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.