International Families Take Advantage of Favorable Alaska Trust Laws
Why Wealthy Non-U.S. Citizens are Moving Assets to the U.S. and Alaska
In the past, wealthy international families looked to Europe, the Bahamas, and the British Virgin Islands for asset protection and wealth management. However, due to new international disclosure requirements, Switzerland, the Bahamas and the British Virgin Islands no longer offer privacy.
The OECD’s “Common Reporting Standards” require the collection and sharing of private information, such as individual names, addresses, tax identification
numbers, and financial account balances with various countries around the world. Countries with known corruption issues will have access to this information which can put families at risk for extortion, kidnapping, and other harm.
The U.S. still prioritizes privacy. The U.S. and Alaska are exempt from these new international disclosure requirements. Your privacy can still be protected in Alaska.
Benefits of Forming a Trust in the U.S.
Stability - Stable political and regulatory environment.
Strong Rule of Law - The federal and state court systems protect your personal property rights.
Favorable Tax Laws - Non-resident aliens can avoid estate taxes on property held in a U.S. trust. U.S. securities held by an offshore company owned by an Alaskan Foreign Grantor Trust are not subject to either U.S. capital gains or estate taxes.
What is a Foreign Grantor Trust?
A “foreign grantor trust” is a trust with features that allow for a special tax status within U.S. law. The foreign grantor or settlor is not the taxpayer. The trust, domiciled in Alaska, is the foreign taxpayer. When a foreign grantor trust is established by a non-U.S. person, the trust and its trustees are not subject to U.S. taxation on non-U.S. sourced income. Further, Alaska has no state income tax. Therefore, the advantages of Alaska trust law and the stability of the U.S. legal system can be obtained by our international clients without paying U.S. related taxes.
The Grantor may receive tax-free distributions from the foreign grantor trust during their lifetime because, for U.S. tax purposes, they own the assets of the trust. Additional distributions made from the trust to a beneficiary other than the grantor are considered non-taxable gifts from the grantor. The recipient of the gift will be required to report any distributions received from the foreign grantor trust to the IRS if they are a U.S. citizen or resident. The grantor can receive a distribution from the trust and gift any amount of that distribution tax free to a U.S. citizen/resident beneficiary. However, the U.S. beneficiary will be required to report any amount in excess of $100,000 US dollars to the IRS.
Advantages of an Alaskan Foreign Grantor Trust
Trust assets are not subject to U.S. income tax on non-U.S. sourced income.
Trust offers jurisdictional diversification reducing sovereign risks.
Trust can be converted to an Alaska Dynasty Trust upon the grantor’s death to avoid paying U.S. income tax on the distributions of accrued income.
The trust may be funded by offshore entities to eliminate U.S. estate taxes.
Alaska does not tax trusts.
Alaska trust laws provide asset protection and privacy.
Summary of Tax Issues for Non-Resident Aliens
If you are a non-resident alien and your only business in the U.S. is in investments such as stocks, mutual funds, commodities, etc., held within in a U.S. dollar denominated account at a brokerage firm or other agent, you are subject to the following tax guidelines:
No tax on interest income in U.S. bank; state and local government obligations; or on portfolio interest (instruments issued after July 18, 1984).
In terms of capital gains, non-resident aliens are subject to no U.S. capital gains tax (they may owe tax in their home country).
In terms of dividends, non-resident aliens face a tax of 30% on dividends paid out by U.S. companies. Excluded, are dividends paid by foreign companies; interest-related dividends; and short-term capital gains dividends. Foreign grantor trusts may use treaty rates to reduce the tax liability on dividends. For example, a Mexican national using a Foreign Grantor Trust to hold their U.S. investments will be taxed at 5% (not 30%) on dividends paid by U.S. companies.
In terms of estate taxes; non-resident aliens have a $60,000 exemption and are taxed at the rate of 40%. Creating a limited liability company or limited partnership to invest in the U.S. eliminates this tax.
Kodiak Trust Company
Alaska based company
Principals of Kodiak Trust Company have a long history in the international market
Independently owned; not owned by an investment firm, insurance company or bank
Offers flexible trust services permitting you to continue to work with your investment advisors
Sound policies and procedures to further assure protection of your privacy.