trusts

Trusts are hard to create. You are trying to predict and control the future. Can you imagine what your family will be like in 50 years? Can you imagine what life, the economy, and the world will be like in 50 years? Now think of writing a document that is designed to send a fortune 50 or 100 years safely into the future.

Hostility

The U.S. tax system is generally hostile to foreign trusts if a U.S. taxpayer is involved. The hostility is understandable; trusts interfere with the government’s ability to impose or collect tax. As a result, the laws are slanted against foreign trusts. Income is taxed punitively. The right paperwork must be prepared “just so” and filed on time, or massive penalties can result.

Distributions to beneficiaries require the trustee to keep complex financial accounting records that satisfy U.S. tax requirements, even if the recordkeeping and accounting is unnecessary under local laws.

U.S. beneficiaries may pay gigantic U.S. income tax bills when they receive distributions. And the government doesn’t even have a proper U.S. income tax return for a foreign trust – we have to use Form 1040NR, the tax return for a nonresident individual.

Yet foreign trusts are essential tools for our clients, and they’re well worth the associated pain and expense.

Firewalls

We use trusts as firewalls against the unwanted tentacles of forced U.S. tax reporting. Imagine a family outside the United States with one U.S. citizen member. The family’s business, wealth, and banking relationships – all of which have been created over generations outside the United States – may be exposed to U.S. government scrutiny. Trusts can firewall the U.S. citizen away from matters that should not be any business of the United States to know or tax.

Why should a family’s wealth, created by hard work over generations outside the United States, be subjected to the U.S. estate tax? Why should a U.S. real estate investment be subjected to the U.S. estate tax, simply because a family member dies?

Trusts create an intentional disconnect between the asset owner’s identity and those who receive economic benefits from the assets.

We like foreign trusts

Our view of trusts is simple. We think they’re great. We think they are great precisely because they are complicated and tough to unravel. The technical difficulty presents an opportunity: know what you’re doing, do it exquisitely correctly, don’t cut corners. That’s a winning recipe.

We create, operate, amend, and terminate foreign trusts, using many different countries’ laws. We fix problems with foreign trusts – including accounting problems and tax problems. Even issues that arise because a trust created two or three generations ago has now become a problem, not a benefit, to the family.