Inheritance of assets by NRIs can be more complex than inheritance by residents because it involves transitioning of assets between countries which involves the laws of both countries, says Namita Agarwal, AVP- Succession Planning, Emkay Wealth Management. She is a lawyer and company secretary who specializes in cross border succession laws and has advised multiple NRI families. She shares details on the topic so as parents if you’re planning to transfer assets abroad, you’re prepared.
If your children are NRI, they can receive your assets located in India through lifetime gifts or under a Will after your demise as inheritance, but due to certain laws of their country of residence, citizenship or domicile a private trust could be a more efficient model for succession planning. Developed countries like the US, UK and many others have an inheritance tax of up to 40% after certain exemptions. Such taxes could erode a large part of the Indian wealth for your NRI children (settled in such countries) if not planned. Very recently the media reported that the heirs of the late Samsung’s Chairman could end up paying USD 10.8 billion as inheritance tax in South Korea.
Setting Up Trust
Indian parents who have children settled in such countries can plan to mitigate the effects of such taxes by using private family trusts. Of course, the trusts must be structured well, and the laws of the other country should be checked whether the trust would be recognized and understand the tax implications. The key here is that the trust would be formed by the Indian parents during their lifetime which would segregate the Indian assets without allowing the assets to comingle with the assets of NRI children unlike passing through a will or gift. NRIs would be the beneficiaries of the trust and would receive trust assets for their requirements and the remaining could pass down to grandchildren and next-generation without the impact of inheritance taxes. A private trust is also useful to avoid the forced heirship laws if applicable in their country of residence, protect assets from marital and creditor claims and avoids the lengthy court process of probate.
The parents may involve their children to understand if they would like to retain and invest the wealth in India after receipt or whether they would like to repatriate the wealth to their country of residence. Under our exchange control laws, there is a limitation on repatriation. If your child has inherited your assets, he/she would be able to repatriate up to USD 1 million per year and repatriation exceeding this amount will require RBI approval. The parents could use the limit under Liberalised Remittance Scheme (currently USD 2,50,000) every year to make lifetime gifts to children after planning for their own retirement.
One should take the appropriate advice and prepare a succession plan which may include preparing a will, gifts, private trust or a combination of such instruments which also meets the family objectives.