How Are Foreign Trusts Taxed?
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- Опубліковано 8 лип 2024
- Jimmy Sexton goes into detail about how foreign trusts are taxed.
Determining what is and what is not a “foreign” trust can be difficult.
For example, a trust formed in the state of Wyoming in the USA can actually be considered a “foreign” trust for US tax purposes. This is due to certain US tax laws relating to a “court test” and a “control test.”
The result is that you have a Wyoming trust for state law purposes but a foreign trust for tax purposes.
A Wyoming trust provides other benefits like not being subject to a trust register, no beneficial ownership register (for trusts), and no common reporting standard. Plus, you can have a private trust company serve as the trustee.
Jimmy also discusses the two different kinds of foreign trusts - foreign grantor trusts & foreign nongrantor trusts.
Unfortunately for Americans, the IRS will consider the grantor of a foreign trust to be the owner of the foreign trust for tax purposes (not for purposes of legal title). As a result, they are required to pay tax on a foreign trust’s worldwide income.
Jimmy also discusses the very important and complicated trust reporting obligations - grantors, beneficiaries, and trustees might all have obligations.
Finally, stick around the see some “use cases” or examples of what kind of trust is best under certain circumstances.
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Jimmy Sexton, LL.M. is the Founder & CEO of Esquire Group. Jimmy founded Esquire Group with the objective of helping and inspiring wealthy families, investors, entrepreneurs, and high-level executives obtain and gain control over and protect their wealth, via strategic wealth planning. Jimmy started his career in 2003 and continues to service an elite group of clients. In 2005 Jimmy extended services to include tax preparation, which has evolved into Esquire Group’s exclusive Concierge Tax Service.
This service is offered to a limited number of clients. (submit a request to see if we currently have openings for new clients: esquiregroup.com/contact-us/).
Esquire Group is not your typical international tax and wealth advisory firm; we are international business people and global citizens that strive to continue finding ways to provide value to our clients and enhance their lives, giving them peace of mind.
Awesome work Jimmy! Great info.
Another really good explanation. Thank you.
Thank you, your explanation was clear as well concise. 👏 I've learned a lot and am very grateful!
You're very welcome!
Great presentation. Thank you!
Glad it was helpful!
Excellent presentation
1 } for example I establish a Nevada DAT and , if I understand the concept correctly , and I open a brokerage account and all my income is foreign there is no tax liability .
Unfortunately not because US settlors of foreign trusts (or US trusts treated as foreign trusts for US tax purposes) are treated as owning the assets they treated to the foreign trust for US tax purposes, which means you'd have to pay tax on the income the assets generate. The foreign trust structure (or US trusts treated as foreign trusts for US tax purposes) is best for foreign settlors--they get all the tax advantages.
@@esquiregroup I thank you for your reply .
The long and short of it is parking my assets ; ie , in Dubai .
I think getting a St Kitts Nevis Passport , getting UAE citizenship and renouncing is a better solution .
The USA is heading in the wrong direction .
As previously mentioned, setting up a Dubai foundation or trust will not offer you any tax benefits while you are still a US citizen. It will, however, still provide you with great estate planning, succession planning and wealth protection.
If you are looking for tax benefits and privacy, it would be far more beneficial to renounce your US citizenship first.
If you need help doing so, we can help. You can email us info@esquiregroup.com to setup a consultation.
Thank you, great explanation on why a foreign non-grantor's trust is beneficial. I assume, to avoid throw-back taxes, all earned income should be distributed in the year they are earned.
Thank you for the positive feedback. Yes, distributing current income will generally avoid the throw-back rules. There are, however, other methods that don’t require distribution depending on the type of assets in the trust and how they’re held.
Awesome
Thanks you, very good explanation, however I have a query that the Income of Foreign grantor trust is considered as PFIC for grantor or the the capital gain of trust is considered as capital gain for grantor in USA ?
Secondly, the unrealized capital gain of trust is considered as income of the trust for that year?
The answer to this question depends on many factors and your questions does not give enough information for me to give you an answer. If you would like to get advice on this please contact us info@esquiregroup.com to set up a consultation. Thanks!
Great Explanation ! Thank you. Amount / Asset transferred by settlor to this foreign non grantor tax counted in Estate tax exemption limit if one of beneficiary is child of settlor ?
Whether the beneficiary is a child or not doesn’t factor in to whether transferred assets are still included in the settlor’s estate. The transferred assets would be included in the settlor’s estate if they weren’t transferred via completed gift to the trust. If they were, then the transferred assets would go against the settlor’s lifetime gift tax exclusion, but not be included in the settlor’s estate.
@@esquiregroup Understood ! So, transferred asset would go against settlor's lifetime gift tax exclusion .( limit which is approx 12.06 million usd now). Correct ? If stock of unlisted company is transferred by settlor to trust ( foreign non grantor ) , how value to be determined ? Thanks in advance.
Thanks for the explanation Jimmy. Quick question, the benefits (non taxable income in the US) of investing/trading in the US markets as a non-US person (W8-BEN) are gone if a non-US person decides to create a Trus right? Because will have to report and pay taxes on US source Income. Thanks!
Depends on whether it is a US or foreign trust. If a foreign trust, the benefits would not be gone.
Great Video Jim. Do you think this structure fits a foreign person that wants to relocate to the US from another country?
Thank you. This structure can work for foreign persons wanting to relocate to the US. It can provide US estate tax protection if setup anytime before relocating to the US or becoming a US person. To provide income tax protection, it needs to be setup at least 5 years prior.
Very excellent video!!! Does your office do video consultations i.e. zoom?
We sure do! You can email us at info@esquiregroup.com to schedule a consultation. Thanks!
What is private/ personal here ?
Not sure what you mean.
finally