Far and away, the most popular Nevada trust solution for non-U.S. families is a Nevada Foreign Grantor Trust. International families may gain United States legal protections while optimizing their tax exposures and successive plannings.
The terms Grantor and Settlor have the same meaning in the United States.
Because the trust is a grantor trust, the settlor’s tax residence takes precedence over the United States. Furthermore, when a settlor of a Foreign Grantor Trust passes, there is no Federal income tax liability on the non-U.S. income within the trust.
As a grantor trust, the settlor, settlor’s spouse, and all named beneficiaries may receive distributions from the Foreign Grantor Trust. Distributions to U.S. beneficiaries are typically treated as gifts. As gifts, the distributions are not considered income, often avoiding Federal income tax and capital gains.
A foreign settlor may establish a U.S. trust funded with international assets without incurring U.S. taxes on income not sourced in the U.S. International families look to the U.S. for political stability and privacy. Many families with Foreign Grantor Trusts also have beneficiaries living in the United States.
Similar to people, trusts have tax jurisdictions. In determining whether a trust is a domestic trust or a foreign trust, the U.S. puts the trust to two tests: The Control Test and the Court Test. If the trust fails either test, the trust is considered an foreign trust.
A Foreign Grantor Trust must fail one of the tests.
If a U.S. person(s) is authorized to control all significant trust decisions, the trust passes the control test. Thus, in terms of establishing a Foreign Grantor Trust, a non-U.S. person retaining some degree of significant control of the trust is crucial.
If a U.S. court may act as the primary jurisdiction for the trust, the trust passes the court test. For example, if a U.S. trustee is subject to a U.S. court jurisdiction regarding the trust, the trust passes the court test.
Establishing a Foreign Grantor Trust in Nevada enhances reducing tax liabilities even further. As a grantor trust, the trust is a foreign tax payer and trust income is not subject to Federal income tax. Nevada also carries no state income tax, nor does Nevada tax trusts.
Nevada also carries directed trust statutes. Settlors may retain their international financial advisors and companies.
Upon the settlor’s passing, the trust may convert to a Nevada Dynasty Trust with Nevada asset protection optimizing taxes and protecting assets for many future generations. If no U.S. beneficiaries, the trust may also transition to a Nevada Foreign Non-Grantor Trust.
While fictitious, the application below is based on a real case
John owns and operates a successful manufacturing plant in Hong Kong. His two children, Charlotte and David, are both living and finishing college in California. John’s wife has a medical condition and John is concerned about his estate tax liability and hopes to pass the company to his children when he passes.
John gifts his company (value: $20mm) and his $5mm BVI portfolio to a Nevada Foreign Grantor Trust.
With John’s assets in a Nevada Foreign Grantor Trust, his privacy is protected as there are no public trust records created. There are no taxes on the trust’s income as all the assets are domiciled in Hong Kong. However, as a grantor trust, John may have tax liabilities in Hong Kong. Because of Nevada’s directed trust statutes, John keeps his investment portfolio in the BVI with his long time financial advisor.
John established his NFGT in 2021. In 2023, John’s wife passes away, and in 2030, John also passes.
After John Passes:
With U.S. beneficiaries, John’s NFGT transitions to a Nevada Domestic Asset Protection Trust with Dynasty Trust provisions.
With U.S. beneficiaries, John’s NFGT transitions to a Nevada Domestic Asset Protection Trust with Dynasty Trust provisions.
With U.S. beneficiaries, John’s NFGT transitions to a Nevada Domestic Asset Protection Trust with Dynasty Trust provisions.
At Crawford Trust, we understand that every family is different and carries individual needs. Our experienced trust officers are happy to reach out and learn more about how we may help you.
The information on this website and its content does not constitute a solicitation to become a client of Crawford Trust Company, LLC. Currently, Crawford Trust company cannot solicit or serve clients in the following areas of Nevada: Washoe County, Douglas County, and Carson City. Crawford Trust Company, LLC does not accept any responsibility in actions that would result from the interpretation of this website information.
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