The Indian Succession Plan That Doesn’t Travel

Do you have a Global trotter Family, read this.

A conversation that recurs, with a quiet sense of surprise, in Indian family offices: the patriarch had a perfectly serviceable plan, entirely based on Indian personal law, and then one of the grandchildren moved to Boston. Or London. Or San Francisco. And the plan, without anyone quite noticing, stopped working.

The problem is not the child’s decision. The problem is that Indian succession tools were designed for Indian succession. When a beneficiary is tax-resident or domiciled in another country, a whole second layer of rules — rules written in another capital, by another tax authority — begins to apply to the same assets. Those foreign rules do not defer politely to the Indian plan.

Families with children living in the United States need to consider federal estate taxes, which can be as high as 40 percent, while those with family members in the UK should plan for inheritance tax. Strategies that work in India, such as Hindu Undivided Families, might not yield the same benefits or tax advantages in other countries.

Read that passage twice, because two distinct things are being said.

The first is the forty-per-cent number. In the United States, federal estate tax can reach forty per cent on a decedent’s taxable estate above the applicable exemption. In the United Kingdom, inheritance tax is levied at forty per cent on the portion of an estate above the nil-rate band. These are not marginal numbers. They are close to the headline tax rate on pre-tax income in many jurisdictions. They apply to wealth at the moment it moves from one generation to the next.

The second is that Indian structures are not necessarily equipped for this. The Hindu Undivided Family is a creature of Indian personal law, designed around coparcenary concepts that do not exist in the US or the UK. An HUF share received by a US-resident grandchild does not carry with it the Indian tax treatment the family is used to. To the US Internal Revenue Service, and to the UK’s HMRC, the HUF is just a foreign entity — and the rules those authorities apply are their own rules, written without any thought of the Mitakshara school or the 2005 amendment.

Consider a hypothetical three-generation Pune family. Imagine Mr. Deshpande, who set up an HUF forty years ago to hold a portion of his family’s wealth — his share of an ancestral property and a bundle of listed shares. His son, Rahul, is a coparcener. Rahul’s daughter, Meera, moved to the United States for her graduate studies, took a job at a US company, and has been a US tax resident for eight years. She is now a coparcener of her father’s HUF by operation of Hindu personal law.

Mr. Deshpande, now in his mid-seventies, assumes his succession is broadly handled. The HUF will continue. Rahul will in time become the Karta. Meera, on paper, has a coparcenary interest. In Mr. Deshpande’s mental model, this is all sorted.

It is not. The moment Meera receives a share in any distribution from the HUF — or the moment Mr. Deshpande dies and any asset moves to Rahul’s HUF share in which Meera also holds an interest — a set of US tax questions opens up that have nothing to do with how Indian law characterises the transfer. The US may treat her share of the HUF as a foreign trust interest with its own reporting requirements, penalties for non-disclosure, and potentially punitive tax consequences. On Mr. Deshpande’s eventual death, the US estate tax question attaches to whatever passes to Meera, in whatever form, because she is a US taxpayer.

None of this is fixed by Indian planning alone. None of it is made worse by Indian planning either — but none of it is solved by Indian planning that does not think about her.

The stakes, for families at this scale, are large. A forty-per-cent tax on a share of wealth is not a rounding error.

A US-resident or UK-resident heir who receives assets through a structure that was not designed around her residency can find a significant fraction of her inheritance taxed away at the moment of inheritance, and the rest of it subject to ongoing reporting burdens that were not part of the family’s original plan.

The practical takeaway is to ask, before any major succession decision, one narrow question: where do the intended beneficiaries actually live and pay tax? Not where they carry a passport. Not where the family home is. Where do they file returns? The answer to that question determines which second set of rules will apply to the plan.

If the answer includes a jurisdiction like the US or the UK — where inheritance or estate tax can reach forty per cent — then Indian tools alone will not carry the load. The plan needs to be designed from the outset with that foreign rulebook in mind. HUF shares, distributions from Indian trusts, and bequests under Indian wills do not translate cleanly across that border. They translate, but into a language written by someone else.

An Indian plan that stops at the Indian border is only half a plan, the moment a beneficiary moves.