Why succession planning is crucial for overseas Indian investors

Inheritance issues can lead to lengthy legal disputes between family members and come at a steep cost

Investors must practise good succession governance, at the core of which is a well-crafted legal strategy. Getty Images

A British citizen of Indian origin died in London in 2022. Hindu by faith, he was unmarried and had no children.

He owned two houses in London, an apartment in New Delhi and a villa in Dubai. Additionally, he had a share in his family’s ancestral home in Uttar Pradesh, India.

He also left behind £2 million ($2.5 million) in his bank account and a similar amount in mutual funds in London.

A year before his death, he visited India where he executed a will, bequeathing all his properties to his Indian nephew living in New Delhi.

When the nephew claimed his properties based on this will, he found three sets of laws staring in his face – the laws of India, England and Wales, and the UAE.

In India, he was told that since his uncle was a British citizen, he would have to prove the will by a long legal process.

In England, his solicitors advised him that the will was invalid since his wife had signed it as a witness. The beneficiary’s spouse is not an acceptable witness to a will in England and Wales.

In the UAE, he was faced with Islamic law.

What will happen to the properties? Will it vest in other members of the Hindu joint family?

Every now and then, such questions face members of the Indian diaspora globally.

Overseas Indians constitute the world’s largest overseas diaspora, with about 33 million people of Indian origin living outside the country, according to a recent report by the government of India.

Out of these, about 3.5 million live in the UAE and two million in the UK.

Most of these people still have real connections with India through close family members who live there, or through shares in family properties.

In the last few years, India has also registered huge investments by the diaspora in its real estate market.

The fall of the Indian rupee has drastically increased the diaspora’s demand for residential property in India, with members living in countries with stronger currencies such as the UK and profiting from the rupee’s decline.

A major reason for foreign investment in the Indian property market has been the enactment of the Real Estate Regulation Act 2016, which has replaced the diaspora’s scepticism with confidence and optimism.

Regrettably, most members of the Indian diaspora in the UK and the UAE have failed to show much farsightedness in terms of succession planning.

They engage investment advisers while purchasing property but forget that life is fleeting and that they must also decide the fate of their investments after they are gone.

They can do this only by executing legally sound succession documents that will be legally upheld in India, as well as in the UK and the UAE.

When it comes to wills, inheritance, trusts and disposition of properties, the case of India is peculiar: Who will inherit naturally from you? What would be their shares in your estate in the absence of a will? Can you give everything away by will to a chosen few? How can you dispose of your property? To whom can you give a gift and how?

Answers to all these questions depend on the law applicable to you. What the diaspora seems to be unaware of is that in India, most property-related rights are governed by the personal laws applicable to the owner.

Hindus, Sikhs, Jains and Buddhists are governed by the Hindu law, which has extraterritorial application, while Islamic law or Sharia applies to Muslims and the Christian personal law to Christians. Likewise, the Zoroastrians have their own personal law.

In some instances, it may be possible for one to opt for a common civil law, irrespective of faith, but this is mostly not the case and faith-based laws continue to apply.

When the owner is an overseas citizen of India or a non-resident Indian, these laws come in conflict with the laws of the country they are a citizen of or resident in. Thus arises a situation of “conflict of laws”.

It is, therefore, imperative for investors to be conscious of the settled principles of private international law not simply in succession planning but also while investing.

At the same time, the UK and UAE courts should be persuaded to uphold testamentary and other documents executed in India according to the prevailing Indian laws.

Inheritance and property-related questions can lead to lengthy disputes between family members and have the potential to destroy the peace of mind of survivors, not to mention the steep cost of litigation.

Investors must practise good succession governance, at the core of which is a well-crafted legal strategy.

Anyone who has assets in another country and wants these to be transferred to their family, friends or towards a particular cause ought to seek expert legal advice on how to go about it.

Saif Mahmood is a lawyer and senior partner at legal and business advisory firm CMI & Co