Non-U.S. individuals and families increasingly look to hold assets in the United States for many reasons, including the perceived stability of the U.S. economic system and adherence to the rule of law. Often, clients intend to use asset-holding structures to invest in U.S. and non-U.S. financial assets, and in many cases, the ultimate holding structure is a trust with a U.S.-based trustee. U.S. private client advisers nimbly weave their way through U.S. tax law applicable to trusts and their beneficiaries to allow clients to place assets with U.S. trustees but avoid creating U.S. resident trusts that would be subject to worldwide U.S. tax on investment income. However, while the tax principles of those structures are sound, implementing the client’s investment objectives may reveal traps for the unwary that can lead to unnecessary or unexpected tax on investment income or limited investment options.
This article discusses possibly unanticipated tax and securities law issues in inbound private client structures that U.S. private client advisers and their clients should be aware of. Many variations are possible, but this article discusses two structures we commonly see in practice: a foreign grantor trust with a foreign corporate holding company, and an irrevocable foreign nongrantor trust with a foreign protector.
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