Will writing for NRIs is as important as Resident Indians? It’s an important part of the overall financial planning for NRIs.
NRIs must engage in estate planning as part of its overall financial strategy.
NRIs may acquire assets in multiple countries due to work or personal choices. These assets, including property, pensions, insurance, and loans, can be subject to varying inheritance laws, which can complicate the distribution process. (Also Read: | A Guide for NRIs Returning to India: UK Pension Fund Transfer to India)
Ideally, assets should be kept where they will be used. However, this is not always possible due to factors like employer pension schemes or vested ESOPs/RSUs, which may be part of an NRI’s retirement plan.
In India, there are 2 laws applicable to the succession of assets. Hindu Succession Act’1956 (HSA) and Indian Succession Act’1925 (ISA). HSA applies to the Intestate succession of Hindus and ISA applies to the intestate succession of people from other religions (except Muslims). Intestate succession means the Succession when no WILL is written, and as per the defined law. In Other words, the Assets will not be distributed the way you may have wished for. (Read: | The rules in India for Intestate succession)
Every country has different laws relating to succession and if there is no WILL written, your wishes will not be considered in distribution and your legal heirs may have to face trouble in different countries to claim the assets.
When planning your estate as a Non-Resident Indian (NRI), it’s crucial to understand that succession laws vary by country and can be influenced by several factors. These factors include your country of domicile, your place of residence at the time of death, and the location of your movable and immovable properties. Additionally, the presence of forced heirship or community property laws in your country of domicile can significantly impact the distribution of your assets. (Explore: | Returning NRIs and 401(k) Planning: Navigating Financial Decisions)
Understanding Domicile
Domicile is not merely your place of residence; it is the country you consider your permanent home, where you intend to reside indefinitely. Your domicile plays a crucial role in determining which country’s laws govern the succession of your estate.
Forced Heirship and Community Property Laws
Some countries have forced heirship laws, which mandate that a portion of your estate must be passed on to specific heirs, such as your children or spouse, regardless of your wishes expressed in a Will. Similarly, community property laws in certain jurisdictions consider assets acquired during a marriage as jointly owned by both spouses, affecting their distribution upon death.
The Application of the Hindu Succession Act (HSA 1956) to International Property Succession
The principles of International Law play a crucial role in determining the inheritance of movable and immovable properties for a Hindu Non-Resident Indian (NRI) domiciled outside India. These principles interact with the Hindu Succession Act (HSA 1956) to provide a framework for property succession in an international context.
(Read: How to write Will in India – Step by Step Guide)
Key Principles and their Elaboration
- Immovable Property in India, Movable Property Abroad:
- For a Hindu NRI domiciled outside India, the succession of their immovable property located within India falls under the jurisdiction of the HSA 1956.
- However, the inheritance of their movable property (personal belongings, investments, etc.) is governed by the laws of the country where they are domiciled.
- This distinction highlights the principle that while Indian law governs the succession of immovable property within its territory, it respects the laws of foreign jurisdictions concerning movable property.
- Domiciled in India, Property Abroad:
- In the case of a Hindu domiciled in India who owns immovable property outside India, the succession of that property is subject to the laws of the country where the property is situated.
- This principle acknowledges the sovereignty of nations over property within their borders.
- The succession of movable property located outside India for a Hindu domiciled in India can be governed either by the HSA 1956 or by the local laws of the foreign country where the movable property is located.
- This allows for flexibility depending on the specific circumstances and the nature of the movable property.
- Domiciled and Property Outside India:
- When both the domicile of a Hindu and their movable and immovable properties are situated outside India, the HSA 1956 does not apply. Instead, the succession is governed by the laws of the foreign country where the Hindu is domiciled.
- This principle emphasizes that the HSA 1956 is primarily concerned with property succession within India and respects the legal systems of other countries.
Given the potential complexities and confusion that can arise in the absence of a clear Will, it is crucial to consider the benefits of preparing this legal document. By taking the initiative to write your Will, you can ensure that your assets are distributed according to your wishes after your passing. This not only provides peace of mind for you but also prevents unnecessary stress and disputes among your loved ones. Additionally, a well-crafted Will can help minimize tax implications, ensuring that your beneficiaries receive the maximum benefit from your estate.
Key Questions for NRIs Drafting Wills
- Should an NRI create a single, joint, composite, or common Will for assets and properties both in India and abroad?
- If a single Will is created, should it be registered, and where?
- Is it advisable for an NRI to appoint different executors in different jurisdictions?
- Would it be more effective to have separate Wills for properties located in India and abroad?
- If separate Wills are created, should they be registered individually in their respective jurisdictions?
- How can the inheritance rights of NRI beneficiaries be protected both in India and abroad?
- Which laws (Indian or foreign) would govern NRI assets and properties in different countries?
Non-resident Indians (NRIs) often own movable and immovable assets in both India and their country of residence. Therefore, estate planning for NRIs necessitates drafting a Will that is legally valid in both jurisdictions. This may require preparing two separate Wills – one for assets located in India and another for assets in the country of residence.
The advantages of having Multiple Wills
One Will can address assets located in India, while another Will can govern the distribution of assets in your country of residence. This approach ensures that your assets are distributed according to the laws of the respective jurisdictions and minimizes the risk of legal disputes. Other benefits could be
- It may save huge inheritance taxes in your country of residence since there is no inheritance tax or estate duty in India.
- It allows smooth and faster execution/transfer of title of assets to the family as there is no need to wait for proceedings to end in your resident country.
- If you reside in a country that follows Sharia laws, having an Indian Will allows you to distribute assets in India as per your personal religion/prevailing laws.
Seeking Professional Guidance
Navigating the complexities of estate planning as an NRI can be challenging. It is highly recommended that you seek guidance from qualified legal professionals who specialize in international estate planning. They can help you understand the relevant laws, draft Wills that comply with the requirements of both countries and ensure that your assets are distributed according to your wishes while minimizing tax implications and potential conflicts. (Read More: | How to Select the Right Financial Advisor for NRI?)
Remember, estate laws and tax regulations can be intricate and vary depending on your jurisdiction. By taking this proactive step, you can safeguard your legacy and provide a lasting sense of security for your family and loved ones.
