Tanmay PatnaikPartner
Sidharth RathoreAssociate
Trusha ModiAssociate
Key Developments
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Singapore High Court sets important precedent by holding trustee liable for mismanagement and breach of trust
The Singapore High Court, in Devin Jethanand Bhojwani and Others v Jethanand Harkishindas Bhojwani,1 found a trustee liable for serious breaches of trust, including:
- concealing the trust's existence from beneficiaries for nearly a decade,
- failing to maintain accurate accounts,
- commingling funds,
- mismanaging assets,
- failing to maximise the value of trust properties, and
- improperly attempting to exclude beneficiaries.
The Court’s ruling emphasised that a trustee's “absolute discretion”, as stipulated in the trust deed, does not excuse breaches of core trustee duties, such as acting in good faith and for the beneficiaries' benefit. This included informing the beneficiaries of their rights and entitlements and maintaining accurate and transparent accounts of the trust's assets and transactions. The Court deemed the trustee’s failure to fulfil these obligations to be a significant breach of trust.
In addition to its duties under the trust deed, the trustee was also found to have violated statutory and common law standards of trustee duties and obligations through its mismanagement of the trust which included the sale of shares at an undervalue and improper accounting. The Court removed the trustee from its position and ordered a detailed accounting of the trust. It also implemented specific remedies to address the financial losses incurred by the beneficiaries and appointed a professional trustee to manage the trust going forward.
While this judgment draws on Singapore trust law, the principles it highlights – such as a trustee’s fiduciary duties, the importance of accountability, and the consequences of breaches – are similarly applicable under Indian trust law. Trustees in both jurisdictions are expected to act in good faith, maintain transparency, and uphold the highest fiduciary standards. This judgment also underscores the importance of trustees acting diligently to protect the value of the trust assets and prevent potential harm and holds them to a significantly higher standard than simply administering the trust.
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Regulation 60A introduced to the Depositories and Participants Regulations, 2018 to streamline securities transmission and reduce unclaimed assets
In a move to simplify the nomination process and reduce unclaimed assets, the Securities and Exchange Board of India (SEBI) introduced Regulation 60A to the SEBI (Depositories and Participants) Regulations, 2018. This new regulation allows beneficial owners to nominate beneficiaries who will inherit their securities in the event of death, or designate individuals to manage their accounts in case of incapacitation. Joint account holders can also collectively nominate a beneficiary. Depositories and participants bear no liability for actions taken based on such nominations. SEBI has separately announced that the maximum number of permitted nominees will be increased to ten.
This regulation streamlines the securities transmission process by reducing unclaimed assets and enhances investor protection by ensuring a smooth transfer. It further aligns practices with those followed by banks and other financial institutions.
The new regulation also highlights the importance of comprehensive estate planning. To minimise disputes, it is crucial to align nominees with legatees in testamentary documents such as Wills. However, concerns remain regarding the definition of ‘incapacitation’. It remains unclear whether this extends to mental incapacity, which may conflict with the Powers of Attorney Act, 1882, as it does not permit agents to act for mentally incapacitated principals. To mitigate risks, the implementation of strict standard operating procedures is essential to prevent misuse of this provision.
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Dubai International Financial Centre Courts introduce Digital Assets Will for estate planning in the digital age
The Dubai International Financial Centre (DIFC) Courts have introduced Digital Assets Wills (DAW), marking a significant advancement in estate planning.2 DAWs offer a comprehensive solution for managing and distributing digital assets, including cryptocurrencies, digital securities, Non-Fungible Tokens (NFT), and other digital holdings. This service is accessible online through the DIFC Courts' Wills Service, allowing individuals to select the “Digital Assets Will” option.
DAW is supported by the Digital Assets Law enacted on 8 March 2024, which sets new standards in financial regulation and estate planning within the DIFC. A key feature is its non-custodial wallet facilitating the reallocation of assets to designated beneficiaries without compromising ownership rights or mobility during the individual’s lifetime. This offering complements the DIFC’s existing types of Wills:
- Full Wills,
- Property Wills,
- Financial Assets Wills,
- Business Owners Wills,
- Guardianship Wills,
by extending legal protection to digital assets. The service is designed for global accessibility and integrates seamlessly with the Tejouri digital vault,3 providing enhanced security and management capabilities.
In contrast, India currently lacks dedicated legislation governing digital estate succession. The legal framework for managing digital assets remains nascent, with existing statutes, such as the Indian Succession Act, 1925 and the Information Technology Act, 2000, offering limited guidance. Consequently, Indian clients with international digital holdings may consider leveraging the DIFC's DAWs for more robust estate planning.
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US Internal Revenue Service discontinues automatic penalties for late filing of Form 3520 by US taxpayers who receive foreign gifts or inheritances
US taxpayers receiving significant gifts or inheritances from foreign persons must comply with the Internal Revenue Service (IRS) reporting obligations by filing Form 3520 when gifts or bequests from foreign sources exceed USD 1,00,000 in aggregate during a tax year.4 For gifts from foreign corporations or partnerships, the thresholds are lower. Taxpayers must separately identify gifts over USD 5,000 and disclose donor details. This reporting requirement ensures transparency and accountability for cross-border transactions involving foreign trusts or individuals.5
Historically, taxpayers who failed to file Form 3520 on time were subject to severe penalties—5% of the gift’s value per month, up to a maximum of 25%—even when reasonable cause statements were provided. These automatic penalties often led to lengthy appeals processes to secure refunds.
Recognising these challenges, the IRS Commissioner, Danny Werfel, announced on 24 October 2024 that the IRS will discontinue its policy of automatically imposing penalties on late Form 3520 filings. Instead, taxpayers who provide valid explanations for filing delays will not face immediate penalties - a significant improvement in addressing the challenges faced by taxpayers in navigating the appeals process.
While this announcement offers a welcome relief, it remains crucial for taxpayers to stay informed and maintain accurate records to ensure ongoing compliance with IRS obligations.
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Tax tribunal upholds the applicability of deemed gift tax on family trusts where trustees have discretion to add non-relative beneficiaries; order recalled for inadvertent error
On 30 December 2024, the Bangalore Bench of the Income Tax Appellate Tribunal held that if trustees were empowered to add non-relatives as beneficiaries in future, contributions to the trust will attract deemed gift tax as per Section 56(2)(x) of the Income Tax Act, 1961 (IT Act), even if all current beneficiaries were specified relatives.6
In this case, the settlor had established a private discretionary trust named Buckeye Trust (Trust) in 2018 and contributed interests in partnership firms and unlisted shares. The revenue authorities contended that the contributions received by the Trust were taxable as deemed gift under Section 56(2)(x) of the IT Act.
The Tribunal had upheld the order of the revenue authorities, holding that the trust deed did not restrict beneficiaries exclusively to specified relatives. It observed that the trust deed granted the trustee, at any time during the trust period, to declare any person, or charity as beneficiaries. Additionally, the Tribunal interpreted ‘shares and securities’ disjunctively and determined that partnership interests qualify as 'shares' and are therefore a taxable property within the purview of the deemed gift tax provisions. Consequently, the Tribunal had ruled that the assets settled in the Trust attracted deemed gift tax, as exemption from the applicability of deemed gift tax is available only to trusts settled for the benefit of specified relatives.
The Tribunal had adopted a strict interpretation by not considering the actual beneficiaries for the year under consideration but instead focussing on the trustee’s discretionary power to potentially add non-relatives. The Tribunal’s decision illustrated an approach where a trust is taxed upfront for an event (i.e., potential addition of non-relatives as beneficiaries) that may or may not occur.
However, on 7 January 2025, the Tribunal recalled this order in its entirety.7 The recall was prompted by a suo-motu perusal of the order, which revealed an inadvertent error. The matter has subsequently been scheduled for a fresh hearing.
[1](2024) SGHC 310
[2]DIFC Courts, Digital Assets Will, DIFC Courts Wills Services, https://www.difccourts.ae/difc-courts-wills/services/digital-assets-will
[3]The Tejouri Digital Vault is a secure, cloud-based platform provided by the DIFC for storing and managing confidential digital documents and assets, including wills and contracts; https://difccourts.ae/media-centre/newsroom/global-digital-vault-tejouri-digital-home-your-legacy-launched-gitex-global-2022
[4]Internal Revenue Service, Gifts from Foreign Person, https://www.irs.gov/businesses/gifts-from-foreign-person
[5]Internal Revenue Service, About Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, https://www.irs.gov/forms-pubs/about-form-3520
[6]Buckeye Trust v PCIT-2 Bangalore (2024)
[7]ITAT No. 1051/Bang/2024
