IRS -LTR 9332006 Full Text
The use of an offshore testamentary trust to receive a U.S. persons assets only upon his death might afford some definite tax advantages, especially if the trusts assets are revocable by a nonresident alien individual or corporation. IRS LT. 9332006 confirms that upon his death, assets held in a foreign trust will no longer be subject to U.S. taxes, and not considered part of the U.S. person's U.S. estate, even if there are U.S. beneficiaries for the foreign trust.
LTR 9332006 -- ISSUE (4). UPON A SETTLOR'S DEATH, WILL THE PORTION OF THE TRUST TREATED AS OWNED BY THAT SETTLOR CEASE TO BE SO TREATED EVEN IF THEN TRUST BENEFICIARIES INCLUDE UNITED STATES PERSONS? Section 679(a)(2) (A) provides that the rules of section 679(a)(1) do not apply to "a transfer by reason of death of the transferor." While section 679(a)(2)(A) does not expressly address the tax consequences of the termination of foreign grantor trust status by reason of the grantor's death, the legislative history of the enactment of section 679 (H.R. Rep. No. 658, 94th Cong., 1st Sess. at 209 (1975); S. Rep. No. 938, 94th Cong., 2d Sess. at 218 (1976)) provides that "an inter vivos trust which is treated as owned by a U.S. person under [section 679] is not treated as owned by the estate of that person upon his death." Accordingly, any portion of the Trust that is treated as owned by a Settlor under the rules of section 679 shall cease to be so treated upon that Settlor's death.
In 1970 the IRS issued the following ruling to study...
Revenue Ruling 69-70 states: "An individual beneficiary who is resident of the United States is not taxable on a distribution from a foreign trust considered to be owned by a nonresident alien grantor under subpart E of subchapter J of the Code" - these are the exact words of the Internal Revenue Service tax writers - i.e., tax lawyers working for the Treasury department writing your tax law. They are people from Harvard, Stanford, and other big name institutions.
FULL IRS TEXT of RULING FOLLOWS:
Rev-Rul 69-70: "Advice has been requested whether the income of a foreign trust, under the circumstances described below, is taxable to the beneficiary, an individual who is resident of the United States.
X, a nonresident alien individual, created a foreign trust for the benefit of a resident of the United States. Under the terms of the instrument, X reserves the absolute power to dispose of the beneficial enjoyment of both the income and the corpus of the trust. The trustees are nonresident aliens, and all the trust property had a situs outside the United States.
When income-producing property is placed in trust, the Federal income tax liability generally shifts from the grantor to the trust and beneficiaries in accordance with subparts A through D of part I, subchapter J, Chapter 1, subtitle A of the Internal Revenue Code of 1954 (sections 641 through 669).
However, where the grantor retains dominion and control over the income and corpus of the trust, subpart E of subchapter J (sections 671 through 678) rather than subparts A through D of subchapter J, is applicable. Since X, a nonresident alien grantor retained the absolute power to dispose of the beneficial enjoyment of both the income and corpus of the trust, he is treated as the owner of the trust under IRC §674(a) of the Code. Accordingly, an individual beneficiary who is a resident of the U.S. is not taxable on that portion of the income distributed to him from the foreign trust which is considered to be owned by the nonresident alien grantor under subpart E of subchapter J of the Code.
It should be noted that United States source income of a foreign trust considered to be controlled by a nonresident alien grantor is taxed to the grantor. If the grantor is a resident of a non-treaty country, the provisions of section 871 of the Code apply concerning the tax. However, if the grantor is a resident of a treaty country, the provisions of the treaty may determine the tax."
[Author of this now repealed revenue ruling is our own IRS]. Is there another avenue to achieve the same result?
DO YOU KNOW WHAT A REVENUE RULING IS?
A Revenue Ruling is not a law passed by Congress; it is a proclamation by the Internal Revenue Service explaining the facts as they relate to a particular set of laws. Revenue Rulings are the published conclusions of the IRS concerning the application of tax law to an entire set of facts.
Revenue procedures are official statements of procedures that either affect the rights or duties of taxpayers or other members of the public, or should be a matter of public knowledge. The purpose of these rulings is to promote a uniform application of the tax laws, and therefore IRS employees must follow the rulings. While taxpayers can rely on the rulings, they can also appeal adverse return examination decisions based on the rulings to the Tax court or other Federal courts.
The statement above was written by the IRS. It was taken (word for word) from one of their own publications.
Got questions? Email the "Tax Haven Reporter" at taxman@batelnet.bs
"They have no right to put their hands in my pockets." - General George Washington (1732 - 99)
Under US estate tax law, a nonresident alien individual that dies holding his US assets in his own name will be subject to US estate taxes at a rate of 55% - with no marital deduction allowed, and only a $60,000 exclusion. Foreigners that hold their US assets in offshore companies can avoid all US estate taxes. That's one reason why there are over 113,000 companies registered in the Bahamas alone - with another 400,000 in the BVI - another commonwealth country that does not tax these companies at all.
There are fewer loopholes for American citizens, yet 65% of the money on deposit in Cayman banks (according to a Cayman government release in 1988) came from the USA! There was not another country on their list that had more money invested in Cayman banks. The Caymans rank as the 4th or 5th largest financial center in the world. The Bahamas are in the top ten. There is more money on deposit in the Cayman banks alone, than in all the commercial banks in the State of California. That is a fact.
Again, bank secrecy seems to play an important role too. The IRS and other revenue agents cannot seize, lien on, freeze or investigate bank accounts in Anguilla, the Bahamas, Caymans and in other tax havens.
In the ten years I've lived on this island, I've never seen it happen.
• One of the most effective applications of offshore trusts is in an ownership combination with a limited company. • Richard Graham-Taylor, partner Ernst & Young, Grand Cayman (January 1990)
New Providence Estate Planners, Ltd.
(Lawyers/Barristers and Consultants)
54 Sandyport Drive
P.O. Box CB 11552
Nassau, Bahamas
Fax/phone: (242) 327-7359
email: taxman@batelnet.bs
Call me at 242-327-7359 with your questions. - 9AM to 5PM - New York time zone is best.
In the last 13 years, I've incorporated over 1,350 International Business Companies here in Nassau and the UK "Overseas Territory" of Anguilla - a tax haven like the Cayman Islands!
Beginning in 2,001, we began forming International Business Companies (IBCs) out of the Crown Overseas Territory and no tax haven of Anguilla - 150 miles east of Puerto Rico. The legistlation in this Crown possession is not so over-regulated as in the larger havens like the Bahamas, Bermuda or Cayman.
While we once had a total of over 400 "active" IBC's (in-house) that were mostly Bahamian in origin, most have moved to better jurisdiction - in our opinion.
We've formed more than 280 Anguillan IBCs since the beginning of this year (1-3-2001 thru 10-1-2003).
It takes less than one day to get the documents and company registered in Anguilla, and on the way back to client the next day.
In January, 2001, I became an "Overseas Agent" for the Anguilla Government Registrar of Companies, and as such, have a signed "official" Agreement with them. I also have same agreement with a barrister in Anguilla - also working directly with Anguilla Government.
I can provide you with bank contacts and application information for good banks in the following jurisdictions: Isle of Man (a major institution) + Anguilla (2 banks there - one used by the Anguilla government) + Bermuda (one of oldest banking institutions in offshore world).
Additionally, we've formed over 1200 foreign testamentary asset protection trusts for clients. But, if a client doesn't instruct someone (i.e., in his U.S. WILL) to transfer the U.S. assets offshore to the foreign trustee, he/she will be missing the boat to the tax heaven. This information must be made know to your probate lawyers, and the dollars being treanferred must be specific as to the amount you want transferred to the foreign trustee.
If you decide to use the above IRS "Rulings", this information must be in your U.S. WILL before you die!
See chapter 12 on foreign trusts in Tax Havens of the World for Rev.-Ruling 69-70 (page 231) too.
Under current U.S. estate tax law. U.S. estates over $21,000,000 pay a flat 55% estate tax duty. What is left over will be taxed every year, unless you implement a tax strategy now. But, smaller estates (under $20,000,000) can take advantage of this tax planning too.