By
Gary Scott
Foreign nongrantor trust structures
can offer truly Inspired ways to Reduce Tax.
But before we review the benefits
of foreign nongrantor trust structures let's share a message sent to me by a reader.
The subject: is "I Wish You Enough." And its makes a powerful point.
Foreign Nongrantor Trust Structures
Story
"Recently I overheard a
father and daughter in their last moments together. They had announced her departure
and standing near the security gate, they hugged and he said, "I love you.
I wish you enough." She said, "Daddy, our life together has been more
than enough. Your love is all I ever needed. I wish you enough, too, Daddy."
They kissed and she left.
"He walked over toward the window
where I was seated. Standing there I could see he wanted and needed to cry. I
tried not to intrude on his privacy, but he welcomed me in by asking, 'Did you
ever say good-bye to someone knowing it would be forever?' 'Yes, I have,' I replied.
Saying that brought back memories I had of expressing my love and appreciation
for all my Dad had done for me. Recognizing that his days were limited, I took
the time to tell him face to face how much he meant to me. So I knew what this
man was experiencing.
"Forgive me for asking,
but why is this a forever good-bye?" I asked. "I am old and she lives
much too far away. I have challenges ahead and the reality is, the next trip back
would be for my funeral, " he said. "When you were saying good-bye I
heard you say, 'I wish you enough. May I ask what that means?' He began to smile.
'That's a wish that has been handed down from other generations. My parents used
to say it to everyone.' He paused for a moment and looking up as if trying to
remember it in detail, he smiled even more. 'When we said 'I wish you enough,'
we were wanting the other person to have a life filled with just enough good things
to sustain them,' he continued and then turning toward me he shared the following
as if he were reciting it from memory.
"I wish you enough sun to
keep your attitude bright. I wish you enough rain to appreciate the sun more.
I wish you enough happiness to keep your spirit alive. I wish you enough pain
so that the smallest joys in life appear much bigger. I wish you enough gain to
satisfy your wanting. I wish you enough loss to appreciate all that you possess.
I wish enough Hello's to get you through the final Good-bye."
Read below the foreign nongrantor
trust structures point.
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More on foreign nongrantor trust structures
We just need enough in our tax
planning as well so when we try to accomplish too much from our foreign nongrantor
trust structures or any tax deferral or tax reduction plan, they start to fail.
Enough is good. Too much is worse than none at all!
Foreign Nongrantor Trust Structures
Law
Richard Duke (richard@assetlaw.com)
wrote: "Gary Read the information below regarding capital gains of a foreign
nongrantor trust. This comes from the St. Thomas University School of Law (Miami)
Offshore and International Tax & E-Commerce Journal that is currently being
published. When a U.S. person dies, the trust become a nongrantor trust; and if
a foreign trust, then a foreign nongrantor trust. Please see the clear law about
capital gains regarding foreign nongrantor trusts. Capital gains are included
in the distributable net income of a foreign nongrantor trust, irrespective of
whether capital gains are allocated to income or to corpus under the trust instrument
or the governing law and irrespective of whether currently distributed. Thus,
U.S. beneficiaries of a foreign trust (foreign grantor or foreign nongrantor)
are taxed at such time as distributions are made. And, distributions of accumulated
income (undistributed income which includes accumulated capital gains) are subject
to the rules regarding taxation on accumulated distributions [throw-back rules]
(interest and penalties on distributions of accumulated income).
Also, the foreign trust assets
will be excluded from estate and generation-skipping transfer taxation (to the
beneficiaries of the deceased settlor) only if the trusts are Exempt Trusts. (Exempt
trusts: a current $1 million exemption is available--$2 million for the spouses.)
Assets in a foreign testamentary trust not subject to the election to apply the
exemption against GST taxes will be subject to both estate taxation and GST taxation.
The tax issues with respect to
foreign testamentary trusts are very complicated (but caught when the tax returns
are filed for U.S. beneficiaries receiving distributions--very serious consequences).
Capital gains are taxable, so long as they are distributed in the year in which
earned from the foreign nongrantor trust, to the beneficiaries. Capital gains,
however, are treated as undistributed net income if accumulated; and, when the
accumulated capital gains are distributed to U.S. beneficiaries, the distributions
are taxed as ordinary income, not capital gains, and are subject to the throw-back
rule (penalties and interest on distributions of accumulated income from a foreign
nongrantor trust).
There are limitations on the
amount that can be excluded from death and generation-skipping transfer taxation
--currently $1 million or $2 million for a husband and wife. Any assets above
these amounts will be subject to estate and generation-skipping transfer taxes
when the children, for example, die.
Investors must beware of simple
statements about complex tax issues that must be reported by the beneficiaries
when receiving distributions may be misleading to the untrained public. International
tax provisions are the most complex in the entire Internal Revenue Code.
Foreign Nongrantor Trust Structures
Professional
Richard Duke is one of the most
thorough and competent tax attorneys I know. His email is richard@assetlaw.com
Gary
P.S. Learn more about foreign
nongrantor trust structures in the correspondence course International Business
Made EZ at GaryScott.com
Real international business is
fun and can bring tax advantages and asset protection. Gary and Merri Scott gain
tax advantages as they enjoy developing their healing center in Ecuador
