What you need to know about inheriting assets abroad

In such cases, the surviving family in India may have to take several steps aimed at transferring the ownership of assets from the deceased to the next of kin. A lot will depend on factors such as the country where the assets are located and whether the deceased left a will or not. In the absence of a will, the transfer of any movable and immovable assets (real estate property) may be treated differently.

Mint reached out to experts to understand what an Indian needs to know about inheriting any assets in a foreign country. In this article, we have highlighted some details pertaining to four countries—the US, the UK, the UAE and Singapore—that are more relevant for Indians.

So, are you going to be governed by foreign or Indian laws in such cases? According to Sonali Pradhan, head of wealth planning, Julius Baer India, when an Indian is inheriting foreign assets, generally the laws of the foreign country will apply, and Indian laws won’t come into play.

Passing on assets

“In countries that have estate duty or inheritance tax, we have seen clients set up a trust for their estate planning. This is obviously assuming that their assets exceed the exemption limit,” says Pradhan. According to her, owning a trust also ensures that the beneficiaries do not have to face any hardship by going through a court process, making it easier to inherit assets. “If a country doesn’t have inheritance tax, then most people pass on their wealth by just writing a will.”

The US levies estate duty and the UK has an inheritance tax on a deceased’s estate. These taxes have to be paid off before the deceased’s assets can be passed on to the beneficiaries.

In the UK, an inheritance tax of 40% applies when the value of the deceased’s assets exceeds £325,000.

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In the US, the estate duty can be 40-50% including federal and state estate duties. For a US person (such as a US citizen or a green card holder, for example), the estate duty applies when the deceased’s assets exceed $12.06 million. For someone who is not a US person but has assets in that country, the limit is set at $60,000. Note that, no estate duty applies in the US when assets are transferred between spouses on the death of either of them.

Singapore and UAE do not have any such tax. In India, you do not have to pay tax on any inherited assets (whether located in India or elsewhere) but you will have to disclose them in your tax returns. Thereafter, any income from these assets will be clubbed with your income and taxed as such.

So, what is the process for transfer of assets under these cases? Also, what happens when someone dies intestate, that is, without leaving a will or creating a trust?

Where there’s a Will, there’s a way

According to Pradhan, if the deceased has left a will, the court process (getting a probate) can take at least a year or so. First, the executor has to establish the identity of the beneficiaries, and then apply for a probate to a court in that country. Once the probate is done, the executor has to pay off taxes from the estate and only then distribute the estate to those named in the will.

But, to be able to pay tax in the US, for example, the executor or the administrator will have to apply for a TIN, or Tax Identification Number (similar to PAN in India), if the individual doesn’t already have one. “You can apply for the TIN online but if you don’t understand some of the terminologies and what documents are being asked for, this itself can take some time,” says Pradhan.

If the deceased did not name any person as an executor, the next of kin will have to approach the court to get classified as an executor / administrator before proceeding further with transmission.

“In case of a trust, transmission is a straightforward process. Devolution of assets can begin once the identity of the beneficiaries to the trust has been established by the trustee,” says Pradhan.

In the case of UAE which follows the Sharia law, the situation is altogether different.

“Those who do not want to be governed by Sharia laws, can pass on their assets through a trust. Alternatively, one can have a legally valid will (non-Arabic, written in English) by registering it in the DIFC,” suggests Pradhan. DIFC or the Dubai International Financial Centre is a separate financial centre in Dubai that follows the common law system.

According to Bijal Ajinkya, partner at Khaitan & Co, the process of probate with the DIFC courts is simple, and more cost-effective compared to the Sharia courts, as the legal heirs can approach the authorities on their own and do not require a lawyer to represent them. Probate of a DIFC-registered will may take even less than a month.

Having a legally valid will, or a trust, ensures that the succession goes through smoothly as documented, superseding the succession laws of the country where the deceased resided. This is, however, not so in case of intestate succession.

Where there’s no will, there’s no easy way

In such a situation, according to Pradhan, for immovable assets, the law of the country where the asset (property) is situated will apply. In case of movable assets, the courts will go by the succession law of that country, and in the absence of that, by the law of the deceased’s country of domicile.

Ajinkya explains how the domicile status may get determined. There are countries which have a deemed domicile status based on which if someone has lived there for a certain number of years, then they are considered to be a domicile of that country.

In other countries where there is no domestic law on this matter, then as per international law, one becomes the domicile of that country wherever there is an intention to reside permanently.

For example, someone living and working in the UK for an extended period but still having economic and cultural ties with India can be considered as a domicile of India. Pradhan provides another example—if the deceased was a resident of the UAE, but was a citizen of India or had his permanent establishment in India, then the court will distribute the movable assets as per the law of the deceased’s country of domicile, which in this case is likely to be India.

Not having a will, therefore, leaves the distribution of assets to be determined as per the laws of the relevant country. This can bring in much complexity to the entire process. Not just that, even before the law takes over, the heirs will have to first find out what assets he or she owned, where they are located and their value.

Other challenges

Apart from this, what are some of the other challenges that can crop up when inheriting assets? Ajinkya highlights a few.

Recalling a recent case where the deceased had assets both in the US and in India (Mumbai), she says that in such cases there is no clarity on whether a probate will be required in both the countries or if one country’s probate will be respected in the other county too.

Another practical issue that can come up pertains to payment of inheritance tax / estate duty for assets in foreign countries. “Under Indian law, there is a limit on how much foreign exchange can be sent out. In one case, a family in India had to seek RBI’s approval to send a higher-than-permitted amount for payment of such taxes.” For the sake of convenience, legal heirs can choose to pay off the tax themselves before assets from the deceased’s estate are distributed.

While not all hassles can be predicted or dealt with, writing a will can make the process of transmission smoother for the next of kin.

Writing a will is, therefore, necessary, more so when it involves assets that are located in a country that is different from where your likely heirs reside in.

However, you must ensure that it is a legally valid will with respect to that country. For example, in India, for a will to be valid, it must be signed by the testator and must have the signatures of two witnesses as well.