement which is intended to serve as proof for a particular arrangement or where legal rights of the members changes, or the transfer or distribution of immovable property is involved the document needs to be mandatorily registered.
An agreement, once it has been executed cannot be revoked without a court decree but it can be challenged in court. It can be challenged on the grounds of fraud, coercion, misrepresentation of facts and improper execution among other reasons which can prove to be the grounds to challenge a family settlement agreement in the court.
Neither of the instrument is legally superior or better than one another, because the purpose and execution of both are completely different while a will decides how a person wants his assets to be distributed after his death on the other hand the purpose of a settlement agreement is to avoid disputes over inheritance through an amicable consensus among the members. So, an agreement often helps to deal with contentious issues arising from a will. While there are more strict requirements for drawing up a will compared with an agreement, the letter enjoys high sanctity and credence in court.