All we seem to hear about now in international tax law is the crackdown on U.S. persons and U.S. resident aliens being subject to substantial criminal and civil penalties for failing to report overseas assets. As such, this may seem like an odd time to publish an article on foreign trust planning. But this article addresses the legal way to avoid capital gains tax through fully disclosed transactions. Therefore, the scandals emanating from U.S. persons holding assets in foreign institutions such as UBS and Bank Leumi do not affect the planning techniques discussed in this article.
The plan involves the use of a specific type of foreign trust to shelter capital-gain income from U.S. taxing authorities. The trust to be used must be designed to avoid grantor-trust status because such status would negate the benefits of the trust. U.S. persons may set up a trust and obtain foreign-trust status even utilizing a U.S. trustee, and even where the only beneficiaries are U.S. persons.
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