Affluent Indian families investing heavily in US stocks are now facing a new concern: how to protect their children from America’s steep inheritance tax.
As portfolios in US-listed shares, stock options and restricted stock units grow sharply, many high-net-worth Indian families are realising that wealth held in the US can create serious tax complications for their successors.
According to tax experts, US inheritance tax can go as high as 40% on certain assets above $60,000 for non-US persons. This has triggered anxiety among wealthy Indian parents whose children are studying, working or settling abroad.
Many families are now exploring options such as offshore trusts, insurance structures and RBI-approved restructuring of overseas holdings. However, experts warn that these solutions are not simple because Indian foreign exchange rules under FEMA and the Liberalised Remittance Scheme are complex.
One major concern is that resident Indians cannot easily gift US stocks bought under the Liberalised Remittance Scheme to NRI children. There is also lack of clarity on whether sale proceeds from such stocks, stock options or RSUs can be directly gifted to NRI relatives.
This has created a tricky situation for parents who want to pass on their overseas wealth without exposing their children to a huge tax burden later.
Some experts say a cleaner option would be to gift overseas securities to children while they are still resident Indians, before they move abroad for studies or work. However, many wealthy parents are reluctant to give up control over their investments early.
Others are considering approaching the Reserve Bank of India for permission to move holdings into institutional or trust-like structures. Some are also looking at overseas life insurance products to offset possible inheritance tax liabilities.
The issue has also become linked to US immigration planning. With many families eyeing the EB-5 investor visa route for their children, some are selling foreign stocks, RSUs and options to fund the required investment. But here too, the rules are unclear.
Under LRS, unused overseas funds generally need to be brought back or reinvested within the permitted period. If parents sell overseas assets and use the proceeds for an EB-5 investment in the child’s name, it could raise regulatory questions.
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Experts warn that families trying last-minute shortcuts may end up in trouble later. Even if such transfers escape scrutiny initially, banks may question the source and structure of funds when money is brought back to India or moved again.
The larger message is clear: cross-border wealth, children’s foreign education, immigration planning and tax compliance can no longer be treated separately. For rich Indian families, the US dream now comes with a complicated wealth puzzle.
Without careful planning and proper regulatory approvals, the next generation could inherit not just assets, but also a heavy tax and compliance burden.
