Will vs Trust for NRIs

Will vs trust: the key difference between them lies in timing and control. A will is a legal document that states to whom you want to hand over your property, assets, and minor children after your death. Considering this, if you die without making it, your legal heirs face complex succession laws. It further increases costs, time, and the likelihood of family disputes. 

In contrast, trusts provide a different way to protect assets. It enables the smooth transfer of assets. Additionally, in some jurisdictions, it reduced estate-tax exposure, provided privacy, and avoided the probate process. 

Will only take effect after your death, whereas a trust operates during your lifetime or after you pass away. To help you out, this blog explains the difference between wills and estate planning, help you make the right decisions about keeping your assets across borders. 

What is a Will?

Under the Indian Succession Act, 1925, a will is a legal document where the testator (you) states after your death how your assets and properties will be distributed. However, if you die without making a will, it leaves your legal heirs facing delays, conflicts, and costs to claim assets via succession laws. Further, let's know the key features of a will:

• It clearly states who gets what specific amounts and assets.
• Simplifies tax planning.
• Excludes unwanted heirs on property and assets.
• Probate under section 213, in some states it strengthens its validity. 
• Under section63, signed with two witnesses, if properly executed, it is hard to challenge.

Further, to avoid gaps, with the help of an estate lawyer, anyone can draft a will. However, in the absence of personal laws, for instance, under the Hindu Succession Act, 1956, state distribution of assets is often against your choice. 

This was all about a will. Moving ahead, let's know about trust. 

What is a Trust?

A trust can be defined as a legal arrangement where a trustee (you) gives a trustee authority to handle assets for beneficiaries. A trust is governed under the Indian Trusts Act, 1882. Unlike wills that come into effect after your death, trusts can be made and operated during your lifetime. 

Additionally, it provides privacy, as they are not part of the public record, and bypasses probate. Additionally, it also allows more structured inheritance. Apart from this, it also helps you in protecting your wealth from family disputes, creditors, or other external risks. Now, let's know the key features of trust:

• Keep details of your assets private.
• Offers flexible living (created now), funded, unfunded, testamentary (post-death), revocable, or irrevocable.
• Controls distribution, for instance, phased amounts to young heirs.
• Helps in reducing taxes, for instance, capital gains for beneficiaries.

State planning via Trust is ideal option, helping you protect your wealth for your heirs. So, this was all about trust. Moving further, let's know the key difference between will and trust. 

Key Differences: Will vs Trust

The table below showcases the key difference between will and trust:

So, these were the key differences between will and trust. Moving ahead, let's know the key factors NRIs should consider.

Key Factors NRIs Should Consider

The key factors NRIs should consider are as follows:

• Jurisdiction and Domicile: In India, immovable assets follow Indian succession law, whereas movable assets follow domicile law.
• Tax Implications: Inheritance tax is not levied in India. However, countries like the US impose an estate tax of a maximum 40% with limited tax exemptions for NRIs. In this, the double taxation avoidance agreement can help in reducing your tax burden.
• Religion-Based Succession Rules: The Hindu Succession Act is followed by Hindus, Sikhs, Buddhists, and Jains. In contrast, Muslims follow personal law, under which only a maximum of 1/3 of the estate can be willed away.
• Regular Reviews: You should review the estate plans every 3 to 5 years or after major life changes. 
• Probate Requirements: In Kolkata, Mumbai, and Chennai, for wills involving immovable property, probate is mandatory. In trust, this process is bypassed.

These are some of the key factors that you should consider while opting for trust and will. Now, moving further, let's know whether NRIs can combine a will and a trust or not.

Can NRIs Combine a Will and a Trust?

Yes, NRIs can combine a will and a trust. You do not have to select between the two options. Several NRIs find that using both, i.e., will and trust, offers the most comprehensive coverage. A will certifies that all assets, specifically those obtained after setting up a trust, should be covered. A trust improves privacy, provides structured transfers, and speeds up distribution.

Further, this combined approach offers a complete framework for estate planning. For instance, major assets are managed by a trust, while the will outside the trust directs what happens to your residual assets. The combination of both will and trust reduces the dispute risk, avoiding delays, and helps in tax-efficient cross-border planning. 

Final Thoughts

Lastly, with both having their own pros and cons, wills and trusts are effective tools of estate planning. Will provide simplicity, whereas trust provides privacy and control. The selection between them depends on the estate size, needs of hier and financial goals. In short, the best option between will and trust depends on your situation. In several cases, combining both of them offers an effective structure for asset protection, distribution control, and probate avoidance. 

Further, if you need any help in estate planning in India, connect with Savetaxs. We have a team of tax professionals who are familiar with Indian and global estate planning. With them by your side, you can ensure your investment across border work seamlessly.