Home |Tax returns filing | I am an OCI (Overseas Citizenship of India) resident in India. For estate planning purposes, I set up a revocable living trust in the US and transferred our financial assets to the trust (stocks and bonds). Does the act of funding the trust create tax incidence in India? I understand future income and capital gains of the trust are taxable on passthrough basis. Funding a trust in itself is not taxable in the US?

I am an OCI (Overseas Citizenship of India) resident in India. For estate planning purposes, I set up a revocable living trust in the US and transferred our financial assets to the trust (stocks and bonds). Does the act of funding the trust create tax incidence in India? I understand future income and capital gains of the trust are taxable on passthrough basis. Funding a trust in itself is not taxable in the US?

Sanoop
Answered on February 10,2020

You have mentioned you are a resident of India for the purpose of income tax and you have been transferring financial assets to a revocable living trust in the US. This trust appears to have been created purely for personal reasons. Further, as this is a revocable trust in the US, we understand that the beneficiaries to the trust cannot enjoy uninterrupted access to the income and assets in the trust as long as you are alive. They cannot claim ownership over the property in the trust until you are alive. Hence, the mere act of funding the trust (actual transfer of asset not taking place) would as such not have any tax implications in India on either you or on the beneficiaries. Further, since you continue to retain control over such property, any income arising out of it would be taxable in your hands only in India.

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