With growing international relations, Indian families, businesses and investments are becoming globally aspirational. It is now more feasible to educate children overseas, seek global citizenships, acquire offshore assets and invest globally. Conventional ways of succession planning do not support these global aspirations and expansion. Ease of global expansion brings legal and regulatory hurdles along, making strategic succession planning non-negotiable.

In practice, succession planning for families with global interest hits various roadblocks. Without prudent global succession planning, cross-border rules and laws can even make a well-drafted plan stall. Strategic global succession planning is no more a luxury; it is a fundamental necessity.

Why Global Succession Planning Matters?

In succession planning, a strategic plan suited in one country can falter the moment foreign assets, non-resident heirs, or overseas holding structures come into play. Each jurisdiction applies its own principles to inheritance and taxation, often leading to conflicting obligations, procedural delays, or even disputes where no global succession planning exists.

1. Divergent Legal Systems and Inheritance Rules

In countries like the UAE, testamentary freedom to determine the beneficiaries and distribution pattern of one’s estate is limited, instead the distribution is determined by the forced-heirship rules.

Related Read: Pre-IPO Trusts: Safeguarding Promoter Wealth and Legacy

Inheritance laws differ dramatically across jurisdictions. India does not levy any inheritance tax unlike the countries like the USA, the UK, etc. Estate tax in the UK is applied on worldwide assets based on testator’s residential status, dragging offshore assets in the taxable pool. Applicability of inheritance tax diverges the focus of estate planning from legal distribution to tax implications.

Families that have a home in the UK, an investment portfolio in the US and beneficiaries are in the UAE, cannot rely on a domestic Will or structure for smooth succession planning. Jurisdiction specific succession planning is required to avoid legal proceedings, procedural delays and overlapping legal obligations.

2. Multi-Layered Succession Landscape in India

Succession framework in India is complex and non-uniform. Inheritance laws are different based on the individual’s religion as mentioned below:

Religion  Succession law applicable 
Hindus, Buddhists, Jains, and Sikhs  Hindu Succession Act, 1956 
Muslims  Sharia-based personal laws 
Christians and Parsis  Indian Succession Act, 1925 

In India, acquisition, holding, transfer or repatriation of foreign assets by residents and non-residents is regulated by the Foreign Exchange Management Act (FEMA). FEMA compliance and reporting is required in cross-border inheritance involving foreign assets, or gift to non-resident relatives. Without complying with FEMA, the heirs may face legal delays or conflicts in receiving the assets.

3. Taxation and the Risk of Double Taxation

A key consideration in global succession planning is cross-border tax implications. Estate or inheritance tax is levied at the time of death in jurisdictions like the USA and the UK, while tax is levied in India when inherited assets generate any income or are sold. Some countries also levy gift tax or detailed disclosure obligations. In absence of a strategic plan, the same pool of wealth might get taxed twice – first outside India, then in India. Also, the timing of tax will differ in both the countries to avail foreign tax credit (FTC).

Double Tax Avoidance Agreements (DTAAs) play a significant role when succession events attract tax in multiple jurisdictions. DTAAs is a treaty between two countries that outlines the primary taxation right and the applicability of FTC to mitigate double taxation of a single transaction. Structuring the transaction in advance will help us to account for the timing of taxability in both countries to avail FTC.

Pre-Immigration Planning for NRIs

Related Read: Passing the Baton: Succession Simplified for Family Businesses

For families with children heading outside India, a strategic plan must be developed way before the residential status changes, especially in countries that levy high estate duty or inheritance tax.

For example, Indian students on F1 visa in the US are not taxed on their global income for the first 5 calendar years. This is a strategic window for building foreign structures ahead of permanent residency.

It is noted that Indian families are increasingly receptive to this strategy, especially in multi-generational structures. Indian trusts distribute income to overseas beneficiaries, who then channel it into wrappers or insurance-based vehicles typically discretionary-managed accounts in Singapore or Dubai.

From Inheritance to Institution: Structuring for the Next Generation

Another planning challenge lies in cross-border inheritance. The most relied tool for global succession planning is passage of assets to a private family trust structure in the US or the UK instead of individual beneficiaries to avoid exposure to inheritance tax in countries like the US or the UK.

Best practices for strategic global succession planning include early planning, listing multiple beneficiaries and curating structures that can sustain change in residential status of parties to the global succession plan.

Related Read: Anatomy of Family Business Conflicts – Bridging Generational Growth towards Legacy

With the next generation increasingly moving around the globe; control and access of the assets is a question. Succession planning is not merely about transferring wealth to the next generation, but also about building structures to manage complexity, preserve family values, and adapt from one generation to other. Today’s structure must both solve yesterday’s problems and anticipate tomorrow’s questions.

Conclusion

Any existing or future global interest like foreign assets, non-resident heirs, change in citizenship, etc. calls for strategic global succession planning. The best practice is to devise a comprehensive solution that aligns the legal and tax positions of all the concerned jurisdictions to avoid legal delays and double taxation risk.

A combination of tools like will, private trust and nominations is effective for both tax efficiency and appropriate regulatory compliance. When the previous generation’s intent is harmonised with the next generation’s aspirations, wealth is preserved and disputes can be prevented. Robust and strategic global succession planning should solve yesterday’s problems and answer tomorrow’s questions.

Why Choose InCorp Global?

We understand that regulatory compliance and succession planning on a global level can be complicated. Our dedicated team of legacy planning experts, legal professionals, tax and financial advisors who have the required knowledge and experience are happy to assist you in both family and business succession planning. To learn more about our services, you can write to us at info@incorpadvisory.in or reach out to us at (+91) 77380 66622.

Authored by:
Megha Gala | Family Office

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