The Appropriate Time For An International Family To Establish a U.S. Trust May Be Now

Your Family Could Benefit From the Flexibility, Control, and Tax Benefits of a U.S. Trust

The changing global economy is causing international families to have to look at their trust structures and re-evaluate. Many international families have assets in multiple countries (including the U.S.). Or, they have children who have moved stateside. Both are factors significantly impacting the way assets are taxed and how they are distributed.

The United States is experiencing an increasing influx of non-resident alien (NRA) children. Families outside of the U.S. are looking for a way to avoid the whopping 40% tax rate that assets over $60,000 would endure upon their distribution to a family member in the U.S.

You do not have to live in the U.S. to establish a trust in the U.S. However, you will need to work with professionals to ensure your trust is designed appropriately and that you choose the most beneficial state in the U.S. in which to establish your trust.

In addition to establishing a trust in the United States, non-U.S. families should consider the state of Nevada as the ideal situs for their trust. Nevada has especially favorable trust and tax laws and no state, nor corporate, income taxes as well as superior privacy and protection laws.

When Should You Consider a U.S. Trust?

1. If You or Your Family Own Assets in the U.S.

The estate tax exemption in the U.S. for non-resident aliens is $60,000. After that, you are subject to that 40% tax we mentioned earlier. An irrevocable trust fund that’s funded by non-U.S. assets or a foreign blocker corporation often eliminates these taxes.

A properly structured trust could include a foreign grantor trust, which contains both a U.S. and non-U.S. entity. A foreign grantor trust serves to protect the non-U.S. assets from high estate taxes and to protect the U.S. assets from capital gains and income tax making it a very desirable option for NRA’s.

Even U.S. families with U.S. assets spread over several states require complex structuring to ensure their trust is serving them well. When it comes to families spread across several countries, the need for legal and trust professionals is even more significant to ensure your assets are protected and distributed according to your wishes and with the least amount of taxable income possible.

2. If an Immediate Beneficiary is Planning to Move to the U.S.

If you know your beneficiary will move to the U.S., and you want to receive the maximum estate tax and income tax benefits on your assets, a U.S. trust is a powerful tool. Inheritances of non-U.S. assets by U.S. persons can be tax-free when adequately structured.

Properly structuring your trust in the U.S. requires appointing an offshore trustee in a U.S. trust jurisdiction such as Nevada. This trustee then declares a new trust and foreign assets may be poured over into the trust.

3. If a Future Beneficiary is Getting Married to a U.S. Citizen (or Not)

Nevada trust law tested against divorce settlements in court and held up when it came to the divorcing spouse’s access to the trust. Divorcing obligations such as child support and alimony will still be settled. However, the assets in trust remain protected. For families who wish to keep assets and family businesses within the family tree, Nevada trust law can keep wealth within a family for generations with a Nevada Dynasty Trust.

There are several trusts that could prove advantageous in this scenario, but those marrying a U.S. citizen often use qualified domestic trusts to achieve their desired objectives.

4. A Future Beneficiary is Applying for a “Green Card” (a permanent U.S. resident)

It’s imperative to establish a U.S. trust before a “green card” is obtained because once a green card is in hand, the trust options are much more limited.

Families need to take into consideration all tax and trust options before a future beneficiary makes a permanent move and get assets settled before they become a resident. Otherwise, assets may be subject to IRS reporting and taxation.

5. The Grantor is Interested in U.S. Tax-Free Legal Protections

If you desire tax-free legal protections in the U.S., you need to evaluate the state of Nevada. Nevada does not allow for claims of alter ego or sham trusts. In Nevada, the only recourse for a creditor is a claim of fraudulent conveyance, which is void after assets migrate into the Nevada trust (Nevada carries a two-year statute of limitations seasoning period).

Nevada has exceptional industry-leading legal protections, arguably the very best in the United States. The rule of law in Nevada surrounding trusts is well established and well respected. Nevada has no state or corporate income taxes.

Moreover, several trusts have been tested in Nevada courts. No other state has stronger asset protection precedents than Nevada. Click here to read about a recent asset protection Nevada Supreme Court case.

Weighing the Benefits v. the Risk of a U.S. Trust

While the list above is by no means exhaustive, it should give you a good idea of why a U.S. trust may be beneficial to you.

Weighing the benefits and risks should really be a simple part of your decision. Many families seek to establish their trust in the U.S. for economic stability and the benefit of establishing their assets in a non-blacklisted country. If your family has a beneficiary who is seeking residence in the United States, a U.S. trust should be established well in advance of their departure.

A U.S. trust, properly structured and established at the right time can save families big on taxes and even eliminate some taxes. Like any complex estate planning strategy, it’s necessary to employ the right professionals to help you take advantage of your unique situation.

Alliance Trust Company of Nevada has many years of experience both with complex domestic trusts and very complex trusts established by non-resident families. We would be happy to help you navigate establishing your trust in the state of Nevada to optimize your tax benefits, privacy, and protection.

SCOTUS Highlights and Insights From the Kaestner Oral Arguments

The United States Supreme Court Hears Oral Arguments for North Carolina v. Kaestner

On April 17, 2019, the United States Supreme Court heard the oral arguments in perhaps the most significant trust case in 100 years: North Carolina Department Of Revenue, Petitioner, V. The Kimberley Rice Kaestner 1992 Family Trust, Respondent. 

The crux of the Kaestner case is whether the state of North Carolina should be able to constitutionally tax trusts where the only connection to the state is that the beneficiary is a resident.

In the state of North Carolina, the taxpayer won throughout the entire court system, but North Carolina appealed successfully to the U.S. Supreme Court.

Matthew W. Sawchak, North Carolina Solicitor General, argued on behalf of the Petitioner and David A. O’Neil, Esq., of Debevoise & Plimpton LLP  on behalf of the Respondent.

In the hour-long arguments, the Justices actively participated, frequently interrupting the counsels. Overall, based on our initial analysis of the transcript, the line of questioning from the majority of the Justices seemed to be slightly more sympathetic to the Respondent. However, there were several times the Justices were challenging the Respondent’s arguments.

As always with the Supreme Court, it is difficult to tell the outcome until the decision is published.

Hypothetical Outcomes

More Context By Including the Fielding Case?

The central argument seems to focus on what is the connection of a trust to a location – trustee, place of administration or the beneficiary. Interestingly, there was no discussion over the location of the grantor – which is the central argument in the Fielding case from Minnesota.

We are closely watching to see if SCOTUS will hear Fielding as well providing more context to taxing resident trusts.

In this case, there are many ways the court could decide whether to grant for the respondent, rule for the petitioner, or the send the case back to North Carolina for further analysis.

Michael Redden, Redden Law, PLLC, Provides Insight

We reached out to an estate planning attorney in Minnesota with whom we have been closely monitoring the Fielding case which carries similar trust taxation issues as the Kaestner case.

Click here to see our summary of both cases.

Michael Redden shared his insights with the oral arguments with us:

“The Court took note that the state was essentially asking the Court to overturn 100 years of tax precedent to reach the conclusion that the beneficiaries residence alone should determine. It is essentially a personal jurisdiction question. Who owns the trust assets? When do they own the trust assets? Traditionally, it has always been the trustee and not the beneficiaries.

“This is analogous to the legal fiction that a corporation is a person. A corporation is a separate person from the shareholders. The shareholders ultimately benefit from the economic activity, but the corporation is separately taxed and has separate legal character. The same principle applies here but is even more powerful.

“Why?

“Because there is an actual person there: the trustee. The beneficiaries may ultimately benefit, but the ownership is held in the personhood of the trustee.

“Discretionary trusts further embody this. The court seemed to look to this ownership question: When does the beneficiary own the property?

“It’s when they control the property. Just like when stock options and incentives vest. The Court focused on this question.

“Interestingly enough, the Court also spent time considering the ability of a beneficiary to change tax residency and how that might affect the state of taxation. This topic will be central to any consideration of the Fielding case should the Court decide to hear it. One way or another, either 100 years of tax precedent will be adjusted or the tax regimes of 33 states will.”

Expectations and Speculations

Based on the arguments, we were pleased that the Court seems to be settling in that this is a Due Process case (and not a Commerce Clause case) and seems to be set on deciding either way based on the arguments.

Our expectation, given the arguments, is that we don’t think the Court will give practitioners broad constitutional direction on all state trust taxation laws, but narrower guidance on the taxation of beneficiaries.

It is possible that the Court could solely rule regarding the taxation of discretionary trusts as the arguments centered around them.

Much Chatter Regarding Throw-Back Taxes

It would not be unreasonable for the court to opine that current state income taxation of undistributed trust income would be unconstitutional, but throw-back taxes would be permissible.

A combination of a narrow ruling on Kaestner and the Court not granting a writ of certiorari on Fielding could lead to an interesting situation for practitioners.

Furthermore, given the discussion surrounding adjudication v. taxation, it will be interesting to see whether the Court’s opinion will impact out-of-state asset protection trusts, specifically states’ arguments over jurisdiction of trusts.

Highlights from the Oral Arguments

Below, we highlight some of the exchanges and questions from the discussion yesterday. For those who are interested in the full transcript, it is 69 pages.

You may check the transcript out here.

All text within quotations is taken from the SCOTUS transcript linked above.

Initial Questions from Justices Ginsburg and Sotomayor

Right away, Justice Ginsburg asked Mr. Sawchak: “But you couldn’t – you couldn’t tax the beneficiaries on that accumulated income when they haven’t received it?”

Justice Sotomayor chimed in a bit later to the Petitioner: “But it still begs the question. What makes it your right under any circumstance to tax all of the trust income where there’s no guarantee that she is going to receive all of it at any point?”

Justice Breyer weighs in

Justice Breyer had one of the most extended remarks from Mr. Sawchak: “Look, the trustee lives in New York, okay? The settlor is in New York. All the administration is in New York. There is one thing that’s going to happen in North Carolina. The thing that’s going to happen in North Carolina is if she is there when it’s distributed, she’ll get some money. Okay? Which you’re totally free to tax. But that isn’t what want to tax. You want to tax all these things which are everyone except her is in New York, and moreover, we don’t even know if she’ll ever get the money.

“Now there’s something wrong with that. I don’t know, it doesn’t say specifically about trusts in the Constitution, but, thus, I mean, lots of trusts say there are 10 beneficiaries, each one lives in a different state, and I, the trustee, have total discretion as to who give this money to and maybe I’ll give it to none of them.

“So here’s a woman who might get none of it, and you want to tax that. Is that right? Do I have the facts right?”

Justice Breyer later looked to simplify his line of questioning: “Let me make it simpler. There are five beneficiaries. One lives in North Carolina. As it turns out, that one in North Carolina gets $3. The others get $999,997. But North Carolina does not tax $3. What it taxes is 20 percent or $200,000. Do I have my facts right?”

Justice Sotomayor: is unequally taxing beneficiaries leading to changing grantor’s intent

Justice Sotomayor’s line of questioning is asking whether unequal state taxation could be interpreted as potentially changing the settlor’s intent and if the trustee needs to take that into account in distribution decisions.

Justice Sotomayor asks: “But you’re changing the trust instrument because you as a state are saying the trust must give them 20 percent each, because, regardless of what the terms of the trust are, I’m going to tax you on that 20 percent even though you might get none, even though you might get more. You’re still a trust, you’re being charged for 20 percent because you should have given her 20 percent. That’s really what you’re saying, isn’t it?”

Mr. Sawchak: “That –you’re right, Your Honor, to say there is a –assuming nothing’s in the trust instrument, there would be a full –”

Justice Sotomayor: “No, there is something in the trust instrument here. The trust instrument says that the trustee has absolute discretion to give her something or nothing, to give three people–I think there’s two or three children; I don’t know how many there are here, but let’s assume there’s four of them, her and three children, for using even numbers.

“The trustee could choose to –if she had a disabled child, to give it all to the disabled child or to divide it among the three because she’s very rich and they’re not. The trustee has a lot of discretion. But you, the state, are changing the terms of the trust instrument in saying each of them must still pay 25 percent.”

Mr. Sawchak: “That is correct, that nothing else appearing, we make the pro rata. And here’s why that’s fair. First of all, throughout the period in question, those people had true ownership of the accumulating assets. Secondly, also essentially on a pro rata basis, North Carolina is protecting each of them.”

Back-and-Forth Between Justice Gorsuch and Mr. Sawchak regarding overruling SCOTUS precedents

Justice Gorsuch: “And, counsel, along those lines, if I’m –if I’m understanding your position correctly, because you think that rule is inequitable, you’d have us overrule Safe Deposit and Brooke, two decisions of this Court that suggest that that’s the correct rule, is that right?”

Mr. Sawchak: “Not overrule them, Your Honor. They could be –”

Justice Gorsuch: “Well, what would you have us do with them if it’s not overruling them?”

Mr. Sawchak: “Two things, Your Honor. First of all, they can be distinguished in terms of being property tax cases versus income tax cases, because this Court –”

Justice Gorsuch: “Let’s say I don’t find that distinction particularly significant. It’s slicing the baloney a little too thinly. Then what?”

Mr. Sawchak: “Then we would be really within the proposition of the due process part of Quill, where these are decisions that have been superseded by the movement –”

Justice Gorsuch: “Right. You’re -you’re asking us to overrule them. I mean, it’s a polite way of saying overrule, isn’t it?”

Mr. Sawchak: “They’ve probably, frankly, already been laid aside by other –by the due process decisions, as this Court’s noted in -”

Justice Gorsuch: “But that’s a -that’s a really nice way of saying overrule them.”

(Laughter.)

Justice Gorsuch: “Right?”

Mr. Sawchak: “They’ve probably already been -”

Justice Gorsuch: “I’ve already been overruled; we just haven’t said so.”

Mr. Sawchak: “That’s probably right, Your Honor, and let me say why that’s –”

Justice Gorsuch: “Okay. All right. And –and you’d have us overrule them in the name of fundamental fairness, is that right?”

Mr. Sawchak: “In the name of fundamental fairness because –”

Justice Gorsuch: “And –and Justice Breyer’s problems notwithstanding, that–that fundamental fairness problem, we shouldn’t take into account?”

Mr. Sawchak: “No, there are criteria, a variety of criteria out there, and every one of them –”

Justice Gorsuch: “That’s more fundamentally fair than the existing rule of this Court that’s almost 100 years old?”

Mr. Sawchak: “So query whether that really is the existing rule, first of all. Those are –”

Justice Gorsuch: “Well, right, except for the fact that we haven’t overruled it, but we really have. Okay. But assuming we thought those were still precedents of the United States Supreme Court –let’s just spot me that for the moment.”

(Laughter)

Justice Gorsuch: “–you think it’s more fair to overrule them and proceed down the track we’ve just illuminated with Justice Breyer than to maintain them?”

And later Justice Sotomayor asks: “Hanson, you would be asking us to overrule because I don’t know how you can tax somebody you have no jurisdiction over, especially if they haven’t done anything like pay any money over or have no contacts with the person in your state. All the meetings were in New York. So add a third case you want to overrule.”

Justice Sotomayor’s exchange on trust location

Justice Sotomayor: “So how is the trust in your state?”

Mr. Sawchak: “Pardon me, Your Honor?”

Justice Sotomayor: “I thought the trust is represented by the trustee. And the trustee is not in your state.”

Mr. Sawchak: “The –the trust has its presence –”

Justice Sotomayor: “It’s not being administered in your state.”

Mr. Sawchak: “True, but its true owner, its central figure, is in North Carolina. Let me offer”

Justice Sotomayor: “So why didn’t we say that in Hanson?”

Mr. Sawchak: “So Hanson, first of all, is a situation where the burden of adjudication, by the way, not taxing, fell on the person of the trustee. This Court in Walden described –”

Justice Sotomayor: “The same thing here. You’re making the trustee liable for paying the tax. You’re doing exactly what happened in Hanson.”

A discussion on discretionary v. non-discretionary trusts with Mr. O’Neil, the counsel for Respondent

Justice Kagan: “Would your position be different if she were–if–if the–if the trustee did not have this discretion as to shares? Suppose that the –the trust instrument simply said, here are the five beneficiaries. The trust will be distributed pro rata. You know, if one dies, then it will be distributed pro rata as to the other four. But –but –but the beneficiaries all know that they’re going to get a fifth of this money. Would your answer be different?”

Mr. O’Neil: “If the trust instrument gave her a vested, current right to the income, then we wouldn’t –”

Justice Kagan: “Not a current right. She’s going to have to wait until she’s whatever years old, 30, 40, whatever. She can’t pull the money now. But she’s going to get the money one day.”

Mr. O’Neil: “No, that –that case would not be different because it would still be based on this speculative possibility that she will ultimately receive the money.”

Justice Kavanaugh brings up whether they can leave some points open

Justice Kavanaugh: “If –I thought we didn’t need to answer the question raised by Justice Kagan’s previous hypothetical, and just raised by you, which is, if we did know, in other words, if it were guaranteed or certain, that might or might not be a different case.

“But this case is one where we don’t know based on the nature of the trust contingent or discretionary beneficiary, and for that case, the answer, I thought you were arguing, should be that the state where the beneficiary resides cannot tax, but we could leave open the question raised by Justice Kagan’s hypothetical.”

Later, Justice Sotomayor added: “So the thing that Justice Kavanaugh and Justice Alito were reserving, and I assume Justice Kagan, was on the question of what happens if she is a guaranteed distributor–distributee, meaning she can’t call it today, but at age 40 or at the end of the trust life, at some point, she’s going to be the 100 percent owner or going to be a fixed 10 percent owner, whatever it might be, they’re saying we should reserve on that question?”

Justice Alito sympathetic to Respondent

Justice Alito: “But I thought this case was simpler than your argument seems to be making it. I thought this was a case about a state imposing a tax on someone for money that that person may never get. And if –and if the person ever gets some money, we’d have no idea how much that money would be. Isn’t that what this case is about?”

Could states impose throw-back taxes as the Federal Government does with offshore trusts?

Mr. O’Neil: “Can the trust? No, at that point, it won’t be trust property. At that point, it will be the beneficiary’s property. And this –you know, the federal government has the same issue. U.S. citizens can have trusts that are located abroad, and what the federal government does is impose a throw-back tax so that when the beneficiary actually receives the money, the beneficiary can be taxed not only on that distribution but also on –on income that had accumulated in previous years and that the trustee did not pay taxes on.”

Justice Kavanaugh: “And throw-back taxes are –are permissible, constitutional? You’re not challenging those in any way?”

Mr. O’Neil: “We are not. [ …] ”

Mr. O’Neil later said: “I’d like to just focus, if I could, on the –on the point of the throw-back tax because I do think –I do think it is an answer to why –to the state’s concern about all of the potential loss of revenue that it may –may –may lose out on here.

“If and when this money is actually distributed to the beneficiary, if she is a North Carolina resident at that time, the state can get all of this income tax back by taxing the beneficiary.”

Alliance Trust Company of Nevada will continue to monitor this case very closely.

The Impact of New Federal Tax Laws on Existing Trusts and Estates

It’s Time to Revisit Old Trusts – New Federal Exemptions Could Give Wealthy Families a False Sense of Security

The end of 2017 saw significant changes in federal tax law when President Donald Trump signed the “Tax Cuts and Jobs Act.” The impact of the Act on estate planning could affect those with existing estates and those who might be considering drafting a trust in the future. While many changes will work to benefit estates, there are several things to be aware of and consider.

Changes to Exemption

Before the Tax Cuts and Jobs Act, federal exemptions for wealthy families were capped at 5 million dollars but has now been increased to $11.18 million per person (including inflation). This means that before 2018, married couples could have exemptions up to $23.36 million. Any gifts under these new exemptions can be made tax-free during your life and also upon your death as an inheritance.

Something to consider about the Tax Cuts and Jobs Act is its expiration date. The new regulations will expire at the end of 2025. They are then expected to revert to the previous amount of 5 million per person barring any changes from Congress. While past amounts will be adjusted for inflation, the new model for calculating inflation is expected to change and will yield a lower rate of inflation year-over-year.

However, estates valued at less than $5 million are less impacted by the new regulations.

How Federal Tax Reform Affects State Tax

Estate tax on the state level has remained unchanged. If your state assesses estate taxes, you will still be required to pay those taxes. The state of Nevada has some of the most favorable tax laws in the country and many people establish Nevada trusts to take advantage of them.

If you currently live in a state which assesses high taxes on estates or income produced by your estate, you may want to consider moving your trust to a state with no income tax, no estate tax, and favorable tax laws such as Nevada.

Some great news about exemption limits is the ability to gift more freely until 2025 when the limits expire. It will be easier to gift estate assets without incurring federal gift and estate taxes until that time. The state of Nevada has no gift tax, so staying under the federal cap is your only concern for assets established in Nevada.

Nevada does not have an inheritance tax either, but keep in mind that even if your state does not have an inheritance tax, if you gift assets to someone in a state which does, it’s possible for the beneficiary to get taxed on those assets.

What to Watch Out For

Higher exemptions have caused one big problem that could go undetected: accidental disinheritance. If you have an older trust that was written for a smaller tax exemption and your trust stipulates that the exempt amount of your estate should pass to your children and the rest to your spouse – you may accidentally leave up to $11.2 million to your children and nothing to your spouse depending on the size of your estate.

Learn more about Trust Decanting.

Regardless of estate size, it’s important to review your old trusts to make sure that the terms of that trust still make sense for your current life situation.

Does a Trust Still Make Sense in Light of New Federal Exemptions?

Some people may be compelled to review their old trusts and choose to allow their assets to pass into a “credit shelter” trust. This tactic does pass your income along to your spouse and children. However, families who use such trusts miss out on a huge tax break from stock and real estate assets.

Trusts also help shield assets from federal estate tax even with higher exemptions and allow more control over assets. Another thing to keep in mind as you choose whether or not to create a trust is that the higher exemptions put into place by President Trump will only last until 2025. It may be better to think of them as being artificially high.

Learn More About the Tax-Favored State of Nevada

You don’t have to live in Nevada to take advantage of its favorable tax and trust laws. By establishing your assets in the state and using a Nevada resident trustee, like Alliance Trust Company of Nevada.

There are more benefits than favorable tax law in the state of Nevada. Those who establish trusts in the state can also experience benefits like short seasoning periods, iron-clad asset protection laws, and the ability to develop dynasty trusts that last hundreds of years and more.

Contact Alliance Trust Company of Nevada to learn more about how you can make the most of higher federal exemptions and benefit from fewer state taxes.

Potential Upcoming High-Profile IPOs In Bay Area Make NINGs An Attractive Solution

Softening the Blow of California Income Taxes with a NING Trust

The New York Times recently published an article about how the California Bay Area is about to experience a huge financial shakeup. Several high-profile companies are about to go public including Uber, Lyft, Airbnb, and Pinterest. With what the NYT refers to as “IPO-palooza,” companies worth upwards of $200 billion will create millionaires overnight.

While this is great news for the newly minted millionaires, it could cause a strain on San Francisco’s economy, displacing many people from their homes and making the already expensive city even less affordable. Moreover, with the new State and Local Income Tax (SALT) deduction capping at $10,000, even the new wealthy Californians will be scrambling looking for ways to protect their assets from massive capital gains and income taxes.

With new money (and lots of it) in their bank accounts, this new generation of millionaires will be looking to buy homes, cars, boats, and more. But, hopefully, they will also be interested in investing and protecting their wealth. We’ve had a favorable economy for a while now, and a correction will inevitably come.

While a luxury or two is certainly well-deserved, ensuring that this hard earned financial windfall lasts for generations is also important. In order to grow and compound wealth, the new Bay Area wealthy might consider working around the state’s high-income tax rate by establishing an ING trust.

Should New Millionaires Establish California Trusts?

California has notoriously high taxes all around, but its state income tax can be a real burden, up to 13.3%. Often, wealthy California residents will establish trusts outside of the state of California to avoid these high taxes with some even physically moving their residences outside the state of California.

However, even moving out of California right before an income event may not even insulate a wealthy California resident from taxes. The state’s aggressive Franchise Tax Board has found ways to tax people regardless of their move. A newer approach is to create a Nevada Incomplete Non-Grantor Trust or NING. Moving a portion of assets as incomplete gifts to a no income tax state, like Nevada, will protect those assets from hefty taxes created by the new SALT cap.

NINGs Could be the Answer to California State Tax

New and established millionaires alike could benefit from establishing a NING trust in which the donor makes an incomplete gift to the trust and assigns an independent trustee. Alliance Trust Company of Nevada provides independent trustee services for many families establishing NING trusts.

By establishing an independent trustee the grantor is still involved, but not considered the owner. A NING trust allows any income or gains by the trust not to be taxed until it’s distributed, at which point the trustee may have moved out of California and can avoid income tax on these gains.

Deferring taxes over years creates a compounding effect that can yield high returns even when just working around state income tax. Utilizing a corporate trustee, such as Alliance Trust Company of Nevada, to administer an incomplete non-grantor trust (ING) in a state with no income tax is becoming a popular solution for wealthy entities in high-tax states.

Why Nevada?

The state of Nevada is one of a few states with no state income tax, but more than that, Nevada’s trust protection is considered to be the best in the country. With several cases which have set precedents in favor of protecting trusts, Nevada has proven to be more in favor of trust protection than any other state including protection from creditors and divorcing spouses.

You never have to live in Nevada as long as you maintain a Nevada trustee. Other benefits include a short seasoning period on trusts and no corporate income tax. You can see a full list of Nevada’s advantages over other states here.

Does the Benefit Outweigh the Risk?

There are quite a few hoops to jump through when establishing a NING, however, with an experienced trust attorney, this should not be a barrier. After establishing a NING, it may be that you will have to pay some California tax.

Alliance works with many attorneys specializing in NINGs. Architecting a NING that focuses on your individual situation and the specific assets being placed in the trust is crucial to meeting your objectives with a NING. We would be happy to refer you to an appropriate attorney.

ING trusts are still being tested in the courts of every state but New York, so there’s not certainty about how California will react yet. It does seem that the state will react with audits before their legislature.

So if you’re about to hit a financial windfall, the calculated risk of establishing a NING could pay off exponentially when it comes to income tax. In which case, the benefit would certainly outweigh the risk.

If you want to learn more about establishing a NING trust contact our experienced team for more information.

Asset Protection in Minnesota, a Breakfast Event

Why Are Asset Protection Trusts Popular in California but not Minnesota?

Alliance Trust Company of Nevada is partnering with BlackRock and Redden Law to host a Breakfast Event for a discussion on Asset Protection in Minnesota: From market to legal risks; Who is at risk and for how much?; Is it true that a creditor can seize my car for $4,600?; My IRA for $69,000?

Our expert panel will lead a lively discussion.

Learn more about Asset Protection Trusts in Nevada

Details:

Speakers

Brian Wevergergh – Market Leader, BlackRock

Michael Redden – Attorney, Redden Law

Greg Crawford – President, Alliance Trust Company of Nevada

Agenda

  • Market outlook and investment implications of balancing risk and reward – What can I do to protect myself?
  • What other risks are impacting my wealth – Is it true that a creditor can seize my brand-new Suburban for $4,600? What about my IRA or my house?
  • What can I do to protect myself and my family?
    • Protecting Wealth: Different strategies to manage risk – from LLCs to Asset Protection Trusts
    • Asset Protection Trust basics: Why, What, Who, and How
    • Case study
    • Why are Asset Protection Trusts popular in California but not Minnesota?

Who Should Attend:

  • Attorneys
  • Financial Advisors
  • Wealth Managers
  • Small Business Owners / Doctors / Dentists

Speaker Bios

Brian Weverbergh

Brian Weverbergh, CIMA® is a Market Leader with BlackRock. He serves financial advisors in the states of Minnesota, North Dakota and South Dakota. Prior to joining the firm in 2016, he was a Regional Vice President for Allianz Global Investors based in Minneapolis, MN.

Mr. Weverbergh earned the Certified Investment Management Analyst (CIMA®) designation through the Investment Management Consultants Association in conjunction with the Yale School of Management. He earned a B.S. in Business Administration with a concentration in Finance from Ithaca College.

Michael Redden

Michael Redden is a veteran of the United States Air Force.  He served as an Intelligence Analyst with the 31 FW in Aviano, Italy.  After the Air Force, Michael returned to Minnesota where he attended law school at Hamline University School of Law.  Michael lives in New Hope with his wife and four sons while coaching youth wrestling. In the past, Michael worked at Prudential Insurance Company of America where he helped clients of the company protect their assets.  While at Prudential, Michael was a registered representative of Pruco Securities and held his Series 6 and Series 63 securities designations.

Michael has a passion for helping licensed professionals preserve their wealth for the next generation. Since tort reform is unlikely, it is more important than ever to have a plan to protect your wealth from lawsuits. He has also served as an independent Trustee/fiduciary in the past.  Michael’s practice has a special focus on Integrated Estate Planning. He combines effective Asset Protection techniques with other Estate Planning strategies in order to protect the assets of individuals and businesses from lawsuits.

Greg Crawford

As president of Alliance Trust Company of Nevada, Gregory E. Crawford develops strategy, drives growth, and oversees operations. For two decades, Greg has designed and implemented asset management and asset protection plans for multi-generational families in the United States and abroad for some of the largest institutions in the world. This work involves comprehensive financial planning, portfolio design, business entity structure strategy, and sophisticated estate planning techniques.

Greg is a regular speaker on the benefits and advantages of Nevada trust situs at law school conferences around the country. A native of Menlo Park, California, Greg holds a Bachelor of Arts from the University of California, Davis, and a Master of Health Administration from the University of Minnesota. Greg is certified in financial planning by Boston University and is a Registered Trust and Estate Practitioner and a Certified Financial Planner.

Mr. Crawford has regularly been quoted in publications such as The Wall Street Journal, The New York Times, The Financial Times of London, and has appeared as an on-air expert on CNBC, Bloomberg and ABC World News Tonight.

Greg has lived in Reno since 2000 and is married with two children. He is a member of Our Lady of the Snows Catholic Church, the Reno Angels Investor Group, the Entrepreneur’s Organization, Reno Sunrise Rotary, and the Reno Tahoe Winter Games Coalition.

Save the Date:

  • March 12, 2019 at 7:30-9:00am
  • Location – Seven Steakhouse, 700 Hennepin Ave, Minneapolis, MN 55403
  • Schedule: 7:30-8:00am registration and coffee, 8-9am program
  • Cost: Free

Can Incomplete Non-Grantor Trusts (INGs) Really Save Wealthy Californians Money on SALT?

A Proactive Approach to Wealth Management May provide Families Significant Savings on State and Local Income Tax (SALT)

Taxpayers could be scrambling after the Federal Tax Reform passed at the end of 2018 capping state and local income tax (SALT) deductions at $10,000. For many wealthy families in high-tax states, this deduction will only cover property tax and won’t touch capital gain income or other investment income.

While California is attempting to pass the Protect California Taxpayers Act which allows taxpayers to deduct some taxes as “charitable contributions,” for many the bill feels like a workaround or even tax evasion, and it’s unclear whether the IRS will allow such a bill to pass.

Rather than waiting for legislation to pass that is more protective of taxpayers, many residents from states like California are considering leaving the state or taking other measures to protect their wealth.

Moving out-of-state is not a feasible option for many. However, moving assets out of a high-tax state may be an ideal solution.

What are My Options?

Traditionally, grantors gift away income-generating investments to beneficiaries who live in tax-favored states. However, these gifts often incur federal gift tax or utilize some of the grantor’s exclusion for a gift and estate tax.

A newer option is the NING trust or Nevada Incomplete Gift Non-Grantor Trust. There are several tax-sheltered states in the U.S., but only a few allow Incomplete Gift Non-Grantor Trusts and the most tax-favored state for such a trust is Nevada. The NING allows a trust to avoid taxation by the grantor’s home state until assets are distributed, or, rather, the gift is complete.

Why Choose a NING?

By transferring assets into a NING, the assets become a separate taxpayer receiving the tax benefits of Nevada. Because transfers are not completed gifts, there is no federal gift tax exclusion.

For those who live in high-income tax states, such as California, establishing a NING to transfer some of the tax burdens to Nevada allows them to take advantage of Nevada’s no income tax benefit.

Additionally, Nevada has the most robust creditor protection and protection as its considered a “spendthrift trust” in Nevada. Nevada also has tested protection from divorcing spouses which has held up in Nevada Supreme Court with Klabacka v. Nelson.

The Components of a NING Trust

An ING trust only works in a state with no state income tax. Otherwise, a tax will apply to the trust. Nevada is the preferred state for an ING trust as it carries many other protections and benefits to grantors and beneficiaries.

ING trusts cannot be grantor trusts under the income tax laws of the grantor’s state of residence. Only states that allow self-settled spendthrift trusts (asset protection trusts) can form non-grantor trusts enabling the settlor to be a beneficiary, such as Nevada.

The incomplete gift portion of the ING trust is critical to ensure that the contributions to the trust are not treated as a gift and subject to federal gift tax. It’s essential for the settlor to have lifetime power of appointment and post-death power – which the ING trust allows.

NING trusts will be subject to federal estate tax when the settlor dies, however, if the estate is not large enough to trigger federal estate tax, this is not an issue.

Who Should Consider Establishing a NING

Although a NING has many benefits, the benefits may not be for every grantor. Here are some of the criteria which would make someone a good candidate for a NING trust.

  • Grantor lives in a high-income state – such as California.
  • Grantor carries intangible assets with substantial tax exposure.
  • Grantors in the highest federal tax bracket who would remain in that bracket after transferring assets to a NING.

Should YOU Establish a NING?

NING trusts can be an excellent option for those looking to preserve wealth and protect it from their state’s high tax rates. Since changes to SALT are recent, there are still some questions about how the IRS will respond to attempts to shield wealth from taxes. However, the NING appears to be the best option to do so.

It’s important to work with a trusted advisory team or trust company that is familiar with Nevada Tax Law and NINGs to ensure it’s the right choice for your family and that you’re gaining the most benefit possible.

At Alliance Trust Company, we’re experts in Nevada Trust Law and have a network of attorneys specializing in NINGs. We are available to walk you through your particular situation regarding NINGs. Contact us to learn more about preserving your wealth in the state of Nevada.

STEP Orange County Conference 2019 Session Highlights

Summarizing STEP Orange County 2019, February 4 – 5

Over 225 attendees and 22 exhibiting companies came together at the Fashion Island Hotel in Newport Beach, CA for the Orange County Chapter of STEP’s 8th Annual Institute On Tax, Estate Planning, and the World Economy on February 4-5, 2019.

After a very disappointing Super Bowl on Sunday, the conference kicked off on Monday morning in rainy Southern California. Discussions covered the changes in tax law, including Opportunity Zone Funds, domestic asset protection, and international issues.

Despite the problems in Washington, D.C., the U.S. is still being viewed as an attractive bastion for foreign families given its stability, attractive investment climate, and other benefits.

STEP OC 2019 Monday Morning Sessions Recap

Trust Law and Tax Differences Between the U.S. and Foreign Countries

After the welcoming remarks, Read Moore of McDermott Will & Emery began with a discussion on taxation of trusts with foreign implications. Moore mentioned the differences between trust laws between the U.S. and foreign countries and the challenges these differences could pose.

In such cases, the legal environment should be carefully analyzed including the tax situation of both countries in order to recommend the right structure for each client.

What’s Changed in Life Insurance and ILIT Trusts

Colleen Barney, a partner at Albrecht & Barney discussed life insurance and ILIT trusts and noted that her practice had gone from 100 ILIT trusts a year before the 2017 tax law change to just 10 a year.

She highlighted that the Crummey notices are actually not required by case law, the only part that is required is the ability of the beneficiary to be able to withdraw the funds within a reasonable time, whether they are actually aware of it or not.

She also discussed items that can be made to make ILITs more flexible, such as trust protector features.

Charitable Planning Under the Tax Cuts and Jobs Act

Lawrence P. Katzenstein, a partner at Thompson Coburn, covered charitable planning under the Tax Cuts and Jobs Act. He discussed strategies, such as the bunching of deductions, to breach the new standard deduction in some years.

Katzenstein also went over the new section 4943(g) (the Paul Newman rule) and how foundations are no longer required to dispose of companies under certain circumstances.

When to Use the Unified Credit

Andrew M. Katzenstein, a partner at Proskauer, highlighted how the unified credit will ultimately come down from the current $11.2m in 2025 or earlier, depending on how the politics will play out in the early 2020s.

Katzenstein recommends that clients start using it now before it is gone. He also discussed Qualified Opportunity Zone Funds and the importance of clients carefully analyzing the underlying investments over the tax benefits, which can be worthless in a bad investment scenario. It’s suggested to carefully analyze the income tax benefit vs. estate taxes.

Strategies to Resolve Conflict Within Families

The Honorable James P. Gray (Ret.), a mediator for ADR Services, talked over lunch about how minimizing surprises and overcommunicating within families can resolve many conflicts before they arise.

Families can use strategies such as family meetings and neutral accountants pre-death to reduce family conflicts at a very difficult time for everyone.

Afternoon STEP OC Sessions Recap

Strategies for High Net-Worth Mexican Families

Enrique Hernandez-Pulido, a partner at Procopio, discussed high net-worth Mexican families and the complexities surrounding their situations with first, second, and third generations being a mix of citizenships between U.S. and Mexico.

Hernandez-Pulido covered the surrounding tax and estate planning strategies, including the fact that Mexico has no inheritance tax for Mexican residents, but 25% tax if a Mexican resident inherits from a U.S. trust. This could put a lot of pressure on advisors to make sure they stay updated on family movements and employ the right strategies.

The new post-election climate, Common Reporting Standards (CRS), privacy needs, and potential new inheritance tax keep wealthy families in Mexico interested in US structures.

A Creditor’s View on Asset Protection Trusts

Jay D. Adkisson, a partner at Riser Adkisson, capped off the first day with a creditor’s view on asset protection trusts and his approach to pursuing them.

Adkisson’s approach can include private investigators, finding debtor’s pressure points, and pursuing fraudulent conveyance as a strategy.

STEP OC 2019 Monday Morning Sessions Recap

Life Insurance as a Portfolio Stabilization Tool

Leigh Harter, Managing Director at NFP Insurance Solutions started Tuesday morning off with a discussion on life insurance as a portfolio stabilization tool.

Harter spoke with Paul S. Lee, Global Fiduciary Strategist at Northern Trust, about Qualified Small Business Stock (QSBS) strategies for business owners.

The History of FACTA and the New OECD Initiative

Joseph A. Field, Senior Counsel at Pillsbury, discussed the history of FATCA and how it gave rise to CRS, and the 3,200 bilateral agreements the 110 nations have put in place.

Field explained that the U.S. is not a signatory and is leading to capital being moved from across the world to the U.S. Additionally, CRS is not balancing privacy vs. transparency but has almost reached Orwellian proportions.

Field also discussed the new OECD initiative that would criminalize advising clients avoiding CRS and its chilling impact on advisors. He highlighted the attractiveness of the U.S., given our stability (despite the political climate in D.C.), the world’s largest investment market, the school system, inexpensive real estate vs. Europe and Asia, a favorable tax system for foreigners, and how to structure around some of the pitfalls.

He ended his chat with a question: If advisors need to police their clients, shouldn’t they have a gun and a badge?

How Families Transfer Both Wealth and Values Through Generations

Justin Miller, National Wealth Strategist at BNY Mellon talked about how successful families (think Rothchilds) vs. unsuccessful (think Vanderbilts) transfer not only wealth but values to next generations.

Most families are adept at transferring financial capital but struggle with non-financial capital (think family values) which leads to significant loss of financial capital by the third generation.

Strategies such as having a team of advisors that work together, good investment advice, smart tax planning, and most importantly a focus on family governance and giving, lead to family harmony and success for future generations.

Selecting the Best Jurisdiction for Domestic Asset Protection Trusts

Steven J. Oshins, a partner at Oshins & Associates, discussed selecting the best jurisdiction for Domestic Asset Protection Trusts, and how they work for the 17 states that have enacted DAPT statutes, but not for the other 33 states.

A hybrid structure with third-party beneficiaries is superior in many cases and Oshins discussed how they can be structured to still provide flexibility for grantors and their families.

Oshins also talked about how after 20+ years of DAPTs, there still isn’t a case that has pierced the trust in a non-fraudulent situation, and how DAPTs are leading to quick settlements, which is preferable to long litigation for most clients.

Wrapping Up STEP OC 2019

The conference wrapped up with Robert Keebler, a partner at Keebler & Associates, discussing the Impact of the IRC Section 199A Deduction on Estate Planning.

Overall, the two-day conference was well-attended, informative, and successful and the content of each presentation was very well received by the attendees.

For additional details from the 2019 STEP OC Conference or to learn more about the benefits of Nevada’s trust structures, contact us today.

Third Annual STEP Alpine Conference January 17 & 18, 2019 Interlaken, SUI

STEP Alpine 2019 Sessions Recap

A well-attended and lively STEP Alpine Conference recently wrapped up at the Congress Center, Kursall, in Interlaken, Switzerland. Both Martine Rhoda, Director of European Development, and Greg Crawford, President of Alliance Trust Company of Nevada, attended the two-day event.

STEP Alpine Highlights

Opening Keynote

After the opening remarks and welcoming the Keynote speaker, Elhad As Sy, Secretary General, International Federation of Red Cross and Red Crescent Societies took the stage.

The Secretary-General reminded us all that global problems are much harder to solve in a fractured world, and that no one is truly isolated from global issues.

Those unfortunate enough to be born in situations (and regions or countries) are suffering misfortune that is beyond their control. What they want is what we all want–and should collectively strive for–freedom from disease and stability and peace.

These very basic desires are commonalities of humanity. The Secretary-General thanked the audience and those benefactors that the professionals in the audience represent for the continued support of these efforts.

It was an inspiring beginning to the two-day affair.

Compliance and Privacy, Still Prevailing Themes

The theme of the conference was two sides of the same coin. Both what is new and what is consistent in our industry. Day one focused on the “new,” the continued increasing regulatory and compliance requirements. Day two focused on the original goals of the field: providing valuable services to clients.

The first industry-focused presentation began with three presenters and a panel discussion from David Russell, Filipino Noseda, and Count Francis von Seilern-Aspang.

It was noted that the treatment of trusts, assets and cross-border families are now quite inconsistent with several other trends towards protecting information and personal privacy in the EU region.

GDPR is almost 100% inconsistent with the CRS, and yet seems to be okay because of “fiscal voyeurism” practiced by the media and certain tax authorities. Recent rulings by the European Court of Justice appear to support a fundamental right to privacy. The audience noted the hypocrisy that elected officials claim a right to privacy for themselves, but not for commoners.

Budgeting Challenges Governments

The government budget problems facing many of the developed countries may be at the root of the issue. Governments are not generally pursuing growth strategies and instead are appealing to voter frustration and populist uprisings. The political will to debate economic policies is minimal when it is much easier and more popular to scapegoat particular classes of people for political gain (e.g., immigrants, the upper-class).

Thus, in this environment, selective “transparency” for certain types of people–the wealthy–is now politically expedient.

The new level and detail of information gathered by multiple firms and government agencies are staggering and often redundant. Information is the new oil in the Odeon economy, and information has become extremely valuable. It is a matter of time before various databases are hacked, or the information gathered is sold into the black market (see the recent sale of personal information by Argentinian tax authorities).

While the GDPR has significant penalties for companies which fail to protect their data, there are no such penalties for governments.

Yet, despite all of this information being gathered in the name of transparency, it is not clear that this will lead to higher tax compliance. The analysis of the U.S.A.’s FATCA efforts and initial data coming from the OECD suggest that the amounts of levels of tax evasion ballyhooed to get both FATCA and the CRS passed were “exaggerated’” to put it mildly.

Looking Ahead: Trust Structures

So, what then does the future hold? Trusts have been in place for 1,000 or more years, and continue to be needed by families at all levels of wealth. Competence, expertise, professionalism, structure, and wisdom are not a given in all families and can be most effectively brought to the table or bolstered in the form of a trust structure.

Trust structures are needed now more than ever. They can provide solutions and continuity for the families who need them. Those that continue to advise families on how to help solve these age-old problems will continue to be in demand.

Combating Tax Fraud In the U.K.

The next presentation, “Data Exchange: Its Fate and Its Risks” began after lunch. Tessa Lorimer (Withers, U.K., Consultant) notes that the U.K. has dramatically increased its tax investigation capabilities now that it receives information pursuant to the Common Reporting Standards (CRS).

We reached out to Lorimer for more insight:

“The information will give Her Majesty’s Revenue and Customs (HMRC) reasonable grounds to suspect tax fraud and thereby access the international criminal treaties. The criminal treaties allow HMRC to send a Letter of Request to foreign jurisdictions requesting the use of coercive powers to have evidence remitted to the U.K. suspects located and extradited in the U.K. to stand trial and assets are restrained and confiscated abroad.

“Recent U.K. legislation has dramatically increased both criminal and civil penalties for tax fraud in anticipation of the aggressive international tax investigations of the future.”

David Walbank, QC, described the significantly increased risk to people who become subject to a CRS Criminal Investigation. Most significantly, the Criminal Finances Act of 2017 reverses the burden of proof in such cases. Additionally, the evidentiary trends regarding search and seizure are tending to give more power to the authorities. These powers now border on draconian “Unexplained Wealth Orders,” and he expects it authorizes to launch high-profile, headline-grabbing cases in the future.

Securing Enterprise Data

The presentation concluded with some practical insights into how to secure enterprise data from Dr. Cristian Zamfir, COO of Cyberhaven. We reached out to Dr. Zamfir for insight, and he stated, “Data is now the common denominator of most corporate risks. The foundation for managing these risks is to discover where sensitive data is, who is accessing it, and how it is processed: in other words “data flow mapping,” which is now done manually. The answer to modern risk management in the context of GDPR and other recent compliance legislation is to automate the data flow mapping process.”

Visit Cyberhaven to learn more.

New Regulatory Developments in 2020

The next presentation covered “New Developments On the Regulatory Front” and began with an update on new Swiss Trustee regulations coming into effect in 2020. David Wilson, partner at Schellenberg Wittmer, noted that 2020 is designed to be a transition period for Swiss trustees, who have not been licensed to date.

Wilson comments that “Trustees’ anti-money laundering policies remain but, going forward, their implementation will be supervised by Supervisory Organizations, that will replace the existing self-regulatory authorities.”

Wilson’s session garnered a lot of attention as his audience took extensive notes.

Global Regulatory Approaches

Richard Grasby then contrasted different types of regulatory approaches to the industry from jurisdictions around the globe. Regulators range from lighter approaches that are really just focused on AML policies, to large scope requirements that delve into the quality of trust operations and depth and experience of personnel.

Private Trust Companies, called Family Trust Companies in Nevada (NRS 669A), were raised as a possible structure for some as they can in some instances be exempt from pending Swiss registration requirements. Business and family ties are vital factors to consider for a Private Trust Company, which can be likened loosely to a single family office.

Fabianne De Vos Burchart cautioned that PTCs must be run professionally, or he fears that many will be challenged in the future for being little more than an elaborate nominee agreement.

Blockchain as a Trust Asset Worldwide

The final presentation of day one is a very popular topic at recent STEP Conferences around the world, Blockchain.

Philipp Buchel discussed the original benefits of bitcoin and the blockchain, a no Third-party, low fee currency, and transfer network. Unlike traditional assets, there could initially be no freezing or censorship. The blockchain itself is simply a ledger/database structure to prevent docile-spending.

How Blockchain Laws Are Evolving

But the laws are evolving differently in different countries regarding property rights in this new class of asset. In the U.K. the law is developing so that the coin holder is the owner, while in the U.S.A. courts are taking the position that the private key or code that unlocks the coin(s) is the legal owner. Regardless, storage is the most critical issue.

To date, trustees have been unwilling to hold the private keys to these assets. Bitcoin and other currencies titled to trusts are being done via LLCs, or special purpose trusts to limit trustee liability. However, it is clear that clients will need better answers going forward than the current trust company solutions.

The day concluded by noting that these are no longer just issues for early adopters or technology geeks; companies such as the shipping company Maersk which recently shifted its container procurement and management system to the blockchain are expecting to save hundreds of millions of Euros a year as a result.

After a terrific cocktail hour and dinner sponsored by Schellenberg Wittmer, the 300+ attendees turned in for the evening. Special congratulations go out to the STEP Swiss and Liechtenstein Federation Student Award winners who were recognized during dinner.

Day Two – Serving Client Needs

Day Two shifted the theme of the conference from regulation and compliance to serving client needs into the future.

Uncovering the Truth About Lost Family Fortunes

The first day two presentation, “The Next Generation: Challenges and Opportunities” covered a phenomenon that cuts across all societies and commonality of humanity discussed at the conference open by the Supreme General- it is the sad but simple fact that by the fourth generation, most family fortunes have been lost or squandered.

The psychology of attachment between a parent and a child was discussed in the context of tremendously busy, international families. Communication in these situations is commonly low, and children are patronized for too long.

A classic case study of an Asian family was discussed, as well as the fact that many financially successful parents just assume that their children will have the same passion and interest in the family enterprises that they do. As practitioners, we know this is often not the case. Parents who are strong role models need to allow children to find their own path.

It was a very skilled and diversified panel, with Her Supreme Highness Therese of Liechtenstein, Joshua Seth Rubenstein of Katten Muchin in New York and Dr. Marina Walter, MD from the University of Geneva.

We had to step out for networking meetings during the next two presentations which covered the mental capacity of aging clients and the special needs of globetrotting families.

The Swiss-U.K. Axis

The final presentation before lunch was titled the “Swiss-U.K. Axis.” It is often said that the U.S. and the U.K. have a historic “special relationship,” but there is also one between the Island of the U.K., and the island of stability in continental Europe, Switzerland.

Jane Owen, Her Majesty’s Ambassador to the Swiss Confederation and the Principality of Liechtenstein noted that there are over 150 flights from various U.K. airports to airports in Switzerland each and every day. Much of the discussion focused on what the U.K. could learn from Switzerland in advance of Brexit while noting much remains uncertain.

Global News

After lunch, the agenda continued with “News from Switzerland, Liechtenstein and the rest of the World.”

Joshua Rubinstein led off the discussion with an update on the U.S.A. tax law changes, and how it helps business owners. Litigation trends regarding trust issues in the U.S.A. are also increasing, mainly as age and dynasty trusts interplay with inheritance issues and expectations.

Modern relationships and 2nd and 3rd marriages only increase potential family friction and legal contests. It was also noted that the legal erosion of attorney-client privilege is eroding in the U.S. as well, but not to the same degree as other jurisdictions.

One important point – do not use a work email address to correspond on personal litigation matters. Create a personal email account specific to the case and only use it for sensitive correspondence to better protect privileged documents.

New Developments Worldwide

The rest of the world came next, with David Russell updating the conference on new developments in the Middle East. Jurisdictions there have taken different approaches to adopt model legislation, noting that Dubai has adopted a style of the American Uniform Trust Code.

There was actually a technical glitch in this section, so if you would like a copy of the slides or to discuss these sections further, please let us know.

Liechtenstein and Switzerland Updates

Saving the best for last, the update on Liechtenstein and Switzerland came next. Patrick Brunhart noted that this year is the 300th Anniversary of the Principality and its reputation continues to improve around the globe. The country will continue to be a small but important financial center in the future.

Switzerland will continue to be a jurisdiction offering top-end solutions to sophisticated clients. The country can never become a low-cost “factory” solution provider, as the cost of doing business here is simply too high to compete in that segment of the marketplace.

Influencing the Debate – Swiss Trust Laws and Regulations

The last presentation of the day blended many of the themes of the first two days and sparked a lively and important discussion to wrap up the conference. The presentation title was “The Great New Questions for Trustees – Your Chance to Influence the Debate.”

A discussion of the new regulations facing Swiss Trustees began the presentation, reviewing some of the highlights of the discussion from the day before.

The prospect of specific Swiss trust laws was discussed, and in classic Swiss fashion, an impromptu vote was held. The audience generally felt that the regulation of trustees was a good development, while they were less enthusiastic about new Swiss trust statues. The overall goals and purpose of regulations were also discussed in the context of protecting clients from bad actors in the world of trusts, and the practitioners in the room from being tainted by bad actors as well.

Looking Forward to STEP Alpine 2020

With that, the Third Annual STEP Alpine Conference concluded. The Fourth Annual STEP Alpine Conference is tentatively scheduled for the same location on January 16 & 17, 2020. STEP should confirm this in the weeks to come, and we at Alliance Trust Company of Nevada look forward to seeing you there!

If you would like to discuss the conference details further, or how Nevada trust structures can benefit your clients, please contact Martine Rhoda in Geneva at (add cell phone and email).

Supreme Court to Address State Taxation of Trusts

Why Two State Trust Cases Have Escalated to the SCOTUS and What That Could Mean for Estate Planning

BREAKING NEWS from the Supreme Court in Washington D.C. While much of the estate planning community is at the Heckerling conference in Orlando, the U.S. Supreme Court of the United States (SCOTUS) decided on Friday to grant a writ of certiorari in The Kimberley Rice Kaestner 1992 Family Trust v. North Carolina Department of Revenue case.

The Cases Broken Down

The crux of the Kaestner case is whether the state of North Carolina should be able to constitutionally tax trusts where the only connection to the state is that the beneficiary is a resident. In the state of North Carolina, the taxpayer won throughout the entire court system, but the state appealed successfully to the US Supreme Court.

Another similar case, Fielding v. Commissioner of Revenue, is being appealed to the SCOTUS with taxpayer response due on January 21st. The facts of the Fielding case are broader than the Kaestner case, so the outcome is of interest to the greater estate planning community. The Fielding case addresses whether the state can tax a trust where the grantor was a resident of a ate during the creation of the trust, and one beneficiary was a Minnesota resident, but there are no other ties to the state of Minnesota within the trust itself.

Like Kaestner, Fielding won in the Minnesota state courts, and the state appealed to the SCOTUS.

It has been decades since the SCOTUS has addressed the state taxation of trusts. However, there are quite a few cases beyond the Kaestner case with address state trust taxation, including:

  • McCulloch v. Franchise Tax board (Calif, 1964)
  • Taylor v. State Tax Commissioner (N.Y. 1981)
  • Pennoyer v. Taxation Div. Dir. (N.J. 1983)
  • Potter v. Taxation Div. Dir. (N.J. 1983)
  • In re Swift (Mo. 1987)
  • Blue v. Department of Treasury (Mich. 1990)
  • Westfall v. Director of Revenue (Mo. 1991)
  • 1992, Quill Corporation v. North Dakota. (1992)
  • District of Columbia v. Chase Manhattan Bank (1997)
  • Chase Manhattan Bank v. Gavin 1999
  • South Dakota v. Wayfair 2018

Constitutional Issues

Three older U.S. Supreme Court cases all dating before 1947 addressed the constitutional issues with state taxation. Safe Deposit and Trust Company v. Virginia held that the Due Process Clause prohibits a state from taxing a trust based on the residence of beneficiaries.

In Guaranty Trust Co. v. Virginia the court held that Virginia could tax residence beneficiaries on distributions they received from a non-resident trust.

Greenough v. Tax Assessors of Newport held that the Due Process Clause did not prevent the city of Newport from imposing a personal property tax on a resident trustee of an otherwise non-resident trust.

It is probably unconstitutional for a state to tax an otherwise non-resident trust solely because the guarantor was a resident. However, if that state’s court system is utilized, for example, because of a probate proceeding in that state, chances are better than the state does have authority to tax the trust.

The trust industry is keenly following the Kaestner and Fielding cases, and it will be interesting to see whether they are heard together or separately in the SCOTUS, presuming the court will also hear the Fielding case.

Alliance Trust Company is following both cases closely and will provide updates as new developments arise.

Nevada Trust and Estate Planning Advantages

Nevada’s Beneficial Trust Laws Set it Apart and Provide Strong but Flexible Protection

When it comes to asset protection and managing estates, Nevada stands alone paving the way for other states. Recent cases, such as Klabacka v Nelson, have set Nevada apart from other states with similarly beneficial trust laws and allowing Nevada to emerge with the most iron-clad wealth protection available in the U.S.

Nevada should be a serious contender when considering both wealth management and asset protection whether you are a U.S. or non-U.S. citizen. Nevada boasts additional benefits such as Dynasty trust provisions lasting up to 365 years and Domestic Asset Protection Trusts (DAPT’s), also known as Self-Settled Spendthrift Trusts (SSST), allowing you to protect your assets and wealth more than any other state.

With the addition of an abbreviated statute of limitations until assets transfer to an SSST and superior protection from creditors, which is unique to Nevada, the advantages of establishing your wealth and assets in the state of Nevada deserve a deeper look.

Nevada DAPT and DAPT Hybrid

Domestic Asset Protection Trusts (DAPT)

A relatively new type of trust, the DAPT is different because it allows the settlor to also be the beneficiary. This is beneficial for planning and allows for much more flexibility. These trusts also play a strategic role in income and estate taxes.

Few states permit DAPT’s and even fewer have as short of a seasoning period as Nevada (two years). To receive the benefits of a DAPT in Nevada, you must establish the trust in Nevada; this is possible without relocation if you utilize a corporate trustee such as Alliance Trust.

The Nevada DAPT is irrevocable. However, there is quite a bit of flexibility within a Nevada DAPT.

Hybrid DAPT

Most people believe that the Nevada DAPT will hold in court though it has never entirely gone through the court system. Several Nevada cases prove that Nevada honors DAPTs, but if you desire extra caution, a Hybrid DAPT is a simple option that reduces the risk of creditor access to assets and wealth.

In a Hybrid DAPT, you do not initially add the settlor as a beneficiary, but you can modify this later. This arrangement limits the uncertainty of a traditional DAPT.

Flexible Decanting

While the term “irrevocable trust” sounds rigid and unchangeable, the process of decanting is a popular way to change the terms of the trust and increase flexibility.

Trust decanting allows you to move assets from one trust to another and essentially modernize the trust without court approval or notice to beneficiaries.

Often, terms of a trust need to be revised to reflect the circumstances of the family or if the trustee has changed their mind about the old terms.

Learn more about Nevada Trust Decanting here.

Save Big on State Income Tax

Nevada is one of a few states with no state income tax, in theory, establishing your trust in the state of Nevada should allow you to save on state income tax after the two-year seasoning period. However, there are steps you need to take to ensure this transition isn’t viewed as tax evasion.

The most popular way to save on taxes and establish your trust in Nevada is by using a Nevada Incomplete Gift Non-Grantor Trust (NING). NINGs also help with estate planning and shield your trust from creditors. The NING trust has held up in court unlike its counterpart the DING (Deleware Incomplete Non-Grantor Trust) and is the preferable choice for wealth and asset management.

Learn more about saving on state income tax using a NING here.

More Nevada Tax Advantages

State income tax savings are not the only benefit of establishing your trust in Nevada, Nevada also protects from federal or state transfer tax, and for Nevada Dynasty Trusts, the state shields assets from income tax through the 365 year period.

Additionally, Nevada does not tax trust income which is distributed to beneficiaries nor assess tax on the value of intangible personal property within a trust.

Nevada’s tax advantages keep slow erosion of assets and wealth via taxes from eating into the trust.

Protection from Creditors

In the case of Klabacka v Nelson, 133 Nev. Adv. Op. (May25, 2017): Nevada DAPT Protects Against Spousal/Child Support Claims, a divorcing spouse attempted to tap trusts and receive access to assets. The Klabacka v Nelson case took place in Nevada, and Nevada’s courts protected the trust, keeping the divorcing spouse from gaining access to the trust.

Nevada is the only state with creditor protection precedents set firmly in favor of trusts.

Nevada Dynasty Trusts

Nevada Dynasty Trusts can last up to 365 years and allow generation-skipping-transfer tax exemption to help limit estate tax liabilities, sometimes eliminating them.

With a Nevada Dynasty Trust, your assets are subject to tax (or lifetime exemption) once upon transfer and then not again at the estate level allowing many generations to enjoy gifted assets.

Domestic and international families alike can enjoy the benefits of Nevada Dynasty Trusts and favorable estate tax laws for an extended period of time.

Take Advantage of Nevada’s Trust Laws

If you’re considering establishing a trust or estate in Nevada, it’s highly advisable to speak with a professional who understands Nevada’s Trust Laws and statutes.

Alliance Trust Company of Nevada works with a variety of professionals around the world to provide flexible trustee services with the benefit of Nevada trust situs.

Contact us to understand further how establishing your trust in Nevada will benefit your family and how you may take advantage of some of the best trust laws in the world.

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