If your family is global, your estate planning should be global too. In today’s interconnected world, it is very common for members of a family to be spread across the world. Such ‘international families’ typically have business, family, and personal interests in two or more countries. Many people don’t think about their estate planning goals extensively or consider the fact that their wishes might be impacted by international estate planning laws.
A well-structured estate plan typically aims to protect our loved ones and preserve family legacies while achieving the following objectives seamlessly: Ensure that the assets go to the right people at the right time, no matter where they are living at the time; there are no operational and legal delays relating to succession; and this is taken care of in the most tax and cost-effective way possible.
Navigating each of these concerns in more than one country can be a challenging task given that the laws surrounding inheritances, probate, and gift taxes are specific to each country. Failing to take these differences into account could have consequences that could impact your intentions relating to inheritance.
Families immigrate for a number of reasons and today many countries have programmes to encourage and invite immigration by investments. A typical scenario often witnessed by many families is when children go abroad to study and subsequently settle down overseas. . Many families also opt for the EB-5 route, one that gives immigrant investors and their immediate family (children up to the age of 21) the opportunity to obtain a US green card and permanent residency through a one-time investment. Many families also consider moving to the UK or other European countries through their individual visa and immigration programmes. It is very important for such families to ensure that efficient and appropriate pre-immigration and succession planning is undertaken before considering any such moves since each of these jurisdictions will have tax and succession issues that need to be planned for.
Many nations around the world have an estate or an inheritance tax. US and UK specifically have an estate tax as high as 40% of the value of the estate. The US, in particular, has specific laws relating to holding assets offshore and often there can be onerous reporting and tax implications in the hands of the legatees. The UK, also has specific rules relating to assets held offshore and concepts of clean capital and income segregation become essential for UK resident family members.
Therefore, it is important to ensure that any inheritance to be received by family members in these and other countries is appropriately planned and structured. This requires time and comprehensive thought. There have been many situations where the next generation is saddled with tax complications along with reporting issues where adequate planning is not done in advance.
In many cases, well-structured trusts can help plan for not only effective succession but also ring-fencing and protection of assets from liabilities and estate taxes. If assets are bequeathed to individual names by way of a will, it becomes difficult to protect these assets from UK or US estate taxes in the future.
It is also important to ensure that a plan is in place for the succession of offshore assets to family members. It may be necessary to create separate wills in jurisdictions where there are substantial assets. Every country will have its own succession laws and this may lead to delayed succession or hindered succession if only one global will is created by the family. For instance, a separate DIFC-registered will should be created for assets in Dubai to ensure appropriate succession and to avoid issues in the future. Many families also choose to create a trust outside India for offshore assets (where possible under FEMA regulations) to ensure that the assets outside India are consolidated and there is a succession plan in place for them. Such holistic planning can help succession of assets to your family members at the right time without any operational or legal delays.
It is therefore extremely important to seek advice and plan for inheritance of your estate to family members living outside of India as well as for assets outside of India. This has to be done with accurate advice from offshore and Indian advisors to ensure that both India and offshore laws are considered and the planning is legal sound and tax efficient.
Gautami Gavankar is CEO-estate planning & trusteeship, and head-family office, Kotak Mahindra Group.
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Updated: 23 Oct 2023, 10:27 PM IST