Originally published in Business Brief, December 2011.
The Nerine Group of Fiduciaries has become the first Channel Islands independent trust company to open an office in India. Nerine's Executive Chairman, Keith Corbin, examines the growth of the Indian market and looks at why now is the right time for trusts in the growing economy.
There are few people unaware of the growing economy in India. Indeed some commentators predict it will outstrip China's growth by 2015 and certainly those in the know are tipping a GDP of £6 trillion. Many see the potential of the region across all business sectors and those offering financial services are no exception.
Many might believe that, because India's legal system is based on British law, that the path to Anglo trust structuring for wealth preservation and family succession planning would be a smooth one. This is not the case. Indian family law is complex. Each religion has its own specific laws which must be adhered to. In some regions the registration of marriages and divorces are not required which can make clear, concise succession planning rather more complicated.
That said, there is no question there is significant potential for those in trust who are offering the right structures and understand the Indian market. In order to do this it is important to look at the history of trusts.
After independence in 1947 families used wills as a method of succession and estate planning. There was a range of different types of will on offer and the most popular was the Hindu Undivided Family Act (HUF) where all family money went into the common pool and all property was held jointly, across genders and across generations.
Several factors in the past ten years have meant that there has been a renaissance in trusts as a mode of succession and estate planning. One reason is the rapid and broad economic growth which is setting the agenda for change in a number of areas. The other, arguably, more significant reason is that large businesses which have been overwhelmingly successful have remained within the same family for more than two generations. Their needs have outgrown a HUF or equivalent and they now need a structure that ensures optimisation and continuity of ownership and management skills matching the business' needs now and in the future.
There remain no domestic tax benefits for family trusts but they are considered the perfect vehicle for succession planning. Three of India's largest and prominent businesses have led the way in terms of innovative trust structuring.
At the same time as the re-emergence of trusts as a solid financial structure in India, the government has relaxed its rules on remittance of funds abroad by resident Indians. Every individual is allowed to remit US$200,000 per year, including minors. This amount is expected to rise to US$400,000 in the next year.
As a consequence, high net worth individuals (HNWIs) have started to accrue assets outside India that are subject to foreign taxes and laws. Working with expert advisors in those jurisdictions, trust companies should be able to provide estate planning and wealth management solutions which meet the needs of each client.
This new found Indian desire to look further afield and to diversify their portfolios by investing in foreign equity and debt has not escaped the attention of many of the world's largest banks eager to offer up vehicles and products.
Here is where caution should be exercised if some of the more established offshore jurisdictions are going to stand a chance of seizing the opportunities that India has to offer. It is no good just to see the potential and dive in without careful consideration of a number of factors which dictate the way India does business. This kind of knowledge only comes from years of experience in the region.
Those who are keen to take advantage of India's burgeoning wealth but have no history in the country may run the risk of alienating the very people they want to court as clients; at the same time risking the firm's reputation and that of the jurisdictions they represent.
India's wealthy are attracted to face to face relationships built on mutual trust over time. They are very family-oriented and seek out service providers in all fields who demonstrate a similar focus. They are astute business people and underpinning all they do is a desire to ensure those they work with treat them with respect and understand their motivations for business.
The key is to be able to offer a raft of services to the right families in India who are looking beyond Mauritius. One way of achieving this is to have a global spread of expertise where the trust company can provide a range of solutions in a variety of geographies.
One of the strengths of India's economy is a "can do" approach to business. If client solutions are to achieve the objective of planning to protect future generations, those wealth management businesses seeking the work need to adhere to the highest professional standards.
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