Foreign Grantor Trust: The Basics

Key Takeaways

Foreign Grantor Trusts offer:

  • Tax Efficiency: Ideal for international tax planning.
  • Flexibility: Both revocable and irrevocable options available.
  • Strategic Benefits: Maximizes advantages under U.S. and Nevada laws.

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Care for Your Off-Shore Beneficiaries

Foreign families with loved ones in the U.S. may wish to set up a foreign grantor trust.

The foreign grantor trust allows international families to take advantage of tax benefits, increased flexibility, political stability, and secure asset protection laws.

What is a Foreign Grantor Trust?

A foreign grantor trust is both a foreign trust and a grantor trust. The trust is not subject to U.S. income tax on income produced by non-U.S. situs assets. 

A revocable foreign grantor trust established in the U.S. remains revocable until the death of the grantor at which time it becomes irrevocable. The irrevocable trust benefits the U.S. beneficiary, but any U.S. situs assets are then subject to U.S. tax. 

If the settlor has the power to revoke the trust, it is considered a revocable trust for U.S. tax purposes.

If the grantor is both the settlor and owns the assets in trust, it is also considered a grantor trust and is not subject to U.S. tax on non-U.S. sourced income.

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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.

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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.

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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. Several members of Alliance Trust Company of Nevada attended the two-day event.

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STEP ASIA Hong Kong Recap

A Breakdown of New and Important Information Discussed at STEP ASIA 2018

STEP ASIA at the Grand Hyatt in Hong Kong took place from November 19th-21st and was a sold-out event despite only 12 Americans attending (due to the event taking place over the American Thanksgiving Holiday). Because of the interest in the event and to increase the potential size, STEP Asia is considering moving the conference to a hotel across the harbor in Kowloon in 2020. STEP Asia 2019 will take place in Singapore.

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Using NING Trusts to Significantly Reduce State Income Tax Liabilities

Why Wealthy Families are Choosing to Shift Their Wealth to the Tax-Favored State of Nevada

The state of Nevada is considered a tax-favored environment, allowing maximum tax protection over trusts and estates. That’s just one of the reasons why more and more people are choosing Nevada to establish their trusts.

The “NING” trust or Nevada Incomplete-gift Non-Grantor trust reduces state income tax liabilities and simultaneously provides asset protection benefits.

For people with substantial income, assets, or large capital gains who could generate significant Federal and state income tax shifting a trust from its current state to a state with more favorable tax laws, such as Nevada, could create significant income tax savings.

While moving to Nevada would allow someone to take advantage of these benefits, relocating family is often not an option. However, by establishing a NING and transferring assets from the existing trust into the NING, the trust will only face Federal capital gains taxes.

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4 Reasons to Consider Establishing a Nevada Dynasty Trust

Unprecedented Protection for Generations

Choosing the right trust strategy to protect your assets is an important and often complex decision. Dynasty trusts are a great option when you need to hold assets for generations, and they minimize or even eliminate many taxes associated with trusts including distribution, estate, inheritance, transfer and more.

Once you’ve decided that a Dynasty Trust is right for you, the next most important decision is where you should establish your trust. Both Nevada and Delaware are considered some of the best places to establish a trust to take full advantage of friendly trust laws, because of precedents set in both Nevada and Delaware, Nevada is often considered the better choice.

If you’re feeling unsure about establishing a Nevada Dynasty Trust, here are five reasons why it’s the best choice to care for your family for generations to come.

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Fielding Luncheon Panel Discussion Summary

Experts in MN taxation, MN trust and estate law, and trust migration and decanting discuss possible outcomes from the fielding decision

On August 27, 2018, Alliance Trust Company of Nevada hosted a panel discussion at Seven Steakhouse in downtown Minneapolis. Attendees included Minnesota tax and trust law professionals from prominent firms throughout the state of Minnesota.

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Unpacking Fielding’s Win in Fielding v. Commissioner of Revenue

Arguments from both sides and the basis for why taxing the trusts in MN was deemed unconstitutional

In Fielding v. Commissioner of Revenue, the court concluded that the contacts on which the Commissioner relied are either irrelevant or too attenuated to establish that Minnesota’s tax on the trusts’ income from all sources complies with due process requirements.

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MN Supreme Court Sets New Precedent for Defining Resident Trusts

Taxing trusts solely based on grantor residence is now unconstitutional in Minnesota

On July 18, 2018, the Minnesota Supreme Court ruled in Respondents v. Commissioner of Revenue that taxing trusts in perpetuity only based on the test that the grantor was a Minnesota resident while the trust became irrevocable is unconstitutional. This decision supports the ruling decided by the Minnesota Tax Court almost exactly one year ago. Moreover, this decision follows similar logic in cases heard in Pennsylvania, New York, and Illinois.

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