Nevada Foreign Grantor Trusts (FGTs)

Protecting International Families’ Assets and Privacy
Without U.S. Tax Burdens

Las Vegas, Nevada

Far and away, the most popular Nevada trust solution for non-U.S. families is a Nevada Foreign Grantor Trust. International families may gain United States legal protections while optimizing their tax exposures and successive plannings.

Benefits of a Nevada Foreign Grantor Trust

The NFGT may benefit both the grantor (also known as a settlor) and the beneficiaries
Trust income sourced internationally is not Federally taxed
Nevada Asset Protection
Financial Privacy
No estate tax on non-U.S. situs assets upon settlor’s passing
Upon settlor’s passing, the trust may transition to a domestic trust or a Foreign Non-Grantor Trust in Nevada, gaining all the advantages of Nevada trust law
Wild Horses of Northern Nevada, Washoe Nevada

The terms Grantor and Settlor have the same meaning in the United States.

Because the trust is a grantor trust, the settlor’s tax residence takes precedence over the United States. Furthermore, when a settlor of a Foreign Grantor Trust passes, there is no Federal income tax liability on the non-U.S. income within the trust.

As a grantor trust, the settlor, settlor’s spouse, and all named beneficiaries may receive distributions from the Foreign Grantor Trust. Distributions to U.S. beneficiaries are typically treated as gifts. As gifts, the distributions are not considered income, often avoiding Federal income tax and capital gains.

What is a Foreign Grantor Trust?

A foreign settlor may establish a U.S. trust funded with international assets without incurring U.S. taxes on income not sourced in the U.S. International families look to the U.S. for political stability and privacy. Many families with Foreign Grantor Trusts also have beneficiaries living in the United States.

The Control and Court Tests: Is a Trust Domestic or Foreign?

Similar to people, trusts have tax jurisdictions. In determining whether a trust is a domestic trust or a foreign trust, the U.S. puts the trust to two tests: The Control Test and the Court Test. If the trust fails either test, the trust is considered an foreign trust. 

A Foreign Grantor Trust must fail one of the tests.

The Control Test

If a U.S. person(s) is authorized to control all significant trust decisions, the trust passes the control test. Thus, in terms of establishing a Foreign Grantor Trust, a non-U.S. person retaining some degree of significant control of the trust is crucial.

The Court Test

If a U.S. court may act as the primary jurisdiction for the trust, the trust passes the court test. For example, if a U.S. trustee is subject to a U.S. court jurisdiction regarding the trust, the trust passes the court test.

A Nevada Foreign Grantor Trust: True Tax Optimization for Many Generations

Establishing a Foreign Grantor Trust in Nevada enhances reducing tax liabilities even further. As a grantor trust, the trust is a foreign tax payer and trust income is not subject to Federal income tax. Nevada also carries no state income tax, nor does Nevada tax trusts.

Nevada also carries directed trust statutes. Settlors may retain their international financial advisors and companies.

Upon the settlor’s passing, the trust may convert to a Nevada Dynasty Trust with Nevada asset protection optimizing taxes and protecting assets for many future generations. If no U.S. beneficiaries, the trust may also transition to a Nevada Foreign Non-Grantor Trust.

Nevada Foreign Grantor Trust Case Study

While fictitious, the application below is based on a real case

John owns and operates a successful manufacturing plant in Hong Kong. His two children, Charlotte and David, are both living and finishing college in California. John’s wife has a medical condition and John is concerned about his estate tax liability and hopes to pass the company to his children when he passes.

John gifts his company (value: $20mm) and his $5mm BVI portfolio to a Nevada Foreign Grantor Trust.

With John’s assets in a Nevada Foreign Grantor Trust, his privacy is protected as there are no public trust records created. There are no taxes on the trust’s income as all the assets are domiciled in Hong Kong. However, as a grantor trust, John may have tax liabilities in Hong Kong. Because of Nevada’s directed trust statutes, John keeps his investment portfolio in the BVI with his long time financial advisor.

John Chan, Age 54, lives in Hong Kong
Married with 2 children: Charlotte, age 20 and David, age 22
Both Charlotte and David live in the U.S.
John owns a manufacturing plant valued at $20mm
John also has $5mm with an investment company in the British Virgin Islands (BVI)

John and His Wife Pass Away: What Happens Next?

John established his NFGT in 2021. In 2023, John’s wife passes away, and in 2030, John also passes.

After John Passes:

With U.S. beneficiaries, John’s NFGT transitions to a Nevada Domestic Asset Protection Trust with Dynasty Trust provisions.

With U.S. beneficiaries, John’s NFGT transitions to a Nevada Domestic Asset Protection Trust with Dynasty Trust provisions.

With U.S. beneficiaries, John’s NFGT transitions to a Nevada Domestic Asset Protection Trust with Dynasty Trust provisions.

How May We Assist You Further?

At Crawford Trust, we understand that every family is different and carries individual needs. Our experienced trust officers are happy to reach out and learn more about how we may help you.

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