Protection of assets for international families

Twenty-five years later: what changes for Edmund

Upon John's passing, the trust assets held for Edmund's benefit generally are not subject to US estate tax, provided the assets were foreign-situs and held outside John's personal US estate — a meaningful benefit available to non-resident aliens under US estate tax rules.

If Edmund becomes a US resident, the NFGT's Dynasty planning features can stay intact — allowing subsequent generations to benefit under the same asset protection and estate-tax optimization terms that John established with the NFGT initially.

However, the trust's tax treatment does change at that point, and this is worth understanding clearly:

• Once John, the Grantor, passes away, the trust generally ceases to qualify as a foreign grantor trust and is typically taxed thereafter as a foreign non-grantor trust with respect to any US beneficiaries, including Edmund.
• Distributions to Edmund as a US beneficiary generally must be reported by Edmund on Form 3520.
• Income accumulated within the trust prior to distribution may be subject to the throwback tax rules (IRC §§ 665–668) when later distributed to a US beneficiary, which can include an additional interest charge on the deferred tax.
• Nevada's asset protection and Dynasty trust structure can continue to shield trust assets for Edmund and future generations, but the favorable US income tax treatment enjoyed by John as a foreign Grantor does not automatically carry over once a US person becomes the relevant beneficiary.

Families in this position typically work with their tax advisors and Crawford Trust well in advance to plan for this transition — including, in some cases, arranging distributions or trust terms to manage the impact of the throwback rules.