Mumbai, Nov 1, 2023
Legacy planning across borders is important if you live in one country but are a resident of another. For those of you who hold assets in foreign countries but pay their taxes in India, make sure that your estate planning has accounted for such assets.
By Sneha Makhija is Head of Wealth Planning, Products & Solutions, Sanctum Wealth
Your nationality and domicile status can potentially subject you to inheritance taxes in a country, even if you are not a resident there.
Estate planning is a formidable task for families, and it becomes exceptionally intricate when dealing with cross-border connections. As the younger generation increasingly seeks educational and professional opportunities overseas, families are confronted with a web of legal complexities when devising their estate plans.
To illustrate the multifaceted nature of international estate planning, let’s examine the case of Ramakrishnan. An Indian citizen and resident, he is married to a British citizen who is also a resident of India. Their children hold US passports and reside in the United States. The couple possesses financial and real estate assets in India, Singapore, the United Kingdom, and the United States. With a diverse portfolio and family members dispersed across the globe, Ramakrishnan and his spouse must navigate the intricate web of cross-border laws.
The concepts of nationality, residency, domicile
Nationality pertains to an individual’s citizenship, while residency signifies the country where one resides, either full-time or part-time. Residency and domicile, often used interchangeably, bear distinct legal and tax implications. A domicile represents an individual’s permanent legal home, with the intent to return. Importantly, one may have multiple residences but only one domicile.
Why do these terms matter? Your nationality and domicile status can potentially subject you to inheritance taxes in a country, even if you are not a resident there. In Ramakrishnan’s case, he is exempt from inheritance taxes in India (considering currently no such taxes are in force), but his spouse, being a UK citizen, may face taxation implications based on her ties to the UK.
The concept of ‘situs’ also plays a pivotal role in global estate planning. It denotes the legal jurisdiction to which an asset belongs. For instance, Ramakrishnan’s US real estate property, even though he resides in India, is considered a US situs, rendering it subject to US taxes and regulations.
Each of these concepts is critical in determining how individuals are affected by the income and transfer tax regimes in various countries worldwide.
Will and nominations
A Will is the cornerstone of estate planning, facilitating the smooth distribution of assets posthumously. However, for families like Mr. and Mrs. Ramakrishnan, who hold assets in multiple jurisdictions, a single Will may not be the most efficient option.
Multi-jurisdictional Wills expedite the inheritance process, eliminating the need for a Will to traverse the globe to fulfil jurisdiction-specific legal and administrative formalities, thus ensuring timely access to inheritances. This is especially crucial in countries like Singapore, where nomination concepts may not exist for all types of asset classes, necessitating a local Will to streamline the probate process.
Trusts constitute a fundamental element of international estate planning. However, structuring them demands careful consideration, especially when family members are citizens of different countries. For instance, US beneficiaries of a foreign non-grantor Trust may incur tax obligations on distributions, while Indian implications may differ. Evaluating these intricacies is essential.
For families navigating global living, estate planning is of paramount importance. Failing to plan meticulously can expose such transnational families to exorbitant legal fees, unnecessary taxes, hours of navigating unfamiliar jurisdictional rules, and even travel to foreign countries to establish their rightful inheritance. Engaging a qualified professional well-versed in this process is advisable, as international estate planning is undeniably more complex than domestic planning. Nonetheless, the benefits of a well-crafted plan can reverberate across generations, safeguarding the family’s legacy.
For more information, please visitwww.sanctumwealth.com