Estate Planning for NRIs: Everything You Need to Know

As the number of Non-Resident Indians (NRIs) living and working abroad continues to rise, concerns around NRI estate planning and asset succession have also increased proportionally. With complex cross-border tax and inheritance laws involved, proper NRI estate planning is essential for NRIs looking to pass on their assets smoothly to their heirs in India. This article explores various estate planning strategies and considerations for NRIs.

Understanding NRIs and residency rules
 

Indian citizens or Persons of Indian Origin residing abroad for an indefinite period are commonly referred to as NRIs. The Income Tax Act lays down rules to determine the residency status of an individual for taxation purposes. An individual is considered non-resident if they stay outside India for 182 days or more in a fiscal year.  The residency status impacts taxation and inheritance laws that apply to an NRI's assets.

Estate planning techniques for NRIs
 

There are various commonly-used inheritance planning techniques that NRIs can employ, such as the following:

1.  Making a will

Making a legally valid will is one of the most basic, yet important steps for estate planning. A will allows NRIs to clearly state who their legal heirs are and how they wish to divide their assets located in India. It is imperative to have the will drafted keeping in mind the requirements of the Indian Succession Act. NRIs must also consider appointing an executor who will carry out the wishes stated in the will.

2. Setting up a trust

Trusts provide an alternative to wills for NRIs wanting an efficient succession of assets. With help of a lawyer, a Private Discretionary Trust can be created to hold an NRI's Indian assets where key terms like settlors, trustees, and beneficiaries are defined. 

3. Obtaining a probate

A probate is the process of establishing the legitimacy of a will and recognising the authority of its executor. It must be obtained from a competent court for wills involving immovable property or assets located in specific regions like Delhi, Mumbai, etc. Foreign wills or probates may also be recognised once they are deposited and proven in an Indian court of competent jurisdiction.

4. Investing through nominations

NRIs can use nominations while investing in assets like insurance policies, mutual funds, bank accounts and fixed deposits, etc. The nominee's claims are accelerated on death and the transfer happens smoothly without legal hassles of a succession certificate. However, nominations have limitations and may not cover all assets.

5. Choosing a domicile

An individual's domicile plays an important role in determining the personal laws and inheritance rules applicable to them. NRIs need to establish whether they have acquired a new domicile abroad or retained their Indian domicile of origin. This will impact distribution of their global assets according to different countries' laws.

6. Preventing double taxation

Double taxation arises when the income of a deceased NRI is taxed both in the country of residence as well as country of citizenship (India). Tax treaties between countries provide relief from double taxation by giving tax credits. NRIs need to structure their affairs, keeping the applicable tax treaties between India and the country of residence in mind.

7. Utilising gift deeds

Gift deeds provide another mode for NRIs to transfer certain immovable assets located in India to their nominated legal heirs during their lifetime without going through a succession process after death. Gifts are subject to taxes depending on the timeframe and relationship with the recipient.

8. Choose a reliable banking partner in India

Relying on a trusted banking partner in India like IDFC FIRST Bank is one of the important factors for NRI estate planning. IDFC FIRST Bank provides innovative banking solutions tailored to meet the unique needs of NRIs. Some key benefits offered by the bank include digital NRO and NRE savings accounts coupled with fully digital remittance solutions that allow NRIs to easily transfer funds from abroad with zero fees.

NRIs can also take advantage of tax-efficient investment options such as an NRE FD and FCNR deposits  that provide assured returns. IDFC FIRST Bank offers round-the-clock support services to NRIs through exclusive & dedicated relationship managers f.

Key estate planning strategies for NRIs
 

After understanding the various options available, here are some key strategies NRIs can follow for effective estate planning:

• Have a will executed in the home and host country - This will cover global assets and appoint executors with authority across jurisdictions.
• Obtain Indian probate for immovable property - To streamline transfer of real estate to legal heirs in India.
• Create a private discretionary trust - Appoint Indian trustees to professionally manage and pass on Indian assets per terms of the trust deed.
• Consider the tax implications while transferring/receiving assets - Structure transfers judiciously using tax treaties to avoid double taxation.
• Use nominations and gift deeds for a quick settlement - Especially for FDs, investments, and certain movable assets located within India.
• Determine domicile and residency status for inheritance law - Crucial for determining personal laws and distribution of worldwide assets according to the home and host country rules.
• Seek expert guidance from estate planning lawyers - To ensure all legal documentation is prepared and executed as per relevant regulations in India and country of residence.

Effective estate planning involves multiple factors for NRIs. With strategic choices around wills, trusts, taxation, domicile, and more, they can ensure a hassle-free inheritance transfer of their Indian assets to their legal heirs as intended. Consultations with experienced cross-border legal experts are recommended to aid the process.