Gautami Gavankar is CEO – Estate Planning & Trusteeship and Head – Family Office at Kotak Mahindra Group
The Covid-19 pandemic was a wakeup call for tycoons and entrepreneurs across the globe. While some businesses swiveled their operations, many were forced to shut shop. Other than stirring instability in the social and political landscape, the pandemic also wreaked havoc in the economic sector globally, and international markets are still struggling to recover from the impact of the multiple waves. The world has also been reminded of the importance of prioritizing health and wellbeing, which has led to a growing interest in succession planning among high-net-worth families. Financial protection and the smooth succession of wealth have become a significant concern and many families have prioritized setting up a definite estate plan. A mind-set shift has led to a great deal of exploratory interest in emigration and acquiring foreign residencies and citizenships, where permitted. The externalization of wealth is also an important trend leading many families to choose to move a portion of their assets offshore.
Given that the Indian government prohibits dual citizenship, many Indians aspiring to have a global presence have chosen to take up an alternate residence in places such as Portugal, the UK, and Dubai. Lately, the golden visa programs offered by Portugal and the UAE have evinced a lot of interest among Indian families. However, it is important to remember that emigration must go hand in hand with efficient tax planning, especially in the case of jurisdictions that are not tax friendly. We have also noticed that families with roots in India are keen to retain their Indian citizenship but wish to have an alternate place to reside in the future for reasons such as ease in travel, education for their children abroad, or sometimes just to have an option in the future.
The past decade has witnessed a steady rise in formalized family offices (FOs) constituting personal wealth of promoters and business magnates apart from their commercial ventures. Most families find that FOs embody the ideal structure for executing a consistent and unified wealth management plan as well as taking care of other requirements such as tax and legal advice. FOs provide services including tailor-made advisory and execution of investment management, estate planning, philanthropy, tax planning, offshore planning. Many Indian families are keen on setting up FOs to invest in the Indian ecosystem as well as using a formal mechanism to invest abroad. We have increasingly seen clients show interest in such services that go beyond investments and setting up of FOs in India and offshore.
The pandemic has seen clients intent on ensuring that there is a plan in place if any unforeseen events were to happen. Depending on personal requirements or planning objectives, the most frequently used modes for succession planning are wills and private trusts.
Wills are necessary and every individual must have a basic will to ensure that their assets are bequeathed as per their intentions. While a will can ensure succession, a trust can take care of more holistic planning. A private trust can ensure that the interests of the family are protected, succession is smooth and unhindered, and assets are ring-fenced from future uncertainties.
Many families have created succession plans and ensured that there are separate wills for separate jurisdictions to ensure the smooth transmission of assets around the world. Many clients have also created and transferred assets into trusts in India for multi-generational succession and protection of assets.
Many high-net-worth families have increasingly been using the Overseas Direct Investment (ODI) route and the Liberalised Remittance Scheme (LRS) route to make investments offshore. Many families have been exploring these options because they feel the need to diversify their investment exposure to a different jurisdiction, to enhance and optimize returns, to maintain a small fund base outside as an option, and also to make the most of the facilities available to Indians to take funds offshore for investments. The recent changes in the ODI guidelines which have sought to reform the existing regulations and increase the ease of remitting money outside India will also lead to an increase in externalization of funds by Indian families.
As families and businesses move forward after the last two years of the pandemic, we have seen client interests change and the focus has been moving towards structuring holding entities to assist ease in administration, externalization of funds, estate planning, and impact investing. With the evolving nature of the private wealth sector, practitioners and advisors are expanding their perspectives to meet the rising demands of the new age clientele.
Disclaimer: The views expressed in this article are the author’s own and do not reflect the views of any organization.