Asset ownership, insurance, irrevocable trust, limited liability entities, and asset protection trusts are key vehicles when it comes to protecting your assets. Having an overview of what is protected under these vehicles—including the costs, administrative considerations, income tax treatment, and the estate and gift treatment—provides an easy, at-a-glance understanding of the options available in preserving family wealth.
Trustee and Beneficiary Duties
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For insights on integrated wealth planning, this issue of The Advisor presents a view from the top with Joe Kahn, The New York Times Managing Editor, the impact of globalization 2.0, and the U.S. presidential election 2016 and the candidates’ tax platforms. Also in this issue are the best practices in providing age-appropriate transparency when it comes to discussing a family’s wealth plan. Following it is the takeaway on the advantage of Delaware’s laws on directed trusts.
Asset protection follows the continuum of life’s events, reflecting the changes that individuals, families, careers, businesses and wealth undergo. Within the wealth spectrum, a simple way of thinking about asset protection strategies is from lower risk and simpler tactics to higher risk and more complex and sophisticated tactics. This approach will cover everything from how assets are owned and titled to how they’re insured and protected against risk to how they can be held for efficient asset management.
The Foreign Account Tax Compliance Act (FATCA) is in full swing. Non-US financial institutions have completed reporting of US account holders for tax year 2014 and will soon begin compiling for their 2015 FATCA reports. Just as international families and their advisers are getting used to myriad requests for FATCA Form W-8 certification forms, more than 90 other countries have indicated that they wish to address tax evasion through a global exchange of financial information by implementing the Common Reporting (CRS) which, like FATCA, will affect non-US trusts and their trustees.
Today’s PFTCs bear little resemblance to ‘private trust companies’ of the 1990s, the gestation era for the PFTC. The modern US PFTC also differs markedly from a third form of ‘private trust company’: its ‘offshore’ single family private trust company (OFTC). Limited federal taxation of foreign trusts and privacy protections as good as or better than those found in traditional offshore jurisdictions have led some commentators to call the United States the ‘new offshore’ jurisdiction for trusts.
Most family offices that serve U.S. families are well aware that special planning considerations can arise when a U.S. citizen family member marries a noncitizen. Should the client’s estate plan be revised to incorporate a qualified domestic trust (QDOT) to ensure that assets passing to the surviving noncitizen spouse qualify for federal estate tax marital deduction?
In early April 2016 files leaked from a large Panama-based law firm (known as the ‘Panama Papers’) brought to the attention of many the ways in which offshore companies and structures can be used to obscure the identity of beneficial owners, some of whom have used such entities to avoid paying tax in their country of tax residence.
Even though a trust may be established under the laws of a US state and have a US trust company serving as trustee (hereinafter a ‘US-based trust’), this does not mean that it is a US domestic trust for income tax purposes. If non-US persons make substantial decisions for the trust, the US-based trust will be classified as a foreign trust under US tax law. Regardless of whether the US-based trust is foreign or domestic, if it has accounts with financial institutions, it must provide certification of its status for Foreign Account Tax Compliance Act (FATCA) purposes.
Private family trust companies have increased in popularity in recent years, and several states have adopted statutes specific to them. This compiled information compares state trust law requirements for Virtual Representation, Nonjudicial Settlement Agreements and Nonjudicial Modification Agreements in selected states that have PFTC statutes, including Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Wyoming.
Over the years, many families and their advisers have come to find that the State of Delaware is a trust-friendly jurisdiction that promotes modern laws and attractive income tax advantages. This paper highlights the most significant legal and tax benefits for nonresidents, and their professional advisers, who may be considering whether to establish a trust in Delaware.