Setting up a trust for your family can be a cost-effective move that safeguards your assets and facilitates distribution according to your wish. In the re-settlement of NRIs in India, setting up a trust has many advantages like tax efficiency, protection of assets, and estate planning advantages. With a flourishing Indian economy and friendly law favoring trusts, this has proven to be a very popular option. Below are the steps through which you can establish a family trust in India after returning from overseas.
Know the Types of Trusts Available
You can form various types of trusts in India depending upon your investment objectives. Public Trusts (charitable objectives), Private Trusts (for a particular class of people like relatives), and Specific Trusts (for particular objectives such as education) are most frequently employed. As an NRI coming back, you would be interested in Private Family Trusts, which can additionally be categorized into Revocable (modifiable while you are alive) or Irrevocable (irreversible once made).
Interesting fact: While modern trust laws in India draw from British common law, the system of trusteeship has a history spanning centuries in Indian society, one of the earliest forms of trusts being religious endowments.
Composition of a trust
Comprehensive documentation through a trust deed. The trust instrument should make it clear about the settlor (you, the person who is creating the trust), trustees (the persons who hold assets), beneficiaries (your relatives), and the purpose. The deed must clearly mention guidelines for passing assets, powers of the trustee, and succession plan information. If the return is by NRIs, cross-border effects and compliance with FEMA regulations need to be addressed.
Don’t forget that the trust deed needs to be registered with the Sub-Registrar of Assurances within your district in every state but perhaps one. You will need to pay stamp duty, different from state to state but usually 2-8% of the amount settled.
Choose Apt Trustees
The selection of the trustees is probably the most important choice in your trust planning. Since you are an NRI who has already filed, you can choose relatives and professional trustees such as chartered accountants or trust companies. The trustees will be held accountable in a fiduciary relationship and will be required to act in the best interest of the beneficiaries. They’ll deal with assets, invest, and follow all legislations. Consider having a trustee board with an odd number of members to prevent deadlocks in decision-making. You can also have successor trustees who will replace the main trustees in case the latter are no longer able to serve.
Transfer Assets to the Trust
After your trust is legally formed, you will need to vest the assets you wish to vest within it. The task depends upon the class of assets. In the case of property, you will need to sign and register transfer deeds. In the case of financial assets such as shares or mutual funds, you will fill in the respective institutions’ transfer forms. As a returnee NRI, you would be cognizant that repatriating foreign assets into an Indian trust could have involved convoluted tax implications. When transferring assets, have all records explicitly state the trust as owner and maintain good records of all transfers. Proper record-keeping will be a blessing when it comes to tax audits and distribution to beneficiaries.
Understand Tax Implications and Compliance
Tax treatment of your trust will go a long way in determining whether it will be successful or not. In India, the trust income is taxed either in the hand of the trust or in the hands of beneficiaries based on whether the distribution is discretionary or forced. As a returning NRI, you need to be very careful for double taxation problems and make use of available tax treaties. Trusts need to acquire a PAN (Permanent Account Number) and submit annual income tax returns. Also, if your trust invests or carries on business activities, there could be GST (Goods and Services Tax) compliance. Keeping yourself informed about evolving tax legislation is crucial to render your trust tax efficient.
Conclusion
Creating a family trust as an NRI returnee is a money-generating plan in the future with asset protection, succession, and tax benefits in the long run. Though being cautious documentation, trustee appointment, transfer of assets, and frequent compliance, the final benefits are worthwhile. By going through these rational steps and professional guidance, you can establish a healthy financial heritage to your Indian family. Begin making plans for your trust today so your loved ones will be set financially in your home nation.
FAQs
1. Can an NRI set up a trust in India while still living abroad?
Ans – Yes, but certain restrictions apply under FEMA regulations and it’s simpler after returning.
2. How much does it cost to set up a family trust in India?
Ans – Costs include professional fees, stamp duty, and registration charges, typically ranging from ₹50,000 to ₹2 lakhs.
3. Are trusts in India required to be registered?
Ans – Yes, registration is mandatory in most states with the Sub-Registrar of Assurances.
4. Can I include foreign assets in an Indian trust?
Ans – Yes, but with specific FEMA compliance requirements and potential tax implications.
5. How are trusts taxed in India?
Ans – Either at the trust level or beneficiary level, depending on whether distributions are discretionary or mandatory.
6. Can I modify my trust after creating it?
Ans – Only if it’s a revocable trust; irrevocable trusts cannot be modified after establishment.
7. What’s the difference between a will and a trust?
Ans – Trusts take effect immediately and avoid probate, while wills activate only after death.
8. Can minors be beneficiaries of a trust?
Ans – Yes, trusts are excellent vehicles for providing for minor children with appropriate guardianship provisions.
9. How long can a family trust exist in India?
Ans – Private trusts can exist for a maximum period of 100 years under Indian law.
10. Is professional help necessary to set up a trust?
Ans – Yes, consulting with legal and tax professionals is highly recommended for proper structuring and compliance.
Disclaimer: The information provided here is for educational and informational purposes only and should not be construed as financial, legal, or tax advice. Consult with a qualified professional before making any investment decisions. We do not accept any liability for errors or omissions in this information nor any direct, indirect, or consequential losses arising from its use.
