Many senior citizens in India face a common dilemma: their children have moved abroad, taken foreign citizenship and are not inclined to return to India, particularly to manage or dispose of real estate.
The reasons for this state of affairs are several, including unwillingness to deal with red tape and extended absence from their place of work. At times even the financial incentive of disposing of this real estate is low because they are already earning handsomely in their country of primary residence.
The burden of legacy investments
Many senior citizens, due to limited investment options in their earlier years, have significant holdings in real estate. However, with the changing aspirations and global lifestyles of their children, they now face the harsh reality that their substantial real estate assets may become a burden rather than a blessing.
This issue is further compounded by the fact that real estate, particularly in urban areas, continues to appreciate, making it economically unwise to sell these assets hastily. These investments could continue to generate significant returns if managed properly. Yet, without an immediate plan or willingness from their heirs to manage the properties, these seniors are left grappling with how best to safeguard their financial legacies while addressing the logistical and emotional challenges posed by their children’s absence.
Also read | Estate planning: How to navigate the emotional journey of passing on your assets
Private family trusts the solution?
One potential solution to this problem is to establish a private family trust under the Indian Trusts Act, 1882, to hold these assets. The trustees could be professionals, relatives, or a combination of both, who will administer and invest the trust assets according to the instructions laid out in the trust deed. The NRI children would be named as beneficiaries and entitled to receive distributions from the trust.
A private family trust ensures that the NRI children do not need to worry about the immediate repatriation of assets after the parents’ lifetime. If they require any assets, distributions can be made, while the remaining assets continue to be invested in India. The trust is governed by Indian laws, ensuring that the NRI children do not need to concern themselves with legal changes, even if they change their country of residence. In their absence, all operational aspects, such as collecting rent, would be handled by the trustees in India.
A trust also provides asset protection from any claims, whether from within or outside the family. The trust assets would not be subject to marital claims in the event of a divorce involving the NRI beneficiaries.
Also read | All you need to know how to ensure tax-efficient inheritance
Why trusts score over simple wills
In the case of a will, probate may be required in certain instances. This can be a lengthy process. After obtaining probate, the assets must be individually transferred into the heirs' names. All of this is avoided in a private trust structure, as the trust has its own bank and demat account, where the NRI is a beneficiary.
Be aware of the flip side
While private family trusts offer significant advantages in managing assets for NRIs, it is important to be mindful of certain risks, as outlined below:
Inadequate trust deed provisions: If the terms are vague or fail to account for future contingencies, trustees may have too much discretionary power or may not act in the beneficiaries' best interests.
Selection of unreliable trustees: Choosing incompetent or dishonest trustees can lead to poor asset management.
Changing legal environment: Indian laws, particularly tax and inheritance laws, are subject to change. Over time, legal reforms may impose new restrictions on trusts, especially those with NRI beneficiaries.
Repatriation challenges for NRIs: Although NRIs are named as beneficiaries, repatriating funds from India to other countries can involve regulatory hurdles.
Succession and legacy planning for families with NRI children presents unique challenges, especially when substantial real estate is involved. A private family trust can be an effective solution, offering flexibility, protection, and a seamless transfer of wealth across generations.
However, it is crucial to carefully draft the trust deed, select reliable trustees, and remain mindful of evolving legal frameworks. With the right structure in place, senior citizens can ensure that their financial legacies are preserved, while easing the burden on their children living abroad.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
(The author is Founder, True North Finance, a Financial and Investment Planning Firm based in Pune).
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