Manoj Ladwa explains why people of Indian origin need to be extra careful in protecting their assets.
Estate planning is increasingly becoming an important area of consideration for individuals across the world. Non-Resident Indians and people of Indian origin with assets in India can be particularly vulnerable. While investment planning of assets is crucial, an equally important area of concern is also managing hard-earned assets after death.
Dying “intestate” – without making a Will – can create a lot of unnecessary hassles in the distribution of property, especially if the assets are located in multiple jurisdictions. People of Indian origin with assets in India and the UK may end up paying a substantial amount of inheritance tax (IHT) in the UK owing to lack of planning.
An individual’s liability to UK inheritance tax is primarily governed by their domicile at the time a transfer of value takes place. A person domiciled in the UK is liable to inheritance tax on the total value of his or her assets wherever in the world these are situated. However, the law provides certain exemptions which can be a definite advantage for people of Indian origin. As per the double taxation relief between India and UK, a domiciliary in India is exempted from paying UK inheritance tax on assets situated in India. A Will is helpful evidence in demonstrating Indian domicile.
Indeed, estate planning is a systematic and continuous process fulfilling various social and even spiritual obligations while protecting the assets from avoidable cost and management implications.
A Will isn’t just for dictating who should inherit the assets or care for children. There are many other matters which a Will can be used for, such as making contributions to charity or donating organs, as well as specifying funeral arrangements.
Despite having plenty of examples of complications arising in a family on account of not having a Will, according to the BBC, only three in 10 people in the UK have a Will. In 2010, the Treasury gained £53m from people who died intestate. And yet, in an increasingly litigious and global society, making a Will has never been more important.
Often it is the reluctance of revealing assets and other sensitive information regarding property that becomes a major cause of people not writing a Will. However, a Will does not require complete disclosure if it is accompanied by a readily accessible log containing comprehensive information only to be accessed by executors.
Creating a Will in India is a process which needs to be navigated carefully. Much of Indian law and procedures on succession planning is carved out of English law.
Many people of Indian origin prefer creating two Wills to provide for clear demarcation between their assets spread out across borders. As highlighted earlier this may help to legally shelter Indian assets from potential UK IHT.
In India, it is also possible to register a Will, which can significantly reduce the risk of disputed Wills, which is unfortunately a common feature within Indian families.
The property of the person dying intestate will be inherited by his heirs in accordance with the laws of succession In India, matters of personal law fall into the purview of religious codes of conduct. For example, if Mr. Patel, a Hindu, dies intestate, as per the Hindu Succession Act, his property would pass on according to a long list of “legal heirs” specified under the Law. The execution of his Will may also be subject to challenge by the specified heirs. If Mr. Ali, a Muslim, dies intestate, his entire estate will be distributed according to Islamic Law, which pre-supposes ownership of specific members of the family.
Following these personal laws, at times, can be a long and cumbersome process, even inviting litigation. The true wishes of the testator will also often be ignored.
Hence for all the reasons above, people of Indian orgin who have assets in India should be encouraged to ensure they have the cover of an Indian Will as part of broader financial management and tax planning.
