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The U.K. Trust Registration Service: Impact for Trustees

The U.K. Trust Registration Service: Impact for Trustees

The past few years have seen a steep increase in trust reporting obligations in the context of F.A.T.C.A. and the Common Reporting Standard.  Trustees must come to grips with a new set of record keeping and disclosure obligations introduced by the U.K. Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, which came into force from June 26, 2017.  Jennifer Smithson and Isobel Morton of Macfarlanes LLP, London, explain the wide-ranging effect of the regulations and the dividing line between non-U.K. trustees that fall inside the regime and those who are outside.

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Art and the Estate Part II – Nonresidents

Art and the Estate Part II – Nonresidents

Foreign persons owning artwork physically located in the U.S. must be mindful of special income, estate, and gift taxes associated with that ownership.   In the second of a series, Rusudan Shervashidze and Nina Krauthamer look at issues such as use tax, which is the U.S. equivalent of a reverse charge of V.A.T., estate tax, and gift tax.

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Art and the Estate: Why Planning is Important, Part I – U.S. Taxpayers

Art and the Estate: Why Planning is Important, Part I – U.S. Taxpayers

Taxpayers holding valuable works of art receive different tax treatment, depending on the characterization of the individual.  Is the individual the artist, a dealer, an investor, or a collector?  Rusudan Shervashidze and Nina Krauthamer examine various planning tools available, focusing mostly on the collector.

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Pancake Day – End to Permanent Non-Domicile Status and Charging Non-Doms I.H.T. on U.K. Residential Property

Pancake Day – End to Permanent Non-Domicile Status and Charging Non-Doms I.H.T. on U.K. Residential Property

 In July, the U.K. government announced that proposals removed from the Finance Bill that was announced in March would be reproposed with a retroactive effective date, as if adopted when originally proposed.  This is bad news for non-domiciled individuals (“Non-Doms”) in general and for the estates of Non-Doms who died between March and the ultimate date of enactment.  If retroactive effective dates remain in the bill, rights granted by the European Convention for the Protection of Human Rights and Fundamental Freedoms, which were incorporated into U.K. law by the Human Rights Act 1998, could be violated.  William Hancock and Daniel Simon of Collyer Bristow L.L.P. explain that Non-Doms should expect “too little jam and too little cream” on their pancakes if the provisions are enacted retroactively.

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Basis Planning in the Usufruct and Bare Ownership Context

Basis Planning in the Usufruct and Bare Ownership Context

Concepts of usufruct and bare legal ownership are widely used estate planning tools by parents resident in civil law jurisdictions in Europe.  However, when the next generation is resident in a common law jurisdiction such as the U.S., the results are not always pretty.  Fanny Karaman and Beate Erwin examine the tax consequences for the U.S. children and the steps available to the European parents that may limit adverse tax consequences in the U.S.

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Pre-Immigration Planning: Drop-Off Trusts + Private Placement Life Insurance – If the Tools Fit, Use Them

Pre-Immigration Planning: Drop-Off Trusts + Private Placement Life Insurance – If the Tools Fit, Use Them

Wealthy persons moving to the U.S. often engage a tax adviser to craft a pre-immigration plan. Typically, the plans focus on harvesting gains, stepping up the basis in appreciated assets that cannot be sold, and simplifying structures to ensure that future gains will benefit from favorable long-term capital gains rates. However, the truly sophisticated client may wish to take a long-range approach that maximizes the accumulation of wealth during life. John F. McLaughlin and Shelly Meerovitch of Bernstein’s Wealth Planning and Analysis Group, New York, explain the benefits of forming a pre-immigration drop-off trust to invest in a private placement life insurance (“P.P.L.I.”) policy. In optimal circumstances, the P.P.L.I. investment portfolio can maximize the accumulation of wealth, provided the client obtains timely and competent legal advice in the country of residence and the U.S.  

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Further Developments for U.K. Non-Dom Individuals

Further Developments for U.K. Non-Dom Individuals

A significant claw back of benefits for individuals with Non-Dom status was first announced in the Summer Budget of 2015.  In August, H.M.R.C. proposed implementing legislation in a follow-up consultation document.  Specific benefits covered included inheritance tax for shares of envelope companies owning U.K. residential real property, deemed domicile rules for long-term U.K. residents, and several provisions to lessen the impact of these changes.  Gary Ashford of Harbottle & Lewis, London explains.

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Tax 101: Foreign Settlors, U.S. Domestic Trusts, and U.S. Taxation

Non-U.S. tax advisers to high net worth individuals are familiar, to some degree, with U.S. tax rules involving trusts, settlors, and beneficiaries.  While they may know that a grantor trust allows for income to be taxed to a grantor, they are not always conversant with the differences between U.S. income tax rules for grantors and the U.S. gift and estate tax rules that cause trust property to be included in the taxable estates of trust settlors.  Fanny Karaman, Kenneth Lobo, and Stanley C. Ruchelman explore the way these rules exist side by side – highlighting the differences, in the context of a nonresident, non-citizen settlor establishing a U.S. domestic trust for the benefit of an adult U.S. child wishing to acquire an apartment in the U.S.

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I.R.S. Issues Proposed Regulations Affecting Valuation Discounts for Gift and Estate Tax Purposes

For corporate tax purposes, the I.R.S. maintains the view that a transaction between a taxpayer and a disinterested party – meaning a person that does not have an adverse interest to a taxpayer because tax neither increases nor decreases as a result of a particular term agreed upon – is not the result of arm’s length bargaining and can be disregarded where appropriate.  Now, the I.R.S. proposes to expand that approach to estate plans. The proposal is embedded in regulations issued under Code §2704. As a result, commonly used tools may no longer be available to reduce gift or estate tax.  Minority ownership discounts and unilateral governance rights that disappear at death are valuation planning tools that are at risk because of the common goals of the participants. Fanny Karaman, Stanley C. Ruchelman, and Kenneth Lobo explain.

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Canada Adopts Changes to Trust & Estate Taxation Rules

On January 1, new income tax rules came into effect regarding the Canadian taxation of trusts and estates. Use of graduated tax rates for multiple trust, charitable donation credits for estates, and allocation of gains at death are the targets. Amanda Stacey, Nicole D’Aoust, and Rahul Sharma of Miller Thomson LLP, Toronto explain.

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The Peripatetic Client: What to Expect When a Foreign Settlor Becomes a U.S. Tax Resident

Published in GGi Insider No. 81, January 2016 (p.35).

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Planning for Canadian Parents with U.S. Children

Published in Taxes & Wealth Management by Thomson Reuters, Issue 8-4: November 2015.

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The (Non) Recognition of Trusts in Germany

Have you ever thought of using a trust to hold property for the benefit of a German resident or to hold property in Germany? Your first roadblock: Germany is a civil law jurisdiction that does not recognize common law trusts. However, the path need not end there. Guest author Alexander Fürwentsches of Baker Tilly Roelfs, in Munich, explains the pitfalls and possible benefits.

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U.S. Holiday Homes - Top 10 Tax Issues to Remember

Published by GGi in International Taxation News, No. 3: Spring 2015.

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New I.R.S. Procedures for Canadian Retirement Plans

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On October 7, 2014, the I.R.S. released Revenue Procedure 2014-55, which provides guidance for U.S. citizens or residents who own a Canadian Registered Retirement Savings Plan (“R.R.S.P.”). In short, U.S. citizens/Canadian residents, Canadian citizens/U.S. residents, and dual citizens will no longer need to file Form 8891 to defer the accrued R.R.S.P./R.R.I.F income for U.S. tax purposes. The deferral will now occur automatically, assuming the individual is “eligible.” These new procedures will apply even if the contributions to the R.R.S.P./R.R.I.F. were made as a resident of Canada.

However, practitioners should note that this does not alleviate the need to file Form 8938 or FinCen Form 114 upon receiving a distribution from an R.R.R.P.

Original Treatment

An individual who is both a U.S. citizen/resident and a beneficiary of a R.R.S.P will be subject to current U.S. income taxation on income accrued in the plan even though the income is not currently distributed to the beneficiary. In Canada, the individual is not subject to Canadian income taxation until the accrued income is actually distributed from the plan. This leads to a mismatch in the timing of the U.S. tax and the Canadian tax, resulting in possible double taxation.

Article XVIII, Paragraph 7 of the U.S.-Canada Income Tax Convention (the “Treaty”) provides that an individual may defer U.S. taxation on income accumulated in an R.R.S.P., but only if the individual makes an annual election to defer the taxation of income.

Israeli Law Confronts International Tax Treaties and Principles Via New Treatment of Mixed-Beneficiary Trusts

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HISTORY AND OVERVIEW OF ISRAELI TAXING MODELS IN RESPECT OF NON-ISRAELI TRUSTS

Pre-2006 Situation – the Corporate Model

Israel has come a long way in its efforts to tax foreign-established trusts, which historically were assumed to have been used to shelter Israeli-source funds of high net worth Israeli residents and their families. Prior to the adoption of any relevant comprehensive Israeli tax legislation in 2006, the practice consisted mostly of viewing trusts and beneficiaries similarly to corporations and shareholders.

Thus, under customary Israeli international tax rules, if the “management and control” of the non-Israeli trust was effected outside of Israel, the trust was considered to be nonresident because the trust’s assets were situated outside of Israel and the trustees had full discretion over their control. No formal powers were exercised directly or indirectly by Israeli beneficiaries. Hence, the trust was simply not subject to Israeli taxation. Moreover, discretionary distributions were viewed as tax-free gifts. In this way, wealthy Israelis could cause foreign trusts to be funded by Israeli-source wealth and invested outside Israel without subjecting the resulting income to Israeli tax.

Israel has neither an estate/inheritance tax nor a gift tax, which means that bona fide gifts and inheritances are free of tax for both the donor or the decedent and the recipient. Thus, a foreign trust ostensibly became the perfect Israeli tax planning tool. Assets could be donated by an Israeli settlor to a foreign irrevocable discretionary trust for the benefit of family members. Legally, the assets were no longer owned by the Israeli donor but rather by a foreign body managed and controlled by a foreign trustee. Therefore, the trust’s non-Israeli assets and income were outside the scope of Israeli taxation. Distributions by these trusts to Israeli resident beneficiaries that were bona fide discretionary gifts were exempt in the hands of an Israeli recipient.