Interestingly, in last few years our Prime Minister, Shri Narendra Modi Ji has addressed the Indian Diaspora in several countries where he had thanked the NRIs for the services provided by them to our nation in the form of the remittances, which they sends to India. Well, you would be amazed to know that the remittances, which the NRIs sends to our country forms up to be a significant part of the Indian Economy. Therefore, now in this very reference our honourable PM Modi has also invited the NRIs to setup their wealth management trusts in India, which can significantly contribute towards the welfare of the Indian Citizens. Well, in this particular article, we shall delve into the basics of forming a wealth management trust in India from NRIs point of view and highlight all the necessary steps that are part of the process!

Introduction to the Concept of Wealth Management Trust

In the intricate world of wealth management, a powerful instrument shines, i.e. the Wealth Management Trust. This legal entity acts as a secure haven for your assets, safeguarding them for your loved ones while offering a multitude of benefits. Picture it as a dedicated guardian, meticulously managing your investments, property, or cash for the sole purpose of your beneficiaries’ well-being. At the heart of this structure lie three key figures – the Grantor, the individual gifting their valuable possessions; the Trustee, the custodian entrusted with the responsibility of ensuring their judicious growth; and the Beneficiaries, the recipients of this prudent stewardship. Their journey unfolds under the guidance of a meticulously crafted trust agreement, dictating how and when the assets are nurtured and ultimately distributed.

What Makes this Tool so Enticing? Its advantages whisper promises of financial security. Firstly, it stands as a fortress against creditors and lawsuits, shielding your cherished possessions from external threats. Secondly, it can become a tax haven, minimizing burdens like estate, income, and capital gains taxes. Thirdly, it grants you the power to orchestrate the destiny of your wealth, determining the timing and manner of its distribution to your beneficiaries. Finally, it acts as a bridge across generations, ensuring a smooth and efficient transfer of your legacy, bypassing the intricacies of probate. However, even amidst these dazzling benefits, variety reigns supreme. Different types of trusts cater to your specific needs. The Revocable Living Trust grants you continued control while offering protection and streamlined inheritance. The Irrevocable Trust, while relinquishing control, strengthens your defences against creditors and paves the way for significant tax savings. For the generous soul, the Charitable Trust offers a platform to support your favourite cause while still reaping tax advantages!

Details upon Board Members

Well, the details upon the board members of a wealth management trust are mentioned as follows –

Who Can Be Board Members

Any individual who is of sound mind, and has attained the age of majority can become a board member of a trust in India. This includes Indian citizens, foreign citizens, and non-resident Indians (NRIs). In a trust, the board members are known as trustees. Trustees can be individuals or corporate entities. In India, a trust must have a minimum of two trustees. The trustees’ primary duty is to manage the trust’s affairs and assets for the benefit of the beneficiaries.

How to become a Board Member

To become a board member of a trust, an individual must be appointed by the settlor (the person who creates the trust) or by the existing board members. The settlor can specify in the trust deed the criteria for appointing board members such as age, qualifications, and experience. NOTE: Any individual or entity, including foreigners, can become trustees of a trust. ‘Trust Deed’ is a legal document that outlines the trust’s objectives, powers, and terms, should specify the appointment procedure!

Discharge from Board Member Position

Trustees can be discharged or removed from their positions under specific circumstances, which should also be defined in the trust deed. Common reasons for removal include misconduct, incapacity, or the trustee’s own request to be discharged. The ‘Trust Deed’ should outline the process for appointing new trustees in case of vacancies.

The board members can be discharged from their position under the following circumstances –

•        If they die or become incapacitated.

•        If they resign.

•        If they are removed by the settlor or the other board members.

•        If they are convicted of a crime that involves moral turpitude!

Details upon Residency Requirements

There are ‘No Specific Residency Requirements for Trustees in India!’ Indian citizens, foreign citizens, and NRIs can all act as trustees of a trust in India. Moreover, the trustees are expected to fulfil their duties as outlined in the trust deed, regardless of their residency. NOTE: There are some restrictions on foreign trustees. For example, foreign trustees must have a local representative in India who is responsible for dealing with the government and other authorities on behalf of the trust.

Details upon Taxation

Taxation of trusts in India can be complex and depends on the type of trust and its income sources. For charitable trusts, they can enjoy tax exemptions under certain conditions, as specified by the Income Tax Act, 1961. However, it is essential to comply with all the tax regulations and reporting the requirements. NOTE: Trusts in India are subject to income tax on the income they generate. However, there are certain exemptions and deductions that trusts can avail of. For Example, trusts that are engaged in charitable activities are exempt from income tax. Additionally, trusts are allowed to deduct certain expenses, such as administrative expenses and expenses incurred for the benefit of the beneficiaries!

Steps Involved In Trust Formation

To form a trust in India, the settlor must create a trust deed. The trust deed is a legal document that sets out the terms and conditions of the trust, such as the purpose of the trust, the names of the beneficiaries, and the powers and duties of the trustees. The trust deed must be registered with the Registrar of Trusts in the state where the trust is located. NOTE: Once the trust deed is registered, the trustees can start managing the trust’s assets and carrying out the settlor’s wishes. The trustees must act in the best interests of the beneficiaries and must keep the proper accounts of the trust’s finances.

Details upon the Types of Trusts

Some important details upon the Types of Trusts in India are mentioned as follows –

• Trusts can be formed for a variety of purposes, such as to provide for the education and welfare of minor children, to manage the assets of a person with a disability, or to carry out charitable activities!

• Trusts can be created for a fixed period of time or in perpetuity.

• Trusts can be either revocable or irrevocable. A revocable trust can be modified or terminated by the settlor at any time, while an irrevocable trust cannot be modified, or terminated without the consent of the beneficiaries!

• Trusts can be structured in a variety of ways. For example, a trust can be a simple trust, where the trustees are only responsible for managing the trust’s assets and distributing the income to the beneficiaries, or a complex trust, where the trustees have more discretion in how they manage the trust’s assets and distribute the income and principal to the beneficiaries.

It is important to note that the laws governing trusts in India are complex and can vary from state to state. It is therefore advisable to consult with a qualified lawyer before forming a trust.

Basic Requirements upon the Formation of Wealth Management Trust

Some of the basic and the most necessary requirements upon the formation of wealth management trust in India are mentioned as follows –

Trust Deed

The trust deed is a critical document that specifies the trust’s objectives, powers, and the roles and responsibilities of trustees. It should be executed on non-judicial stamp paper, and both the settlor and trustees should sign it.

Registration

While it is not mandatory to register a trust, it is advisable to do so, as registration can provide legal recognition and certain benefits!

Bank Account

Opening a separate bank account for the trust is a standard practice. It is important for managing the trust’s finances.

Compliance

Trusts in India must comply with various laws, including the Indian Trusts Act, 1882, and income tax laws. Regular meetings and maintaining proper accounts are crucial for compliance!

Objectives

The trust deed should clearly outline the trust’s objectives, whether they are charitable, educational, religious, or for the management of private assets.

NOTE: Forming a trust in India requires careful consideration of the trust’s purpose, structure, and compliance with legal and tax regulations. Seek legal counsel or professional advice to ensure that the trust is established correctly and can effectively fulfil its intended purpose!

Benefits of forming a Wealth Management Trust in India

There are several benefits of forming a wealth management trust in India; some of the key benefits are mentioned as follows –

Asset Protection

Trusts shield assets from the settlor’s personal creditors and protect them from potential legal disputes within the family.

Tax Optimization

NRIs can benefit from tax exemptions and avail reduced tax rates on the income generated by the trust assets depending on the type of trust and applicable regulations!

Succession Planning

Trusts provide a clear and efficient mechanism for wealth transfer to beneficiaries, avoiding the complexities of intestate succession laws and legal delays.

Professional Management

Trustees, who can be professional wealth managers or trusted individuals, ensure professional investment management and asset protection, offering peace of mind to the NRIs who are residing outside India!

Flexibility and Control

The trust deed allows the settlor to define the powers and responsibilities of the trustees, specify beneficiary entitlements, and tailor the trust’s objectives to suit their specific needs and goals.

Conclusion

For NRIs, setting up a wealth management trust in India can be a valuable tool for securing their assets, streamlining wealth transfer, and ensuring their loved ones’ financial well-being. By understanding the benefits, legal framework, and necessary steps involved, NRIs can leverage this option to bridge the geographical distance and manage their Indian wealth efficiently and effectively. While seeking professional guidance from legal and financial advisors is crucial, taking the initiative to create a wealth management trust can empower NRIs to secure their financial future and leave a lasting legacy for their loved ones. Moreover, it is important to remember that with careful planning and informed decision-making, NRIs can navigate the process of setting up a trust and ensure that their wealth continues to grow and benefit generations to come!