We have seen significant increase in Indians migrating to the US in pursuit of better career prospects, improved living standards, higher education and other opportunities, accumulating wealth in both jurisdictions. USA has the largest population of overseas Indians, with approximately 5.69 million currently residing there, according to data from the Ministry of External Affairs as of January 2025.

Generations of Indian families are scattered across India and the US. A timely succession planning for assets in foreign jurisdictions (India, for the people living in the US), is a vital activity for the wealth-creator of the family to avoid challenges and complexities arising from differing country laws for succession planning. For such families, cross-border succession planning is not optional; it is a core part of long-term succession planning and family governance.

Succession Planning is essential, particularly for following cases of cross-border families:

  1. Families with significant assets in India who are planning to relocate to the US.
  2. Second-generation individuals in the US with first-generation family members and assets remaining in India.
  3. US persons owning assets situated in India. (US persons includes US residents and US citizens.)

A coordinated approach to cross-border succession planning across India and the US is necessary to ensure a smooth and compliant transfer of wealth.

Let’s understand laws relevant for succession planning in the US.

Estate, Inheritance and Gift Taxes

Estate for US persons, comes with a price. In India, there is no estate or inheritance tax implications on inheriting estate, while in the US, estate is subject to estate, inheritance and gift tax. Understanding these differences is fundamental to succession planning and any serious cross-border succession planning strategy.

1. Estate taxes

Estate tax is a tax charged on the value of a person’s estate at death, prior to distribution to beneficiaries or legal heirs. ‘Estate’ includes everything you own or have certain interests in at the date of death. US charges federal estate tax and some states charge an additional state estate tax. Thoughtful succession planning must therefore consider both federal and state-level exposure.

Related Read: Planning Global Succession: How to Preserve Wealth Across Countries?

  • Around 18-40% (based on range of estate amount) of estate is paid towards federal estate tax subject to the exemption of $15 million for the year 2026 for individuals and double for married couple.
  • If exemption remains unused, surviving spouse can use the unused exclusion limit of the decadent’s estate and lifetime gift tax, known as ‘portability’. This can be claimed up to five years from spouse’s date of death by filing form 706.
  • The executor is liable to pay estate duty from the estate itself before distributing it to the beneficiaries.
  • A few states such as Washington, Oregon, Minnesota, Illinois, Vermont, Connecticut, New York, Rhode Island, Massachusetts, Maine, Hawaii, Maryland and the District of Columbia also levy state estate taxes ranging from 0.8% to 35%.
  • The exemption for state taxes is different and generally lower than the exemption limit for federal estate tax, except for Connecticut. Coordinating federal and state rules is therefore essential in succession planning for the US persons with sizeable estates.

2. Gift Taxes

The federal gift tax and estate tax lifetime exemption is the same. The lifetime exemption shall be reduced by gifts exceeding such limit.

  • Just like federal estate tax, federal gift tax exemption include an annual exemption of $19,000 and a lifetime exclusion of $15 million (for 2025).
  • Gift tax rates are based on the size of the taxable gift and can range between 18% and 40%. (E.g. If you gift someone $26,000, then up to $19,000 is exempt, but the remaining $7,000 shall be deducted from exemption limit of $15 million)
  • Connecticut is the only state to currently levy a state gift tax, which is 12% on the gifts exceeding the lifetime exemption limit.

As part of succession planning, families often use lifetime gifting, sometimes combined with trusts and other vehicles to gradually shift wealth while managing the future estate tax base.

3. Inheritance Taxes

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

Inheritance tax is an additional tax levied on the assets of a deceased’s estate that are received by individuals. The person who receives the assets is responsible for paying the tax. The US has no federal inheritance tax.

Five states impose inheritance tax such as Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania, imposing inheritance tax ranging from 0% to 16%. (Maryland levies both state estate tax and inheritance tax.)

Where beneficiaries are resident in these states, cross-border succession planning must account for taxes at federal and state level, particularly when large inheritances flow from foreign trusts.

Exemption to federal estate taxes

These exemption are frequently leveraged in sophisticated succession planning and cross-border succession planning structures:

  1. The surviving spouse (US citizen) gets a 100% marital deduction on receipt of the estate from the spouse. For a non-citizen spouse, a qualified domestic trust (QDOT) may be created to utilise the unlimited marital deduction. A qualified domestic trust is a special trust that allows a non-citizen surviving spouse of a deceased taxpayer to take full advantage of the marital deduction on estate tax for assets placed into the trust before the deceased’s federal estate tax return is filed.
  2. Donations made to qualifying charitable organizations are not subject to estate tax. This is a common method in effective succession planning.
  3. Transfer of assets to a US non-grantor trust will exclude these assets from estate of the individual. Properly designed trusts in the US or India, are a cornerstone of cross-border succession planning for high-net-worth families.

Planning Considerations- Indian Trust

Cross-border succession planning commonly uses Indian trusts in combination with wills and overseas planning structures.

  • Consider both Indian and US laws and DTAA (Double taxation avoidance agreement) to avail treaty benefits while succession planning to avoid any complications during distribution.
  • Use separate Wills for Indian and US situs assets to avoid probate issues. Will is advisable for ‘non-resident to resident’ Indian transfers.
  • Foreign Exchange Management Act, 1999 (FEMA): RBI approval is required for creation of Indian trust for US beneficiaries– factor into cross-border succession planning timeline. Non-residents cannot buy agricultural land/plantation/farmhouse and cannot hold regular savings accounts in India.
  • Settle major Indian assets into an irrevocable grantor or non-grantor trust to reduce US federal estate tax exposure.
  • Trust income can fund maintenance and education expenses of US persons.
  • Distribution to the US person shall be within $2.5 lakhs per year limit under Liberalization Remittance Scheme (LRS). Alternatively, US$ 1 Mn can be repatriated from NRO (Non-resident Ordinary account) opened in India to non-resident foreign accounts. (NRO accounts are created to manage income accrued in India in hands of non-resident.)
  • Update the trust deed on changes in residency, citizenship, or family circumstances.

Conclusion

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

The growing movement of Indians to the US and their substantial assets in India, calls for the need of cross-border succession planning to protect wealth and smooth transfer across generations. US residents face complex estate and gift tax obligations and proper succession planning tools can help minimize or defer such liabilities. Ultimately, thoughtful cross-border succession planning, integrated with succession planning tools for both Indian and US assets, enable families to preserve, protect and pass on their wealth with clarity, control and confidence.

Why Choose InCorp Global?

At InCorp Global, we understand that regulatory compliance and succession planning can be complex and challenging. That’s why our dedicated family office management experts offer comprehensive, tailored solutions. Our team is committed to safeguarding wealth, optimizing tax outcomes, and enabling smooth intergenerational transitions, so you can confidently focus on your legacy. To learn more about how we can support your family office needs, reach out to us at info@incorpadvisory.in or call (+91) 77380 66622.

Authored by:
Megha Gala | Family Office

FAQs

1. Which US states impose inheritance taxes?

Only 5 states in the US impose inheritance taxes: Kentucky, Maryland, Nebraska, New Jersey or Pennsylvania.

2. How do gift tax annual exclusions and lifetime exemptions interact with each estate taxes?

Gifts within annual exclusions ($19,000 per recipient in 2025) do not reduce lifetime exemption. Gifts exceeding this reduce lifetime exemption, thereby potentially increasing estate tax liability upon death. 

3. What reporting obligations arise for US beneficiaries receiving distributions from foreign trusts?

US beneficiaries may be subject to forms 3520 and report such distributions in their annual return in form 1040.  

4. How to obtain foreign credit under India-US DTAA for any double-taxation?

The US person may claim foreign tax credit (FTC) by filing IRS Form 1116. Â