Offshore Trusts and Succession Planning for Internationally Mobile Indian Families

An offshore trust works by a settlor transferring assets to a trustee outside India, who holds them for beneficiaries under a written deed. For mobile Indian families, tax depends on where the settlor, trustee and each beneficiary live. FEMA limits how residents fund it, and every residency move changes the answer.

• A trust is a relationship, not a company: the trustee owns the assets legally but must hold them for the beneficiaries.

• In India, discretionary trusts are generally taxed at the maximum marginal rate, revocable trusts are taxed in the settlor's hands, and resident beneficiaries must report foreign trust interests.

• Resident Indians face LRS and FEMA constraints when settling or funding an offshore trust; non-residents generally have more room.

• DIFC and ADGM foundations are a UAE alternative to a trust and can apply for UAE corporate tax transparency.

• Wills, trusts and residency need to be planned together: a move to Dubai, London or back to India can change tax, inheritance and reporting for the whole family.

What is an offshore trust, and how does it work?

An offshore trust is a trust whose trustee, and usually its governing law, sits outside the family's home country. The settlor transfers assets to the trustee, the trustee holds and manages them under the trust deed, and beneficiaries receive income or capital as the deed allows. Our guide to expanding between India, the UAE and the UK explains how this layer fits with business expansion.

There are four roles to understand:

• Settlor: the person who creates the trust and transfers assets into it.

• Trustee: usually a licensed trust company, which legally owns the assets and must act for the beneficiaries.

• Beneficiaries: the people (or causes) who can benefit, either with fixed shares or at the trustee's discretion.

• Protector: an optional person who can approve key trustee decisions, such as changing trustees or adding beneficiaries.

Trusts are either revocable (the settlor can take assets back) or irrevocable, and either discretionary (the trustee decides who gets what) or fixed (shares are stated in the deed). These distinctions drive tax treatment in almost every country, including India.

Why do internationally mobile Indian families use trusts?

Indian families use trusts mainly for succession, continuity and coordination across countries, not for secrecy. When children study in London, parents split time between Mumbai and Dubai, and the business has a UAE subsidiary, a single structure that outlives any one person becomes valuable.

Typical goals include keeping a family business undivided across generations, protecting assets for a vulnerable or young beneficiary, avoiding probate in several countries, and ring-fencing wealth from business risk. Our article on why founders no longer belong to one country describes the mobility pattern behind this.

What trusts do not do is make tax disappear. Tax authorities in India, the UK and elsewhere look through trusts to settlors and beneficiaries, and global information exchange means trustees report beneficiaries to their home countries.

How does India tax an offshore trust and its beneficiaries?

India taxes trust income based on who is resident and how the trust is drafted. The rules below are now in the Income-tax Act, 2025, which has applied since 1 April 2026.

Trust income. Where the trustee is non-resident and the income arises outside India, India generally has no direct claim on the trust itself. Indian-source income (Indian dividends, rent or gains) remains taxable in India.

Where beneficiaries' shares are indeterminate, as in a discretionary trust, income chargeable in India is generally taxed at the maximum marginal rate under section 307 of the 2025 Act (formerly section 164).

Revocable trusts. If the settlor can revoke the transfer or reacquire the assets, income is generally taxed as the settlor's income. For an Indian-resident settlor, an offshore revocable trust therefore achieves little for tax.

Distributions to resident beneficiaries. Distributions of capital from an irrevocable discretionary trust are often treated as capital receipts. Receipts from a trust created solely for the benefit of the recipient's relatives are generally outside the gift tax rule now in section 92 of the 2025 Act.

Distributions of income can be taxable, and the analysis depends on the deed and the facts.

Reporting. Resident and ordinarily resident individuals must report foreign assets, including interests as settlor, trustee or beneficiary of a foreign trust, in Schedule FA of their return. Non-reporting can attract a ₹10 lakh penalty under the Black Money Act, 2015.

Since 1 October 2024, the penalty and prosecution relief extends to foreign assets other than immovable property with an aggregate value up to ₹20 lakh. Beneficial interests should be reported correctly regardless; our article on beneficial ownership explains why the real owner matters.

Residence of the trust. If the trustee's key decisions are in substance taken in India, or if a family member effectively directs the trustee from India, the Indian tax department may argue that control sits in India. The same logic drives company residence under POEM.

What do FEMA rules say about Indian residents and offshore trusts?

FEMA is often the harder constraint. A resident individual can remit up to USD 250,000 per financial year under the RBI's Liberalised Remittance Scheme, with TCS under section 394 of the Income-tax Act, 2025 at 20% on most remittances above ₹10 lakh a year.

The LRS framework does not expressly list settling a foreign trust as a permitted purpose, and practice among banks varies. Where the trust then invests in an overseas company, the Overseas Investment Rules, 2022 also need to be considered.

Our explainer on ODI rules and our comparison of funding an overseas company through ODI or LRS cover the investment routes.

Non-residents have more room. An NRI living in Dubai can settle an offshore trust with foreign-earned assets without LRS limits. Under section 6(4) of FEMA, a person resident in India may continue to hold foreign assets acquired while non-resident or inherited from a non-resident, which matters when beneficiaries later return.

In the other direction, NRIs inheriting Indian assets can generally repatriate up to USD 1 million per financial year from NRO balances, subject to tax and documentation.

What are the UAE options: DIFC and ADGM foundations?

A foundation is a UAE alternative to a trust that many Indian families find easier to understand. It is a separate legal person with no shareholders, run by a council under a charter and by-laws, with an optional guardian.

DIFC foundations operate under DIFC Law No. 3 of 2018, and ADGM foundations under the ADGM Foundations Regulations 2017. Both allow the founder to reserve powers, name beneficiaries and survive the founder's death, and both sit within common-law court systems.

For tax, a UAE family foundation can apply to the FTA under Article 17 of the Corporate Tax Law to be treated as fiscally transparent, so that income is looked through to beneficiaries. Individuals in the UAE are within corporate tax only on business turnover above AED 1 million, and personal investment income is excluded under Cabinet Decision No. 49 of 2023. Our guide to UAE corporate tax in 2026 sets out the rates.

Indian tax law does not have a specific regime for foreign foundations. An Indian-resident beneficiary or founder may need to analyse the foundation as a company, a trust, or something in between.

For families who also want a family office, our guide to setting up a family office in Dubai explains how the two fit together.

How should wills work across India, the UAE and the UK?

Each country where the family holds assets should be covered by a will that is valid there, coordinated so that one will does not revoke another. Trusts and foundations reduce what passes through wills, but they rarely remove the need for them.

India. Under section 5 of the Indian Succession Act, 1925, succession to immovable property in India follows Indian law, while movable property follows the law of the deceased's domicile. India has no estate duty, which was abolished in 1985. Wills covering property in Mumbai, Chennai and Kolkata generally require probate.

UAE. For non-Muslims, Federal Decree-Law No. 41 of 2022 on Civil Personal Status has applied since 1 February 2023. Without a will, it generally gives half the estate to the surviving spouse and half equally to the children.

Non-Muslims can register wills with the DIFC Courts Wills Service or in ADGM, choosing beneficiaries and guardians for minor children. Without a registered will, UAE bank accounts can be frozen until heirship is settled.

UK. Since 6 April 2025, UK inheritance tax is based on long-term residence rather than domicile. A person is generally long-term resident if they were UK tax resident in at least 10 of the previous 20 tax years, and excluded property status of non-UK trust assets now depends on the settlor's long-term residence status at the time of each chargeable event, as set out in HMRC guidance.

What changes when family members move country?

Almost everything. A trust designed for a family resident in India may work badly once a child becomes UK resident or a parent moves to Dubai. The key is to review the structure before the move, not after.

Moving from India to the UAE. A settlor or beneficiary who becomes non-resident in India generally takes foreign income outside Indian tax. Indian citizens with Indian income above ₹15 lakh who are not liable to tax elsewhere can be treated as deemed resident under section 6 of the 2025 Act. Our guide to moving to Dubai from India and tax residency covers the tests.

Returning to India. Returning NRIs often qualify as resident but not ordinarily resident (RNOR) for a period, during which most foreign income stays outside Indian tax. That window is when trusts are usually reviewed, distributions planned and reporting set up.

A child moving to the UK. A UK-resident beneficiary is taxed on distributions under UK trust rules. Once they become long-term resident, their own worldwide estate comes within UK inheritance tax, and if they later settle assets into a trust, the trust can be affected too.

Behaviour also shifts residency in ways families do not plan. Our article on how founder behaviour quietly shifts tax residency explains how, and our piece on exit tax and moving the structure covers what happens when entities move with the family.

The Greenwolf view

Succession planning for a mobile Indian family is a design exercise, not a product purchase. We start with the people: who lives where, who will live where, who is capable of running the business, and who needs protection. The vehicle follows.

The stage questions we work through: Is the main goal continuity of the business, protection of a beneficiary, or simplifying inheritance across countries? Which family members are resident in India, and for how long?

Can the settlor genuinely let go of control, or is a foundation with reserved powers more honest? How will the structure be funded within FEMA? What happens to the tax position when the next family member moves?

Often, the right answer is layered: Indian private trusts for Indian assets, a UAE foundation for international holdings, coordinated wills in each country, and a clear governance document for the family. Where a holding structure already exists, the trust or foundation usually sits above it rather than replacing it.