Treasury Department Leads the Way in Saving Taxes and Protecting Assets with a Foreign Trust

saving taxes, how to save taxes, tax planning,

Saving taxes by requesting a private letter ruling from the IRS National Office.

At the end of last century, the Department of the Treasury led the way in making foreign trust popular.  The IRS  issued a legal memorandum providing the blueprint for protecting assets and saving taxes. 

States such as Nevada  also provide unique asset protection for these  trusts.  A new IRS regulation allows the Nevada trust to be classified as a foreign trust. 

The tax advantage of a foreign trust is its classification as a “grantor trust”.    This tax plan uses a special asset protection section of the tax code, section 679.

Unlike a domestic trust, all assets transferred to a foreign trust are allowed “grantor trust” status (with one tax planning exception explained below).   They are also excluded from the taxable estate of the settlor.

As a “grantor trust”, the tax law allows the transfers of assets to the trust  to be income tax free. Thus, you can do what you want to protect your assets  and reduce estate taxes without worrying about income taxation.  

This IRS blueprint on foreign trust tax planning is the explained in this episode of my radio show, Tax Talk. radio below.

The play time is about 22 minutes.  Or, If you would like to brainstorm your tax planning, then please call me, Brian Dooley CPA, at 949-939-3414 for a complimentary one hour consultation.

If you want to defer income taxes, then fund the foreign trust with a loan due within five years.  Such a loan is called a “qualified obligation.  This makes the trust a tax deferral vehicle.  The tax deferral can last for more than a century.  This type of a trust is named “non-grantor foreign trust”. 

The IRS Form 3520-A (filed by the trustee) details the tax planning structure for a tax deferred foreign trust.  You will want to use the “qualified obligation”  found on page 3 of the Form 3520 (filed by the settlor).   

Learn the basics on offshore trust  on this short video.  Be an expert with my  easy to read book,  International Taxation in America,  available at Amazon.

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