Estate Planning, Wills and Trusts for NRIs - Vaishali Bhagwat, Advocate

Chapter 1 :	Introduction
Chapter 2 :	Estate planning Intestate Succession, Wills & Trusts Specific considerations for NRIs
Chapter 3 :	The Importance of Power of Attorney for Property Management in India
Chapter 4 :	Taxation Implications for NRIs
Chapter 5 :	Living Will

Chapter 1 Specific considerations for NRIs

Based on our experience in handling matters relating to NRIs and their property in India we have complied a list of commonly asked questions

Do I need to make a separate Will about my property in India ?

How is the property distributed if there is no Will ?

I heard that I need to get a probate from Court for my parents Will. Do I require a Succession certificate or a Probate ?

I am taking my aging parents to US with me and I require to dispose off their property in India ? What is the best option - Will or Gift Deed?

What are the tax implications ?

I want to give a Power of Attorney to my relative in India to manage the property? Do I need to come to India for that ?

What is a family trust ? As a NRI do I need to set up a trust ?

Is euthanasia legal in India ? Whar is a Living Will ?

My parents are above 80 and want to make a Living Will ? What is the procedure ?

My father just underwent an angioplasty. Can he make his Living Will ?

The challenges of managing property in India, has always been one of the top concerns for any Non Resident Indian. In addition, managing the property of aging parents is also necessary. Estate planning and succession are issues that need to be addressed well in time to avoid complications arising out of rival claims, delays and costs including litigation costs that may have to be incurred at a later stage.

This document aims to answer these questions on Succession and inheritance and managing immovable property in India to ensure that there are no situations of distress at the time of succession.

Chapter 2 Modes of Estate Planning:

Intestate Succession, Wills & Trusts

At the time of death, if the individual dies intestate (i.e. without making of a will), then his property will devolve on his heirs based on the applicable personal succession law as per the religion of the deceased. As per the Hindu Succession Act Class I legal heirs of a Hindu male are 1. Mother 2. Wife 3. Children ( son(s) and unmarried or divorced or widowed daughter(s)) each having an undivided equal share in the property of the deceased Hindu male. Class I legal heirs of a Hindu female are her Husband and children only.

Disposal of property as per the Law of Succession is not always equitable and undivided shares of several legal heirs in immovable properties make it very cumbersome for the legal heirs to dispose of or enjoy the property as it requires the consent as well as the presence of all the legal heirs / beneficiaries concerned. Practically it is observed that such properties tend to get wasted or locked in dispute for long periods of time. Thus Will or a Testamentary Disposition becomes an important document to ensure the transfer of assets in the proportion desired by the individual at hand. Besides executing a will, another method to ensure the easy transfer of assets to legal heirs is by setting up a trust. Private trusts can be set up during the lifetime of the individual, and they can set out the rules to be followed by the trustees in executing the objectives of the trust.

We have experienced in our practice that there is a also lot of misunderstanding around Succession, Nomination, Joint Holding, Gift deed, Will or Testamentary disposition, Private Trust, Etc . In addition lot of times planning for disposition of property is done after informal discussion with friends and ‘advisors’ . We have also experienced that people are advised to do some unnecessary paper work such seek a probate or file for succession certificate where it may not be required and can save you time and money and headache.

Thus guidance from a qualified lawyer for managing the estate before one’s demise and also for effective management of the estate / execution of the Will after demise becomes is important.

Both modes of estate planning are briefly explained below:

1. Executing wills:

For making a will, an individual must be:

A major
Of sound physical and mental condition
And operating with free consent
The will should properly delineate the properties that will be transferred.
If any heirs of the individual are being disinherited, then the same must be specified in the will with reasons
A person must be named as the ‘executor’ of the will, who will execute the document on the passing of the individual.
There is no requirement of registering wills, however, registering their wills would provide easier recourses for non-resident Indians.
A will is made for the disposal of movable , immovable as well as intellectual property assets and Digital assets of the testator as per his desire

2. Setting up trusts:

Trusts are a mechanism for maintaining assets in the case of complex or substantial asset delineation or complex situations of intergenerational wealth. Trusts can be both private or public. Private trusts are generally trusts set up for maintaining private wealth especially in the case of succession, while public trusts are meant to transfer assets to be used for charitable or public purposes.

A trust deed, with the required elements to form a trust must be documented in writing. The following conditions are essential for creating a valid trust:

The person creating the trust has to make a clear and unequivocal declaration of intent to create a trust. This intention must be manifested in an “external expression” i.e., by means of writing, speaking, or through conduct.
The object of the trust must be clearly defined.
The beneficiaries of the trust must be clearly defined.

3. Role of Executor and Trustee Companies

While it is common practice to appoint a close friend or a relative as the executor of the will, a person may also consider appointing a professionally managed company to act as executor of his will or as trustee of his assets after his death. This is especially useful when the children of the person making the will are NRIs as they do not have worry about the management of properties and assets based in India which shall be done in a professional manner. Such executor and trustee companies shall play a crucial role in execution of the will by ensuring proper utilization of the assets as per the wishes of a deceased person. Such executor and trustee companies offer professional expertise, impartiality, and continuity, which can be particularly valuable in case of complexity in assets or where family dynamics could be a cause for concern. In case of a professionally managed executor or trustee company, any element of bias as is possible where the trustee or executor is a relative or a close friend, is also ruled out.

Role as executor

As executors, these companies are responsible for identifying and collecting the deceased's assets by complying with various formalities, paying any debts and taxes, and distributing the remaining assets to the beneficiaries as stipulated in the will.

Role as trustee

Where a person wishes to keep aside his property after his death but the beneficiaries are unable to manage the property due to some incapacitation such as physical disability, insufficient age, mental incapacity, then he should create a private trust. In a private trust, the trustee shall keeping the wishes of the deceased and the best interest of the beneficiaries in mind, preserve the assets, earn returns from the property and make distributions to the beneficiaries.

Specific considerations for NRIs

These are some special considerations that should be kept in mind in the case of estate planning for non-resident Indians:

Probates : A probate is a legal process by which the legitimacy of a will is established. A probate is mandatory in the case of Hindus, Buddhists, Sikhs if the will is executed in or refers to properties situated in Mumbai, Chennai or Kolkata.
Foreign Wills and Foreign Probates: Foreign wills i.e., wills made outside of India but which may deal in immovable property within India, will be recognized in India if they are proved and deposited in a court of competent jurisdiction.
Trusts receiving foreign contributions: NRIs are allowed to hold foreign currency assets in India if they were acquired at the time the individual was an NRI or inherited from an individual who was an NRI. Such individuals can set up trusts to manage these assets, but theses trusts have to be approved under the FEMA regulations
Different kinds of properties that can be inherited by NRIs in India
NRIs cannot purchase agricultural land but he/she is free to inherit the agricultural land, therefore, NRIs can sell the inherited agricultural land only to the resident Indian.

Why a Separate Indian WILL is advisable for NRIs:

As a NRI, you are legally allowed to make a Separate Will as per India laws to cover assets in India. It can save huge inheritance taxes since there is no inheritance tax or estate duty in India and also allows smooth and faster execution/transfer of title of assets to the family.However, the inheritance of property from another NRI is subject to specific regulations and may need approval from the Reserve Bank of India (RBI). Repatriation of sale proceeds of immovable property in India also needs prior permission from the RBI

Chapter 4 Taxation Implications for NRIs

Taxation of NRIs

Under the scheme of Indian Income Tax Act, Non-resident Indians are liable to pay tax in India with respect to incomes earned in India. Usually, the Indian income streams for Non-resident Indians are interest income, rental income, dividend income and capital gains from sale of shares/ mutual funds. This is due to graded system of taxation in India. Recently India has introduced two regimes ie existing tax regime and new tax regime (in which certain deductions are not allowed but slab rates are higher). It should be kept in mind, TDS may also be deducted by the payers on payments made to NRIs.

Rental income

Many NRIs are home owners in India and tend to give their homes on rent. It is important to keep in mind that rent is subject to tax deduction at source at the rate of 30 per cent plus surcharge. If the same is not done, the tenant would land into trouble with the tax authorities. However, where TDS is deducted at 30 percent, the same does not mean that it is the income tax payable by the NRI in India. In fact, in most cases, the NRIs would fall in the 10 per cent to 15 per cent tax bracket. Accordingly, it is important to claim a refund of the excess TDS that may have been deducted by the tenant. For claiming such a refund of excess TDS, it is mandatory that a NRI file a tax return in India. For filing the tax return, it would be mandatory to have a PAN card in India.

Capital gains on sale of homes

At the time of sale of home, the income tax on capital gains is 40 percent. Mostly it is seen that in such high value transactions, the buyers are aware of their TDS implications and would accordingly deduct tax at the rate of 40 per cent. However, it is important to keep in mind that even if the tax has been deducted by the Buyer, the NRI seller is still required to file his/her income tax return in India. It should be kept in mind that capital gains may be exempt from taxation where the proceeds from sale of property are reinvested in residential property or certain specified bonds.

No tax on inherited property

In the event any property is inherited by a NRI from parents/ grandparents, then the same would not have any tax implications on the NRI as gift of property by a relative is not taxable in India.

Mutual Funds / Shares

For NRIs residing in Singapore, capital gains arising from sale of shares is not taxable. For NRIs residing in other countries, the capital gains arising from sale of shares or mutual funds are taxable at the rate of 10 per cent. Mututal funds may deduct tax at source. Hence, depending on their income tax liability, NRIs should ensure that they file their tax returns in India to claim any excess TDS deducted by mutual funds on sale of Mutual Fund Units.

Interest Income

Interest income from funds in NRO bank accounts are taxable in India while those in NRE bank accounts are tax exempt. However, NRIs can consider whether under the Double Taxation Avoidance Agreement between their country of residence and India, it would be possible to claim lower rate of tax in India.

Filing of tax returns in India

It is important that NRIs file their tax returns in India, even where there is no tax payable in India in cases where they are earning rental income or dividend income or capital gains from sale of Property in India.

Chapter 5 Living Will

On March 9, 2018 the Supreme Court in a landmark judgment (Common Cause, a registered society v Union of India & others) recognized that a terminally ill patient or a person in a persistent vegetative state has the right to die with dignity (Article 21 of the Indian Constitution). To do this, the person will have to execute an Advanced Medical Directive which is called a ‘living will’.

Meaning and Concept:

According to Indian Journal of Medical Ethics, an advance directive (AD) or living will (LW) is a document prepared by a person to instruct doctors, caregivers and near relatives on what must be done and not done if and when that person is no longer able to take decisions on his own health on account of illness or incapacity. Such a document is important because while in good mental and physical health, a person’s life may reach a point where attempts made to prolong it are futile and may only compromise the dignity and quality of life.

An AD or a living will also contain the directions related to organ donation. Donation forms are signed but a communication is not made to families. More often than not, relatives of the deceased do not know and therefore do not take timely action.

This document can also define the source of funds to meet medical expenses. It can clearly state that testator’s own savings and wealth be used instead of burdening family members.

An AD is not to be confused with a normal “will”, which becomes operational after the death of an individual. An AD becomes operational while the individual is still alive, though incapacitated, and is, therefore, also known as the “living will”.

Who can execute the Advance Directive and how?

It can be executed only by an adult (age 18+) who is of a sound mind and is able to communicate, relate and comprehend the purpose and consequences of executing the document.

It must be voluntarily executed having full knowledge or information and not under any coercion, inducement or compulsion.

It shall be in writing.

If there is more than one valid Advance Directive, none of which have been revoked, the most recently signed Advance Directive will be considered valid and will be given effect to.

What should it contain?

Living Will is to be prepared as per the guidelines of the Supreme Court

It should clearly mention the circumstances in which withholding or withdrawal of medical treatment can be resorted to.

If the person wishes to resort to organ donation, it should contain his clear intention and directions for the same. The person should also name the organs to be donated.

The decision of the executor/ executrix should be stated clearly and unambiguously in precise language.

It should disclose that the executor has understood the consequences / implications of executing such a document.

It should specify the name of a guardian or close relative who will be authorized to give consent to refuse or withdraw medical treatment in a manner consistent with the Advance Directive

The executor’s right to revoke the authorization at any time must also be expressly mentioned in the advance directive.

The most recent duly executed advance directive will be regarded as the last statement of the patient's desires and will be implemented if there are multiple valid advance directives that have not all been cancelled.

How should it be recorded and preserved?

The complexity of the procedure and difficulties faced by a large number of doctors in implementing the directions laid down by the Supreme Court in the judgment delivered in 2018 led to filing of an application by Indian Society of Critical Care Medicine seeking clarifications on the 2018 Supreme Court judgment. The Supreme Court vide its clarification issued in order dated 24th January 2023, modified the guidelines for making an advance medical directive and the process of removal of (or withholding) life support from terminally ill patients.

As per the clarification issued in the order, an advance medical directive document should be in writing and signed by the executor/ executrix in the presence of two attesting witnesses, preferably independent, and attested before a notary or Gazetted Officer. The witnesses and the notary or Gazetted Officer have to record their satisfaction that the document has been executed voluntarily and without any coercion, inducement or compulsion and with full understanding of all the relevant information and consequences.

The executor/ executrix should inform and hand over a copy of the advance directive to the Nominee(s) named as decision makers in advance directive as well as to the family physician, if any. A copy of the same is also required to be handed over to the custodian (competent officer of the local Government or Municipal Corporation or the Municipality or Panchayat, as the case may be).

The executor/ executrix may also choose to incorporate their advance directive as a part of the digital health records, if any. The treating physician, when made aware of advance directive of a terminally ill patient with no hope of recovery, is to ascertain its genuineness and authenticity with reference to the digital records of the executor/ executrix, or from the custodian. The treating physician after being satisfied that the directive needs to be acted upon, is required to inform the Nominee(s) about the nature of illness, the availability of medical care and consequences of alternative forms of treatment and the consequences of remaining untreated. He also needs to ensure that such Nominee(s) understand the content of advance directive, the options available and have arrived at a firm view that withdrawal or refusal of medical treatment is the best choice, after considering all options.

Execution of a Living Will

The Supreme Court has also issued detailed directions on how the Living Will is to be executed by constitution of a Primary Medical Board by the Hospital comprising of the treating physician and at least two subject experts of the concerned specialty and a secondary medical board comprising of a registered medical practitioner nominated by the chief medical officer of the district and at least two other subject experts in the concerned specialty.

The hospital has to convey the decision of the primary and secondary medical boards and the consent of the Nominee(s) to the judicial magistrate of first class before giving effect to the decision to withdraw the medical treatment administered to the executor/ executrix.

Provision for reference to the Secondary Board and to the High Court is also made if permission to withdraw treatment is denied by the primary or the secondary medical board.

The Supreme Court in its order also modified the process to be followed in cases where the patient is terminally ill and undergoing prolonged treatment for his ailment which is incurable and no hope of being cured but does not have an advance medical directive.

Revocation or inapplicability of Advance Directive:

An individual may withdraw/alter the Advance Directive at any time when he/she has the capacity to do so and by following the same procedure as given for recording of Advance Directive.

Withdrawal/revocation of an Advance Directive must be in writing.

If the Advance Directive is not clear and ambiguous, the concerned Medical Boards shall not give effect to it and, in that event, the guidelines meant for patients without Advance Directive shall be followed.

Conclusion

The framework prescribed by the Supreme Court for making and effectuating an advance directive is a welcome step. However, it must be remembered that this framework is only an enabling mechanism and the possibility of misuse of advance directive cannot be ruled out. Life is precious. Therefore, it is important that the executor/ executrix while writing their advance directive carefully weigh all options and deliberate each aspect and decisions about future care and medical treatment as they would be empowering someone to take the decisions forward.