Parents ask this expecting a citizenship rule, and there is not one. The difficulty is somewhere else entirely, and it is worth understanding before you instruct anyone to draft, because it decides which assets can safely go into the trust and which cannot.
Capacity is the easy part
The Indian Trusts Act, 1882 sets the test for a beneficiary at its lowest. Every person capable of holding property may be a beneficiary. There is no requirement of Indian citizenship, no requirement of residence, no requirement of domicile. A child born in Canada who has never held an Indian passport is capable of holding property, and can therefore be a beneficiary of an Indian trust. The same Act allows a proposed beneficiary to renounce the interest by disclaimer, so the arrangement is not forced on anyone.
Your own capacity to create the trust is equally straightforward. The Act says a trust may be created by every person competent to contract, and by or on behalf of a minor with the permission of a principal civil court. But it adds a qualification that is doing all the work in your question: the power is subject, in each case, to the law in force as to the circumstances and the extent to which the author may dispose of the trust property.
The provision that actually decides your case
The Act says the subject matter of a trust must be property transferable to the beneficiary. That single sentence is where a plan for foreign citizen children usually fails. It is not enough that you own the asset and that your child is capable of owning property in the abstract. The asset has to be one that can lawfully reach that beneficiary.
For Indian immovable property, acquisition and transfer by a person resident outside India is regulated under the Foreign Exchange Management Act, 1999, with the working detail in rules and regulations made under that Act and in the Reserve Bank's Master Direction on the subject. Broadly, a non-resident Indian or an Overseas Citizen of India may buy any immovable property except agricultural land, plantation property and a farm house, and may take any immovable property, including agricultural land, by inheritance. A person who is neither, which may well describe a foreign citizen grandchild, is in a much narrower position, and citizens of a listed group of countries need Reserve Bank permission before acquiring or transferring Indian immovable property at all, a restriction that does not apply to an Overseas Citizen of India cardholder.
A trust deed naming a foreign citizen as beneficiary of Indian agricultural land is not a clever workaround. The Act says a trust of which the purpose would defeat the provisions of any law is void, and it says the property must be transferable to the beneficiary. Find out what passport and what card each intended beneficiary actually holds, and settle only assets that can lawfully reach them.
The formalities do not change
Because a beneficiary lives abroad, nothing about the mechanics is relaxed. A trust of immovable property is valid only if declared by a registered non-testamentary instrument in writing signed by the author or the trustee, or by will. The Act also requires reasonable certainty as to intention, purpose, beneficiary and trust property. Registration means stamp duty payable now under the Karnataka stamp law, and an instrument not duly stamped is inadmissible in evidence here until the duty and any penalty are paid, so this is not a step to economise on.
Six things to settle in the deed
- Identify each beneficiary by name, date of birth and nationality. Not "my children and their issue". A trustee twenty years from now has to know who qualifies and what status each of them holds.
- Match the asset to the beneficiary. Keep any agricultural land, farm house or plantation out of a trust for foreign citizen beneficiaries, and deal with it separately.
- Appoint resident trustees. The Act treats a person domiciled abroad as not a proper person for the purposes of a beneficiary's right to proper trustees, and allows replacement of a trustee absent from India for six continuous months.
- Say how money reaches a beneficiary abroad. A distribution to a non-resident is a regulated remittance, not a bank transfer. Our guide on repatriating money from India as an NRI sets out the channel and the documentation.
- Deal with the tax position before you sign. The Income-tax Act, 2025 taxes property received without consideration in the recipient's hands but carves out receipts by a trust created solely for the benefit of a relative of the individual settling it. Whether your structure fits that carve out is a question for a chartered accountant on your actual facts and for the specific tax year.
- Ask whether you need a trust at all. For a straightforward estate a properly drafted Indian will usually delivers most of the same result at a fraction of the cost, and our guide on the Indian will an NRI should make sets out what it achieves.
The instrument choice, once more
Trust, gift and will are three different things that people use interchangeably and should not. One moves ownership now and permanently, one moves it now to a manager, and one moves nothing until you die. Our comparison of a gift deed, a will and a settlement deed works through what each costs, when each takes effect and which one answers which problem. Decide that first. The nationality of your children changes which assets you can use, not which instrument is right.