Cross-Border Estate Planning: Trust in India + QDOT in US

Cross-Border Estate Planning Guide · Volume 4 of 6 · Option D: Trust in India + QDOT in US

This volume examines an Indian private trust combined with a US Qualified Domestic Trust (QDOT), using the series’ family estate across India and Washington State. The family circumstances, future valuations, exchange rates and tax computations below follow the publication’s case study.

The Series

Every volume in this series structures the same estate – Mr. Arjun’s Indian and Washington-State assets under a different succession vehicle. This volume covers Option D.

The Family & The Succession

A two-generation family holding assets in India and the United States. The fact pattern Option D is tested against.

Mr. Arjun

Father · First generation

Status: Indian citizen, Indian tax resident, Indian domicile. Not a US citizen.

Role in succession: Primary settlor; actual owner of Indian and US assets.

Mumbai, Maharashtra · Demise · July 2026

Mrs. Arjun

Mother · First generation

Status: Indian citizen, Indian tax resident, Indian domicile. Not a US citizen.

Role in succession: Surviving spouse.

Mumbai, Maharashtra · Demise · August 2028

Mr. Rohan

Son · Second generation

Status: US citizen (naturalised); US tax resident.

Role in succession: Successor trustee; ultimate beneficiary of the entire estate after Mrs. Arjun.

Seattle, Washington · Demise · NA

Mrs. Rohan

Daughter-in-law · Second generation

Status: US citizen (naturalised); US tax resident.

Role in succession: Receives the AM Technologies shares held by Mrs. Arjun on her demise.

Seattle, Washington · Demise · NA

The Estate Register – India | Acquisition

Seven Indian assets held across Mr. and Mrs. Arjun. Original cost is converted at the exchange rate of the year of purchase.

The Estate Register – USA | Acquisition

Two US assets, both held by Mr. Arjun. The USD/INR rates below drive every conversion in this volume.

Exchange rates: USD / INR

Purchase-year rates apply to original costs. Valuation dates use the 2026, 2028 and 2032 rates shown above.

The Estate Register – India | Value at Each Date

Indian estate at the demise of Mr. Arjun (2026), at the demise of Mrs. Arjun (2028, also the year of sale) and in 2032. Ownership and purchase details are on the acquisition page.

The Estate Register – USA | Value at Each Date

US estate on the same three dates, followed by the total estate.

Executive Summary

Present-value tax cost of Option D in the US and India, and the amount Mr. Rohan can repatriate.

Pros

• Probate-free Indian succession through the trust.
• The QDOT defers Mr. Arjun's US estate tax to 2028 and avoids US probate.
• Strong control and asset protection, and a clean multi-generational structure, with Mrs. Arjun protected as life beneficiary.
• Faster repatriation of funds.

Cons

• Upfront Indian stamp duty and registration on settling immovable property into the trust (a Will avoids this).
• High tax cost on capital gains in the hands of the trust.
• Trust setup, US trustee and ongoing administration costs.
• A lower amount is repatriated to the US.

Assumed discounting rate to be 8%. Stamp duty on trust settlement (India) of INR 70,20,000 is not included in the PV of India tax cost.

How Option D Works (1 of 2)

Trust and QDOT, from the settlement of the Indian trust to the lifetime of Mrs. Arjun.

1. Indian trust settled

The Trust

Mr. Arjun settles an Indian private trust holding the Indian estate (other than the AM Technologies shares bequeathed to Mr. Rohan), with Mrs. Arjun as life/first beneficiary and Mr. Rohan as ultimate beneficiary. Succession over the Indian assets passes under the trust deed, with no probate.

2. QDOT elected

2026 · Demise of Mr. Arjun

For the US-situs assets, Mrs. Arjun elects a QDOT (US trustee and US bank account), into which Mr. Arjun's Washington property and US shares are transferred, deferring US federal estate tax as well as Washington State estate tax by filing Form 706-NA.

3. QDOT holds the US assets

Lifetime

The QDOT holds the US assets during Mrs. Arjun's lifetime.

How Option D Works (2 of 2)

The second demise, the Indian estate passing to Mr. Rohan under the trust, and the sale and repatriation.

4. Mrs. Arjun passes

2028 · Demise of Mrs. Arjun

On Mrs. Arjun's demise in 2028:

The deferred US federal estate tax on the QDOT corpus becomes due (taxed once, on 2028 values).

Washington State estate tax applies on the Washington property.

The AM Technologies shares held by Mrs. Arjun are transmitted to Mrs. Rohan.

The Indian assets devolve on Mr. Rohan under the trust. He may hold them under Section 6(5) of FEMA, and on sale the proceeds are credited to the trust account and then to Mr. Rohan's NRO account.

5. Mr. Rohan sells

Sale

The inherited properties, shares, mutual funds and other investments may be sold to persons resident or non-resident in India.

Agricultural land, plantation property and farmhouses may be transferred only to persons resident in India.

6. Proceeds repatriated

Repatriation

Repatriation of up to USD 1 million per financial year from the NRO account; any excess requires prior RBI approval.

Washington State Estate Tax – Computation

Payable by the QDOT in 2028. Mrs. Arjun is treated as an NRA under US law, so only property situated in Washington is subject to the estate tax.

Present values are discounted at 8% for two years, to 2026.

US Federal Estate Tax – Computation

Payable by the QDOT in 2028. Washington estate tax is deducted in full under § 2106(a)(4) before the federal tax is computed.

Present values are discounted at 8% for two years, to 2026.

Indian Income Tax – Implications

The Indian trust is taxed when the Indian assets are sold in 2028. The rates below apply to a private discretionary trust under the Income-tax Act, 2025.

Long-term capital gains of the trust

Under the Income-tax Act, 2025, long-term capital gains (LTCG) of a private discretionary trust are taxable at the concessional rate of 12.5% under Sections 197 and 198, together with the applicable surcharge and 4% Health and Education Cess. This position is supported by the Mumbai Tribunal decisions in Jitendra Gala Navneet Trust and Anil Gala Navneet Trust, read with Section 164, CBDT Circular No. 6-P dated 6 July 1968, and CWT v. Trustees of H.E.H. Nizam's Family Trust (108 ITR 555) (SC).

Bank interest and other income

Other income, such as bank interest, is taxable at the Maximum Marginal Rate (MMR) of 30%, together with the applicable surcharge under the Finance Act and 4% Health and Education Cess. Niti Trust & Ors. v. CIT (221 ITR 435) (Guj) supports applying the MMR to discretionary trusts, while the Special Bench decision in Araadhya Jain Trust v. ITO (212 ITD 1) is confined to determining the applicable surcharge on MMR-taxed income.

For this illustration, the trust is assumed to be a private irrevocable discretionary trust. The tax implications would differ if the trust were characterised as a specific trust or a revocable trust under section 97 of the Income-tax Act, 2025.

Capital Gains Tax – India

Sale in the year 2028. Gains are taxed at the rates applicable to the trust: 14.95% on long-term capital gains and 39% on bank interest. Rural agricultural land is not a capital asset.

Time for Repatriation

From 2028. Net Indian proceeds, after Indian tax, are remitted from Mr. Rohan’s NRO account within the FEMA ceiling.

FEMA repatriation limit: allowed up to USD 1M per financial year.

FEMA Implications (1 of 2)

Mr. Rohan, an NRI, as beneficiary of the Indian trust, and the sale proceeds distributed to him.

1. Mr. Rohan as ultimate beneficiary

The Indian trust deed governs devolution of the Indian estate. Mr. Rohan, as an NRI/OCI, can be a beneficiary of an Indian private trust holding immovable property, and may continue to hold such trust interests under Section 6(5) of FEMA, 1999. However, if Mr. Rohan does not hold OCI registration, RBI approval would be required for holding or selling immovable property through the trust.

2. Distribution of sale proceeds

On distribution by the trust, sale proceeds from the trust assets will be credited to Mr. Rohan's NRO account. Agricultural land can only be transferred to a resident citizen of India; any violation attracts a penalty of three times the property value under Section 13(1) of FEMA, 1999.

FEMA Implications (2 of 2)

Remittance of the sale proceeds outside India.

3. Repatriation limit

Repatriation of sale proceeds is governed by Regulation 4(2) of the FEMA (Remittance of Assets) Regulations, 2016 (Notification No. FEMA 13(R)/2016-RB). Repatriation is permitted up to USD 1 million per financial year from the NRO account.

4. Above USD 1 million

Repatriation in excess of USD 1 million per financial year requires prior approval from the RBI.

Stamp Duty – Trust Settlement (India)

Settling the Indian estate into the trust attracts stamp duty upfront. A Will would avoid this cost.

Stamp duty on trust settlement: Stamp duty on trust settlement at 6% is applicable.

INR 70,20,000 — Stamp duty on trust settlement (India) at 6%.

Not applicable in Option D: Will registration · Probate in India and the USA · Stamp duty in the USA

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