COVID-19 impact: HNIs restructuring family trusts, bringing money back to India

By Sachin Dave | ET Bureau | May 08, 2020

 MUMBAI: A Mumbai-based family with 25 members, which had created a family trust in Luxembourg a few years back, is now in a fix. Several family members who were studying or settled in Europe are exploring whether they could move back to India bag and baggage, after going through harrowing times during the continuing Covid-19 crisis. 

Advisers to the family trust are studying the implications of nationality change, possible tax demands, redistribution of assets and responsibilities and also how to buffer the family assets in case of a lawsuit or crippling claims. 

Similarly, many wealthy people who had created family trusts to hold their money and assets in tax havens are undertaking complex restructuring exercises to bring back money to India. 

The restructuring is triggered by a fear that they may not be able to access the money if they really need it, as they are unable to travel abroad due to Covid-19. 

Many promoters who foresee a situation where they may not be able to repay debts to the banks are also looking to insulate their assets by transferring them into private family trusts. The fear is that banks will go after their personal assets if they default on loans. 

In most cases, major restructuring is being undertaken to transfer a large chunk of money and assets to India. 

While the money would still lie in a trust and would be very much insulated, it would be accessible in India. 

“Many HNIs (high-net-worth individuals) who have invested outside India under various structures for various reasons are now looking to realign them and bring a large part of these to India. What Covid has made clear is that no country is safe and many HNIs who have business interest or opportunity in India want to hold most assets and money in the home country,” SNG & Partner managing partner Rajesh Narain Gupta said. 

In the last few years, several individuals have created family trusts in tax-friendly locations such as Malta, Dubai and Singapore to insulate themselves from taxmen, or other government agencies, in India. 

Assets, including shares held in India and money, were transferred and held in these trusts. 

“Many families are now looking to realign overseas trusts, and we are vetting several of these to see if it has any legal or tax implications if they are tweaked. Many families are also looking to include certain policies in the constitution of the trusts, which are a direct result of the Covid-19 pandemic and how it has eroded wealth. Instead of growth, asset protection and preservation has become a priority,” said Sandeep Nerlekar, the managing director at Terentia Consultants, one of India’s leading players managing family trusts. 

An Ahmedabad-based promoter, who owns a profitable auto-component business, is tweaking his trust as he expects a substantial rise in debt on balance sheet. 

His family had registered a trust in the UK, and the arrangement was that his two sons — based in the UK and Australia and who weren’t interested in the business —would get a monthly stipend. Now both sons are keen to move back so the trust is being tweaked to divide assets equitably to prevent disputes. 

Many families, who are expecting foreign-educated or foreign-settled members to return, are also reaching to “coaching experts”, who are taking extensive sessions even during the lockdown. 

“Many young family members who were born with a silver spoon are now looking to move to India and they have to be coached not just about the businesses here, but also to be a team player,” said Sunil Shah, a director of Evergreen Family Business Advisors.