Navigating Cross-Border Inheritance Laws and Estate Planning

India has the largest diaspora in the world, with 18 million people living outside the country. From the first generation NRI’s who have left their homeland with an underlying urge to prosper and succeed to the millennial Indians settled across the globe, they have created a mark across the world. The major expansion of Indians abroad resulted in the accumulation of wealth and investments across different continents.

In the fit of making investments often many people forget about the fate of these assets. Whether the assets will be passed on to the heirs of their choice? What laws will be applied? These questions are not thought through when one makes an investment abroad and when it comes to the assets that are left behind by their loved ones in India, it ends up in chaos when one gets to know the endless formalities and compliances of law in association with transferring of the assets.

This necessitates the NRIs to have a deeper understanding of the inheritance laws to manage the assets and properties across the border. The inheritance laws not only differ between the countries, but it also differs based on the religion and the local laws of various regions and states within the country. 

Having said that, it is also essential to note that the inheritance laws do not possess many hurdles when it comes to exchange of assets, but the procedural compliances and controls creates a major roadblock. 

The essential points that must be kept in mind for the NRIs while thinking of inheritance is that:

• Under Indian inheritance laws, an heir whether through testamentary or intestate succession can be of any nationality or residence. 
• There are no forced heirship rules under Indian personal laws (except Islamic personal law) consequently, individuals may bequeath or gift off the entirety of the estate.
  
• There is currently no estate duty, death tax or inheritance tax in India. However, there is a speculation about the reintroduction of the estate duty in the near future and individuals are advised to plan accordingly. 
  
• Indian exchange controls regulate the inflow and outflow of currency from India. There are strict rules on how much a person can repatriate from or bring into the country.   
  

Comprehensive understanding on Indian Succession laws

The succession laws in India are mainly governed by the religion of the deceased

• Hindu Succession Act, 1956 for Hindus as well as to those belonging under the Sikh and Jain community.
• Indian Succession Act, 1925 for Christians, Parsis, and those who do not recognise themselves under any religion.
  
• Muslim Shariat Act, 1937 for Muslims.

NRIs are required to be aware of the respective succession laws, to ensure fair distribution of assets among heirs.

The inheritance of movable properties such as bank accounts, cash, jewellery, vehicles etc. are often based on the Will of the deceased or the laws of succession laws. For a smooth transaction proper documentation such as legal heir certificates, valid Will and such other documents as necessary are required.

In the other end the inheritance of the immovable property such as real estate, buildings etc. involves complex legal proceedings. The location of the property is essential as different states in India may have different regulations and legal procedures.

Cross-border inheritance laws

The cross-border inheritance laws or International estate planning were introduced by European Union along with other international treaties to curb the inheritance laws and to introduce a common law for inheritance to elevate the succession pattern of the assets held by people in continents other than their hometowns. It is applied if a person lives in a country which is not their country of origin or if the person own assets in more than one country other than his country of origin or in the event, they own assets in more than one country.

These inheritance laws determine which country handle a person’s inheritance or succession of a person spread across different nations. Lack of proper understanding of the concept of inheritance laws of the country could lead to possible reaching of assets in wrong hands and possible losing of the ownership of the titles.

Let’s understand this in detail with an example:

Mr. A, is an NRI of Indian origin, he is a practicing Hindu who has been settled in US with his family for more than 30 years. He had a successful career in US as a renowned cardio surgeon. Over the years, he acquired various assets, including property and financial investments in US and India. On a fateful day, Mr. A passed away suddenly leaving his wife and children unaware of details of his financial investments and assets he made in US and India. 

This above situation could result in conflict of laws, which refers to the situation when different countries legal systems come into play. This occurs when an NRI’s assets are situated in one country, but they have legal ties with another country.

When it comes to handling the Indian assets of Mr. A, who is a Hindu, Hindu Succession Act of 1956 is applied as in India the legal framework for inheritance is based on the individual religion. The distribution of the assets is handled as per the Act.  

In the US the inheritance laws are based on whether the states fall under the community property states or under the common law state, as inheritance law differs based on its jurisdiction and has its own set of rules regarding the distribution of the assets after death. Hence Mr. A’s assets in US is subject to the inheritance law of the respective state.

Here, the family of Mr. A face the challenge of satisfying the requirements of two distinct legal systems which would result in legal complexities, delays in asset distribution, additional mental stress to the distressed family and such other traumas. 

Role of Will  

A Will is a legal document that specifies how the assets and properties that a person owns should be distributed in the event of his death. For NRIs, drafting a Will should be an essential document which ensure that their wishes are carried out, and that their legacy is protected.

When a person dies without leaving behind a valid Will the distribution of assets may not happen as per his intentions, this could result in tensions within the family and could often result in long legal battles.

A well drafted Will could address the complexities and helps mitigate the potential disputes that could arise. A person can include clear instructions in his Will as to distribution of the assets, irrespective of the legal system and religious constraints.

The key elements that an NRI should keep in mind while drafting a Will are: 

• Complete list of assets and its details 
• Intended beneficiaries  
• Executor of the Will 
  
• Details of the witnesses 
  

To ensure that a person’s Will is meticulously drafted it is advisable to seek guidance from a professional legal expert to ensure the compliance of the Will and its registration and execution thereafter with both Indian and foreign laws. To validate the Will it is necessary to register the Will in India as well as abroad.

A Will once drafted should be periodically updated with the change in the financial planning and life of a person to ensure protection of the legacy and secure their loved ones.