Indian business houses are setting up family trusts in places like Malta and Dubai to keep their money safe.

A business family based in New Delhi, with interests ranging from real estate to infrastructure, which never contemplated any succession planning, recently set up a family trust in Malta, Europe. The family trust has around 20 beneficiaries, with only a couple of them based outside India.

The family, whose estimated net worth is around Rs 1,500 crore, is looking to gradually transfer all the assets to the family trust, according to people familiar with the matter.

They fear government agencies might harass them as one of their companies may default on a loan in coming months due to “stress in the system”. “The family wants to insulate some part of the assets from any bankruptcy or tax litigation in the country,” said a person close to the development.

Increasingly, rich Indians have started creating and registering family trusts in tax-friendly locations such as Malta, Dubai and Singapore to insulate themselves from taxmen, or other government agencies. Assets, including shares held in India and money repatriated from India, are now being transferred and held in these family trusts, said the people mentioned above.

For another Mumbai-based family, which has a presence in logistics industry, the problem was not just about insulating the family assets from future litigation. The old-South Mumbai family, which at one point was one of the wealthiest in the country, has created two family trusts with separate beneficiaries in Singapore and Malta.

“While one trust covers all the assets including shares of their listed company, the other holds some of the assets including real estate. After the Indian government has started receiving information from Switzerland, there was a need to move some money and assets to a new location,” said a person with direct knowledge of the matter.

“Selectively, Indians are creating family trusts outside India hoping that they could get some insulation or asset protection in case of any loan default. But while these so-called tax friendly jurisdictions may be helpful from a tax point of view, but with the latest information exchange and other laws, it’s only beneficial if these trusts are created by non-residents,” said Sandeep Nerlekar, MD, Terentia Consultants, one of India’s leading players managing family trusts.

This follows an earlier trend where most business families had made sure that one of their family members become resident of another country due to fear of taxmen and prosecution under insolvency proceedings. The newly created trusts would mean that Indian authorities may have limited access to the assets held outside the country. In many cases, complex structures are created whereby the foreign registered trust is also the holding entity or beneficiary of the main Indian family trust.

Industry trackers said many families are creating these trusts also as part of tax planning. “The reasons being that HNIs are looking to diversify their investments by having assets outside India and enjoying some tax benefits, complying within the regulatory norm,” said Rajmohan Krishnan, managing director, Entrust Family Office.

Earlier, most of the assets were held by rich Indians in locations such as Switzerland or Ireland through investment companies, which would be used as vehicles for investments in the UK or other countries outside India.

Apart from Malta and Dubai, other new locations where the family trusts are being created include some locations in the US, Africa and even Abu Dhabi in the UAE.

Insiders said many promoters are creating family trust structures, where all the wealth is held by the trust.