Many NRA grantors are establishing Foreign Grantor Trust ("fgt") with American trustees to obtain foreign beneficiaries and foreign property. Usually, the grantor chooses one of the above modern trust jurisdictions because of its trust protector, directional trust, privacy, taxation, asset protection and other modern trust laws and regulations. As far as American tax is concerned, FGT is established as a "foreign" trust, which has the same treatment as offshore trust, but is managed by American trustee. (See Al W King III and Jack R Briest, "Strong domestic trust strategy for international and transnational families." Generally speaking, if the transferor has the right to revoke the trust or the transferor, the trust is qualified to become FGT. Or the spouse of the grantor is the sole beneficiary of the trust. (See Whitaker. Therefore, FGT can be drafted as revocable or irrevocable, provided that if the trust is drafted as irrevocable, only the transferor or the transferor's spouse can be designated as the beneficiary.
Usually, this is a popular trust for NRA's political interests, property protection and foreign beneficiaries and property countries are not on the blacklist. If the trust is revocable, or the trust is provided to NRA or its spouse during its existence, NRA will be regarded as the owner of the trust according to American law. Any distribution of FGT to American beneficiaries will be regarded as a gift, not the income of the beneficiaries. FGT can have both American and foreign beneficiaries. If the draft trust is irrevocable, but the grantor has a beneficiary in the United States and he or she wishes to distribute the gift to the beneficiary, the trust can be distributed to the grantor or the grantor's spouse first, and then distributed to the United States by the grantor or the grantor's spouse. Beneficiary. After the death of the trust, it will be distributed directly or in the form of trust to children, who can be American citizens or foreign citizens. (See Al W King III and Jack R Briest, "Strong domestic trust strategy for international and transnational families." )
Usually, NRA and American trustees set up foreign trust funds in the United States and hold shares in non-American entities. The entity is used to hold property located in a foreign country or the United States. If there are no assets located in the United States, there will be no income tax, gift tax and inheritance tax in the United States. Non-US entities act as estate tax stoppers for assets located in the United States. Non-US entities can also hold income-generating assets located in the United States, thus withholding 30% withholding tax or agreed tax rate at the entity level. It usually saves federal and state capital gains, as well as US estate tax on non-US entities that hold assets located in the United States (such as publicly traded securities). In addition, neglected family limited liability companies can also be used in this structure and are owned by FGT, but may generate American inheritance tax. (See Al W King III and Jack R Briest, "Strong domestic trust strategy for international and transnational families." )
Upon the death of the grantor, FGT will be converted into a foreign non-grantor trust ("FNGT"). Trust can be retained as FNGT and distributed to other foreign beneficiaries (i.e. spouses and children). The alternative is to entrust foreign children directly, or give foreign beneficiaries limited designation rights, providing them with the flexibility to transfer assets to other tools suitable for their specific circumstances (such as the laws of the home country). If the trust is converted into FNGT and there are American beneficiaries, the distribution made to avoid the negative tax consequences of FNGT to the American beneficiaries (including further discussion, please see below).
Annual income distribution and realized capital gains to avoid the problem of accumulated income.
:: Allocating funds to the Trust Fund for American Residents
Re-register FNGT as a domestic trust.
Termination of FNG, which was granted to the American dynasty after the death of the trustee.
Provide limited distribution rights to beneficiaries. (See Al W King III and Jack R Briest, "Strong domestic trust strategy for international and transnational families." )
Foreign unguaranteed trust:
In some cases, NRA may find that drafting the trust as an irrevocable FNGT is beneficial to increase asset protection or other home country interests. Its structure and advantages are similar to those of FGT discussed above. Like FGT, FNGT is a popular trust of NRA, with foreign beneficiaries and property, seeking political stability or property protection, or avoiding being blacklisted in many offshore trust jurisdictions. FNGT is also most suitable for NRA that doesn't want the current American beneficiaries, because the trust in American beneficiaries is far from ideal due to the complexity of administrative management, heavy tax compliance and potential negative tax consequences. (See Whitaker. For example, a major drawback of FNGT is the treatment of undistributed net income of American beneficiaries. UNI paid to U.S. beneficiaries is usually subject to U.S. income tax and has the following negative effects:
The capital gains realized by the trust in previous years (constituting part of the net income distributed by the trust) are regarded as ordinary gains and taxed at the highest tax rate of 37%.
The beneficiary shall charge interest on the taxes paid by UNI from the date when the trust first obtains income.
Due to the use of the "return" rule, it may be necessary to tax the income in the beneficiary tax bracket in the year when the income is accumulated. (See Whitaker)
American beneficiaries also need a lot of tax reports. (See Whitaker) Therefore, this structure is usually reserved for foreign families without any American beneficiaries.
National Rifle Association Dynasty Trust:
As mentioned above, if foreign citizens die because they leave offshore trust assets to American beneficiaries, they will face heavy tax and compliance problems. As an alternative, the establishment of NRA dynasty trust [vi] when foreign parents or grandparents are alive provides a very favorable choice for international families. These NRA dynasty trusts are usually established in one of the modern trust jurisdictions. (Please refer to Jin San's "Opportunities for Domestic Trust Situs International Family?" )
If the operation is correct, parents or grandparents of foreign citizens of NRA can transfer unlimited assets to the NRA Imperial Trust Fund on the shore without paying any gifts, death or paying taxes for generations. They are not restricted by gifts and tax-free allowances of US citizens or green card holders of $65,438+$065,438+$200,000. (Please refer to IRC articles 250 1(a)(3) and 25 1 1(b). Under normal circumstances, only when NRA gives away assets that are not located in the United States can it enjoy unlimited gift exemption. In addition, if the trust is established in a modern trust jurisdiction (excluding Alaska, Delaware, Nevada, New Hampshire, South Dakota or Wyoming), the assets are not subject to state income tax. For the benefit of American beneficiaries, trusts can exist permanently or for a long time, and provide asset protection and many other trust, privacy and tax benefits.
Usually, cash is the most popular choice to fund NRA dynasty trust funds. American insurance purchased under the life insurance of NRA authorizer or American beneficiary is also a common investment of these trust funds. If the structure is reasonable, the life insurance packager can convert the trust into a zero-tax dynasty trust with federal and state income and capital gains. Trust distributions are not taxed because they take the form of tax-free life insurance loans. This function is especially powerful when the trust jurisdiction (Alaska, Delaware or South Dakota) that uses modern trust also has low national insurance rates [vii]. (See Al W King III and Jack R Briest, "Strong domestic trust strategy for international and transnational families." )
Another common situation is that when one NRA parent dies, another NRA parent decides to move to the United States to live with the children of American beneficiaries and become a green card holder or an American citizen. Living NRA parents may wish to hand over their assets to a self-resolving [viii] NRA dynasty trust, or change the location of foreign trust to the United States and then move to the United States, while he or she still has unlimited inheritance, gift and GST exemption for assets that are not in the United States. Through the use of self-built dynasty trust, NRA can also become the authorized full beneficiary of the trust.
Alternate dynasty trust:
"Standby/dumping dynasty trust" is a strategy for foreign citizens of American beneficiaries to establish offshore trusts in overseas jurisdictions. The standby dynasty trust lightens the onerous income tax declaration requirements of American beneficiaries and reduces the American income tax rules that are not conducive to the distribution of accumulated income. After the death of the grantor, the foreign trust "dumped" the overseas trust assets to the existing (nominally funded) standby domestic dynasty trust to benefit the American beneficiaries. This kind of trust can also benefit foreign beneficiaries. Usually, this kind of trust is cost-effective, because it has funds in name (that is, 10 USD) during the NRA's existence, so it only needs to pay a one-time fee until all the invested funds are invested. (See Al W King III and Jack R Briest, "Strong domestic trust strategy for international and transnational families." )
Plan to solve the trust problem by yourself before immigration;
For NRA who is expected to immigrate to the United States, there are a lot of planning opportunities (such as NRA company executives who are transferred for work purposes). Usually, before moving to the United States, the NRA grantor will use unlimited gifts, inheritance and GST tax relief to fund the irrevocable trust he established in the domestic trust jurisdiction before moving to the United States. Since the trust is self-resolving, the NRA grantor usually claims to be the authorized beneficiary, so he or she can benefit from the trust. Life insurance provides a favorable fund choice for these pre-migration trusts. (Please refer to Jin San's "Opportunities for Domestic Trust Situs International Family?" )
Before immigrating to the United States, NRA gave itself an irrevocable full beneficiary and an irrevocable self-settlement trust. If properly structured and managed, these trusts usually avoid gift tax, inheritance tax and tax collection. These trusts are also usually structured as non-gift dynasty trusts, thus protecting the trusts from the inheritance, gift and goods and services tax of future generations.
After emigration, if the grantor (as the permitted beneficiary) needs assets, the independent trustee may distribute the assets as appropriate. If the structure is reasonable, these assets may also be excluded from their own property and protected by creditors and lawsuits. However, please note that if NRA becomes an American within five years after being transferred to a trust fund, the trust will be regarded as a grantor trust for income tax purposes. (See Al W King III and Jack R Briest, "Strong domestic trust strategy for international and transnational families." Nevertheless, the grantor will benefit from savings in transfer tax, asset protection, privacy, flexibility and control.
Real estate:
Many national registered institutions buy real estate for themselves or their families in the United States. Often buy American real estate in American dynasty trust or offshore entities to avoid American real estate tax. Domestic dynasty trusts usually avoid any possible assumed rental income from the beneficiary's use of the property, although NRA grantors may have to pay rent if they still use the real estate. Compared with NRA's direct purchase of American real estate through trust, real estate located in the United States can only be exempted from US real estate tax of $60,000. The tax rate of 1 10,000 USD is 40%. Therefore, NRA should usually buy real estate through trust or buy American life insurance to pay the real estate tax owed by the real estate when NRA dies. For NRA, life insurance is usually a tax-free American asset; However, American insurance companies may require insurance in the form of domestic trust to provide more American contacts. (Please refer to Jin San's "Opportunities for Domestic Trust Situs International Family?" )
Qualified Domestic Trust (QDOT):
Another common trust for spouses of American citizens married to NRA spouses is the Qualified Domestic Trust (QDOT). Under normal circumstances, assets transferred from NRA spouse to American spouse at the time of death will be deducted from 100% marriage. However, if the surviving spouse is not a U.S. citizen, there is no 100% marriage inheritance tax relief unless these assets are transferred to QDOT. (See Al King III, "Does domestic trust bring opportunities to the international family?" QDOT ensures that when the principal is distributed from the trust before or after the spouse's death, the trust itself will be bound by the US federal property. As if it had been included in the assignor's spouse's estate. QDOT can be established by the spouse of the transferor, the spouse of the transferee or the executor of the transferor. Only the property transferred from the deceased spouse to QDOT, or the property transferred to the surviving spouse, and then irrevocably transferred or transferred to QDOT, are eligible for the marriage deduction of inheritance tax. [9]
The change of Stuart's external trust;
NRA may already have offshore trusts, and for the above reasons, they want to move to the United States. Usually, foreign (offshore/non-American law) trusts can change their trust location to the United States. In a modern trust jurisdiction, this is usually achieved through the use of domestic corporate trustees. Domestic trustees usually review existing trusts and newly drafted domestic trusts. After that, the domestic trustee (or offshore trustee) declared the new American trust, with the aim of making the new trust a part of the declaration. Then, the foreign trustee pays the trust assets to the new domestic trust through the distribution contract. This can also be done by decantation. It should be noted that any method of changing the location of offshore foreign trust to the location of the United States may have potential tax problems (for example, UNI, cumulative distribution and return rules). However, if the American beneficiary who owns a foreign trust does not change the status quo before the death of the foreign grantor, then the tax and tax payment obligations of the United States will be very heavy. (See Al W King III and Jack R Briest, "Strong domestic trust strategy for international and transnational families." )
Choose a favorable trust in the United States;
The main trust laws that the United States should consider when choosing a trust location are privacy, quiet beneficiary, [x] self-determination, asset protection, [xi] compulsory inheritance protection, trust protector, [xii] special purpose entity/trust protector company, [xiii] ability to modify/reform, [xiv] dynasty trust regulations, [xv] income tax and premium tax, directional trust, [xv] Therefore, for wealthy international families, choosing the trust location in the United States is usually to choose these jurisdictions. (See Al W King III and Jack R Briest, "Strong domestic trust strategy for international and transnational families." )
[i] Many foreign countries have blacklisted many offshore (non-American) trust jurisdictions through legislation or regulations. This blacklist may lead to negative treatment of offshore trusts.
([2]) Foreign laws may or may not recognize the concept of trust, and will directly indicate the whereabouts of property when someone dies. The laws and regulations of many domestic modern trust jurisdictions explicitly exclude these compulsory inheritance rights.
[iii] Please note that the United States is not a signatory to CRS, which is the version of the US Overseas Account Tax Compliance Act ("FATCA") in most foreign jurisdictions; However, many foreign families are very concerned about the privacy of their families and assets under CRS. Specifically, CRS is an emerging global standard of the Organization for Economic Cooperation and Development (OECD), which is used to automatically exchange financial account information. CRS is a set of global standards used by financial institutions to exchange financial information with the tax authorities in the jurisdiction where customers (who live for tax purposes) are located every year. Please refer to the Standard for Automatic Exchange of Financial Account Information on Tax Matters, OECD(20 14). Inspired by FATCA's financial reporting requirements, CRS currently has more than 100 jurisdictions. OECD, Global Forum on Tax Transparency and Information Exchange, AEOI: Commitment Status (20 18 1 1).
[v] Al W. King III and Jack R. Brister, Strong Domestic Trust Strategy for International and Cross-border Families, International Tax Conference of new york Institute of Certified Public Accountants, new york (20181); W. Warren Whitaker, "American tax plan for non-American individuals and trusts: an introductory outline", King III, "Domestic trust opportunities for international families?" Trust and real estate (2065438+September 2005).
[6] Dynasty Trust: an unrestricted or long-term trust passed down from generation to generation, which is beneficial to families in terms of taxation, asset protection, privacy and family value promotion. These dynasty trusts can be third-party or self-established. They can also be grantors or non-grantors.
[vii] Generally speaking, the state premium tax is levied on all life insurance premiums paid according to the insured's residence, domicile or location; However, the state where the insured lives usually does not levy additional tax on the insurance premium paid by life insurance policies purchased and owned by trusts or limited liability States (such as Alaska and Delaware). And South Dakota). In this case, trusts or limited liability companies, which are usually located in low premium tax States, buy insurance to take advantage of the state's low bonds.
([viii]) If the grantor/principal is the permitted full beneficiary, the automatic settlement trust is usually an irrevocable full trust. If it is properly organized and established in a state with such laws, the creditor will not be able to obtain the assets in the trust to fulfill the legal obligations of the client. Only 17 states have formulated their own trust laws and regulations; This includes all modern trust jurisdictions.
[ix] Summer Ayers LePree, Pre-immigration Planning before Moving to the United States, International Institute of Real Estate Planning of new york Trust and Real Estate Practitioners Association (2065438+March 2006).
(x) Trust information is allowed to be kept confidential to the beneficiary until otherwise instructed by the grantor/consultant/trust protector, which is contrary to the typical trust information/accounting rights provided to the beneficiary.
[xi] Modern trust jurisdictions usually provide four levels of asset protection: (1) trust; (2) A limited liability company with bill protection as the only remedy; (3) Discretion in trust is not property right, (4) frugality clause.
[xii] Trust protectors usually have many important personal or trust powers, which can improve the efficiency of trust management. Usually, these powers include the following abilities: deleting or replacing the trustee/trustee, vetoing or directly distributing the trust, adding or deleting the beneficiary (or appointing someone to do so), changing the governing law of the place and trust, vetoing or directly investing decisions, agreeing to exercise the appointment right, modifying the trust in terms of management and distribution, approving the trustee account and terminating the trust.
[xiii] Special Purpose Entity ("SPE") is an entity that hosts the trust protector and the investment and issuance committee or directional trust advisor. They usually work with qualified trustees in SPE state. Only South Dakota and New Hampshire have specific regulations on this entity. Other States (such as Delaware, Nevada and Wyoming) have similar entities, often called trust protection companies.
[xiv] Most irrevocable trusts transferred to modern trust jurisdictions can be reformed or modified according to judicial or non-judicial organs, and also through the reasons and results of dumping. Usually for administrative and tax purposes, not to change interests.
[xv] Some states, such as Alaska, Delaware, New Hampshire and South Dakota, allow trusts to exist indefinitely (depending on Murphy's estate). Commissioner) 71tc671(1979), in which the IRS tacitly abolished the permanent rule. Other states allow service life, such as Florida (360), Nevada (365) and Wyoming (1000).
[xvi] The structures commonly used in NRA discussed above are usually specially designed as directional trusts. Directed trust allows individuals who have established a trust relationship with the administrative trustee of the directed trust country to appoint a trust consultant or an investment committee, which can choose an external investment consultant or manager to manage the trust's investment. Multiple consultants can be selected according to different asset classes/diversification. This enables a family to use and deploy extensive and complicated asset allocation donated by Harvard or Yale. Due to legal, risk, time and cost reasons, they may not be able to use the entrustment laws of most States. In addition, it allows directional trusts to hold both financial assets and non-financial assets (i.e. offshore companies, commercial interests, real estate, limited liability companies, limited partners, forest land, direct private equity, etc.). ).
[xvii] PFTC is usually a limited liability company or corporate entity. The family usually owns 65,438+000% of the shares and is qualified to conduct business in the jurisdiction of PFTC, usually after it is accepted by the banking department in that jurisdiction. Then, PFTC usually cooperates with the family office usually located in the customer's jurisdiction through service agreements to provide related services, such as investment consulting and management, asset allocation, and current assets, real estate and private equity management. PFTC can be regulated or not. The choice of PFTC may also depend on the family's net assets and expectations.
Al W. King III, doctor of law and master of law (tax law), is the co-founder and co-chairman of South Dakota Trust Company (SDTC). SDTC is a national trust boutique company, serving wealthy families all over the world, and currently manages more than $45 billion in assets. Mr Kim lives in new york. Prior to this, he served as managing director of Citigroup and director of national real estate planning, and co-founder and vice chairman of Citigroup Trust Company in South Dakota. He is the vice chairman of the editorial board of Trust and Real Estate magazine. He was elected to the NAEPC Hall of Fame for real estate planning, served on the board of directors, and served as the chairman of the Foundation Advisory Committee.
Jack Britt has more than 25 years of experience. He specializes in American tax planning and non-American families' compliance with international wealth and asset protection structures, including non-American trusts, real estate and civil law foundations related to the United States. Non-American companies and Jack who wants to do business in the United States also specialize in non-Americans who invest in American real estate and other American assets, pre-immigration planning, American immigration affairs, Americans who receive gifts and inheritance from non-Americans, non-American accounts and asset reports, voluntary offshore disclosure, FATCA registration and compliance (forms W-8BEN-E and 8966) and executives who work and live abroad. In addition to giving speeches at many international events, Jack has been widely published, and he has also been appointed as one of the 100 American wealth advisers of Citywealth.