Pre-immigration Planning Trusts

This type of trust helps non-resident aliens establish an irrevocable trust before becoming a U.S. resident to minimize the impact of U.S. transfer taxes. The grantor funds the trust with non-U.S. assets, which may not be considered part of his or her estate. The grantor cannot be a beneficiary or create trust conditions that make the gift incomplete.

Benefits

• Non-resident aliens can avoid application of the U.S. gift and generation-skipping taxes (and of estate taxes in more limited cases) by transferring non-U.S. assets and gifts of intangible property to the trust.
• Creating this type of trust can address the concern of foreign citizens making gifts of non-U.S. assets to minors.

Cautionary notes

• Establishing U.S. residency is viewed differently for U.S. income tax purposes than it is for transfer tax purposes. Green-card status or being in the U.S. long enough to satisfy the “substantial presence” requirement are the primary standards for being considered a U.S. resident for income tax purposes. But for transfer tax considerations, determining factors include the person’s visa status, length of time physically in the U.S., residence value, proximity of “near and dear” items to the U.S. residence, and local organization affiliations.
• For transfer tax purposes, shares of U.S. company stock and debt obligations of U.S. citizens ARE considered U.S. assets―even when owned by a non-resident alien.
• In cases where the non-resident alien is a grantor or beneficiary of an existing trust, changes to that trust may be recommended before the person’s U.S. residency status is established. For instance, a grantor who currently has the power to appoint any substitute trustee might be advised to make an amendment mandating an independent trustee as substitute.

Descriptions of trusts are intended to be informational and are not specific recommendations. Contact a trust officer at Sterling Trustees for more detailed information on what would be best suited to your circumstances.