Benami transactions are defined as financial transactions where true ownership of funds is concealed. It is done to conceal illegal sources of income or avoid taxes. To own your money in the end is however important to all. Joint ownership of assets is another contentious issue.
I come across queries on social media, especially by women, where they want to make investments without using their PAN or Aadhar or other documents. In my banking career, many clients have given requests for no statements or transaction alerts to be sent. The intention is to protect their money from family members they don’t trust and save something for a rainy day.
(Please note that this article is not just about women and money ownership. It applies to any one who plans to hold assets in joint ownership)
Some of the suggestions poured are about investing in the name of parents.
Another set of queries is about cash contributions made towards purchase of residential or commercial property owned by family members, where the contributor’s name does not figure.
RISK INVOLVED IN SUCH INVESTMENTS
Let’s understand the legal ramifications of the acts, other than the possibility of relationships getting soured.
Any asset owned by your parents, brother, sister or children is inheritable by their legal heirs, as per the applicable succession act.
For example, if a woman invests money in her father’s name and he dies intestate (without a will). The asset can be claimed by his surviving mother, wife and children in equal proportion. She will be a legal heir to one-third of his assets including her siblings. Nomination in her name will not help. Legal heirs have a greater right to assets than the nominee, in absence of a clear will.
Enrol for a course in Estate Planning here.
Say the money is invested in someone else’s name (not a parent) and the relationship sours at a later stage. It will be a tough task to prove that it was your money, unless the transfer was through a bank account. The purpose of funds transfer should also be clarified.
MONEY IN MARRIAGE – JOINT OWNERSHIP
Married couples have joint finances. It is quite common for one person to manage the household expenses, and the other to pay loan instalments or make investments. The investments are usually towards a common goal.
But in case of marital discord or a divorce, money becomes the biggest source of conflict.
Who spends and who invests?
Arianna uses her salary to pay bills and manage household expenses, since she is the active member buying things and making payments. Her husband manages the investments, but she fails to notice that the investments are in his single name.
They have a bad fight over some issue, and her husband asks her to leave with whatever money she has in her bank account. It is at this point, that Arianna wakes up to reality. She has been spending her money for common goals, and is left with very little savings in her individual name.
Investments should be kept separate for both partners, with the spouse as the nominee. Pool in money in a joint account for household expenses. The ownership of funds remains clear here.
Impact of money in close relationships
Meera lives in a joint family and her husband is part of the family business. Her father-in-law has framed rules about distribution of money between the sons, and how the grandchildren will receive money for their education or wedding. Meera wants to divorce her husband and shares her emotional trauma with their teenage children. The response she receives –
“We believe that he is doing wrong, and are willing to stay with you. But how much money can you get out of him? What will happen to our inheritance rights in the joint family? Will Grandpa spend the same amount that he plans to spend on us, if we stay here?”
This just highlights the role of money in closest family relationships. The children are likely to stand with the parent who can give them more.
WHAT SHOULD YOU DO IN SUCH CASES?
JOINT OWNERSHIP ACCOUNTS – FORMER OR SURVIVOR
Always use your own KYC documents to open accounts to declare ownership.
In case you wish to keep an investment secret, open a joint account with someone you trust, where your name figures as the first holder. The mode of operation should be Former or Survivor, where you hold rights to withdraw money as long as you live. The communication address, email id and registered mobile number used can be of the second holder.
In this case, you will not receive any notification about the account, which makes it visible to others. You may check transactions in the account by using net banking, and getting the OTP from the second holder.
REAL ESTATE – JOINT TENANCY AND JOINT OWNERSHIP
If you are contributing to property owned by your parents, siblings or children, ensure that your name appears as a joint owner.
In this case, the other joint owner is not able to sell the property or transfer it to someone else without your consent and paying your due share. Other legal heirs cannot take away the share that belongs to you.
You may opt for using the term ‘joint tenancy’ in the agreement. Here, in case of one owner’s death, the property gets transferred to the joint owner’s name, and not the legal heirs. Joint tenancy overrides a will and succession laws.
In case you wish to give it to them, it can always be done with the help of a gift deed at a later stage, but secure your interest till you consider it necessary.
Learn more about joint tenancy here
NO CASH TRANSACTIONS IN INVESTMENTS OR EXPENSES
All of us know of cases where the recipient later denies ever having taken anything, and this can happen in the closest of relationships.
Transfer all funds through bank accounts, and file copies or screenshots of the bank statement somewhere. Banks are unable to provide statements older than 10 years at times, so it makes sense for you to retain relevant copies.
Record conversations on audio/video if necessary.
The story is always about a high level of trust in the beginning, and a fallout at a later stage. Keep transactions above board in financial transactions, irrespective of the level of trust or love in a relationship.
Gifts from spouse, father, mother, brother and sister are not taxable. The income from such gifted assets will be taxable.
However, don’t try to evade a small tax and lose the entire asset at a later stage.
Tax paid on the income or inflow is also a proof of ownership of funds.