Onshore vs. Offshore Estate Planning

Estate planning plays a vital role for individuals and families, especially those with assets or beneficiaries across multiple jurisdictions. Choosing between onshore and offshore estate planning structures involves evaluating legal frameworks, tax obligations, and regulatory contexts. This guide helps you understand both paths so you can protect and transfer wealth effectively.

What Is Estate Planning?

In essence, estate planning refers to arranging your assets in a way that supports your goals for legacy and wealth transfer. This includes reducing taxes, avoiding complex probate procedures, and maintaining control over asset distribution.

Onshore Estate Planning

Onshore planning involves using domestic instruments such as wills, trusts, HUFs (Hindu Undivided Families), and domestic trust structures. These are governed by local laws and tax systems.

• In India, trusts governed under the Indian Trusts Act, 1882, are regularly used by families to bypass probate, consolidate assets, and provide protection.

• Tax residency can play a decisive role: if an onshore trust has any management or control within India, it may become taxable as an Indian resident trust.

• Discretionary trusts with resident beneficiaries can subject the trustee to tax at the highest marginal Indian tax rate (30 percent).

Offshore Estate Planning

Offshore planning involves jurisdictions outside one’s home country. Tools include offshore trusts and foundations set up in jurisdictions with favourable tax and regulatory regimes.

• Offshore trusts offer confidentiality, asset protection, and tax-exempt benefits in certain zones. They can facilitate rapid estate transfers with fewer formalities.

• Offshore structures are often used for diversification of asset protection, especially in politically or economically uncertain environments.

• However, Indian tax law may still treat an offshore trust as resident and tax it, if the settlor or management has Indian ties.

Why the Choice Matters?

1. Tax Transparency vs Tax Efficiency
- Onshore structures generally face higher transparency and taxation.
- Offshore tools may offer efficiency, but they must withstand scrutiny under global information exchange norms like CRS and FATCA.

2. Probate and Litigation Risk
- Onshore instruments like trusts and HUFs are better integrated with the legal system.
- Offshore plans may avoid probate but must be carefully structured to avoid future legal challenges.

3. Regulatory Oversight
- Domestic instruments follow local probate and trust laws.
- Offshore planning requires expertise in foreign laws and local Indian regulations to avoid being treated as onshore.

Global Trends in Estate Planning

A recent UBS survey of ultra-high-net-worth families found that 53 percent now have an estate plan or will, up from 47 percent a year earlier, reflecting a global trend toward greater planning, according to data from The Wall Street Journal.

Estate planning for international assets is also increasingly complex due to varying legal, tax, and reporting rules across countries.

What Indian Investors Should Consider?

Element	Onshore Planning	Offshore Planning
Legal Structure	Indian trusts, wills, HUFs	Offshore trusts, foundations in friendly jurisdictions
Tax Implication	Transparent; subject to Indian tax	Potentially efficient; must consider CRS/FATCA and Indian anti-avoidance rules
Management Oversight	Fully within Indian legal framework	Requires careful separation of Indian control
Probate Process	Streamlined under Indian system	Probate can be bypassed; must align with Indian recognition
Regulatory Risk	Lower	Higher, especially if treated as onshore in India

Estate planning is about more than just passing on wealth. It is about doing so strategically. Onshore estate planning provides legal clarity and integration. Offshore planning offers greater confidentiality and tax potential, but it requires careful design to avoid adverse tax consequences and legal challenges.

For Indian families with domestic and global assets, it is critical to balance transparency, control, and efficiency. A combined or hybrid strategy using well-structured domestic and international instruments can deliver both tax effectiveness and legal stability.