The main concern of parents having wealth in India with their children living abroad is, “How to transfer their wealth to them after their lifetime, especially when they won’t have the time to come to India for taking control over these assets and manage it after the lifetime of their parents.” The children prefer inheriting the wealth in a manner which minimises the legal hassles, paperwork and reduces their trips to India. The assets may continue to remain invested in India if the returns are promising so that the children can get maximum returns.
A private family trust can be formed by the parents in India to hold these assets for the benefit of their children. The trustees could be relatives, professionals or a combination who will administer and invest trust assets as per the instructions in trust deed. NRI children are named as the beneficiaries and they will be entitled to receive distributions from the trust.
If the assets are held in a Trust, NRIs won’t have to worry about its immediate repatriation after the lifetime of their parents. If they require any assets, it can be distributed to them and the balance continues to remain invested in India.
If an NRI returns to India, he won’t have to disclose these assets in a foreign county. The trust is governed by the Indian laws and if an NRI keeps moving across the globe, holding the assets under a trust is a practical solution for him/her so that the assets are not subjected to the laws of other countries.
Managing inherited real estate in India can be quite cumbersome for NRIs when they are physically absent. Management of the immovable assets such as leasing, collecting rents, regular maintenance, paying property bills etc. can be done by the trustees in India.
Many NRIs leave the assets with their relatives in India with an understanding that they will take it later, but claiming it back after several years becomes difficult. A Trust would provide asset protection from any kind of claims from within or outside the family. The Trust assets would be not subjected to the marital claims of an NRI in case of divorce or separation. In many developed countries forced heirship laws and community property rules are prevalent. These laws will not apply to assets held under trusts.
If the parents transfer their assets through a Will, a probate may be required which is a lengthy process. After obtaining the probate, one needs to get individual assets transferred in their name. They need to submit the probated Will, death certificate and other documents to each bank, financial institution, fund house, housing society etc. and ask them to transfer the assets to them. In the absence of a Will, one will need to obtain a succession certificate and the paperwork also increases substantially. All this could be avoided under a Trust, which has its own bank and demat account where the NRI is a beneficiary.
A private trust is commonly used in developed countries for holding assets and succession planning and the NRIs prefer to inherit assets through a trust for inheritance tax planning and other advantages. One should take proper legal opinion before proceeding because it involves cross border succession laws and the trust needs to be structured and drafted accordingly.
(By Namita Agarwal, AVP-Succession Planning, Emkay Wealth Management. The author is a Lawyer and Company Secretary who specializes in cross border succession laws and has advised multiple NRI families for trust formation)