Growing Trend Sees High-Net-Worth Individuals Opting for U.S. Situs Trusts over Offshore Alternatives
In a notable shift, wealthy international families are increasingly choosing U.S. situs trusts as their preferred trust jurisdictions, surpassing the traditional offshore options. This trend reflects a strategic decision among the ultra-wealthy to prioritize security, privacy, income potential, tax optimization, and cost efficiency. While these trust structures have long been favored by the extremely wealthy, high-net-worth individuals with significant assets are also recognizing their value, making this shift more inclusive. Furthermore, diversifying asset holdings beyond one’s country of residence is a key consideration for many.
The United States has emerged as the trust situs of choice due to a combination of robust trust laws, tax advantages, asset protection, privacy provisions, and solutions to address political and regulatory concerns. Previously, international families with relatives in the U.S. were the primary adopters of U.S. trusts. However, a recent development has seen international families without U.S. relatives opt for U.S. trusts, attracted by modern trust laws, increased demand for U.S. investments, political stability, property protection, and the opportunity to establish trusts in non-blacklisted countries with enhanced privacy. Jurisdictions such as Alaska, Delaware, Nevada, and South Dakota offer attractive features like flexibility, control, tax savings, asset protection, and privacy, making them particularly appealing to these international families.
An article published on January 16, 2019, in the South China Morning Post highlighted how four Chinese tycoons, including Sun Hongbin, chairman of Sunac China Holdings, Wu Yajun, chairwoman of Longfor Group, and the wealth magnates behind Dali Foods Group and Zhou HeiYa International Holdings, transferred a staggering $17 billion to South Dakota trusts through British Virgin Islands companies. This move showcases South Dakota’s emergence as a preferred trust jurisdiction for international families.
South Dakota trusts provide several compelling advantages:
- Inclusion of the trust creator as a beneficiary
- Protection of assets from creditors after a two-year period
- Exemption from reporting under the Common Reporting Standards (CRS)
- Perpetual privacy of court documents related to the trust
- High evidentiary standards for creditors to establish fraudulent transfer claims, offering enhanced protection within the U.S. legal system
How did the United States become the jurisdiction of choice for privacy concerns?
In response to perceived abuses involving U.S. taxpayers using foreign accounts and companies to conceal income and assets, the U.S. enacted the Foreign Account Tax Compliance Act (FATCA) in 2010. FATCA mandates that foreign financial institutions disclose information about their U.S. account holders to the U.S. government. Consequently, several other countries implemented the CRS, an information exchange system among participating jurisdictions, including the typical offshore trust jurisdictions.
While the U.S. receives extensive information through FATCA from other nations, it is not obligated to reciprocate the same level of reporting or, in cases where information sharing is required, there exist numerous loopholes. For example, the U.S. is not obligated to unveil the ultimate beneficial owners of companies created outside its borders.
The paramount concern for many international families is protecting their wealth and ensuring privacy. Given the risks associated with disclosing information in other countries and other pertinent factors, the stability of the U.S. economy coupled with the ability to maintain privacy makes it an increasingly logical choice as the situs jurisdiction for their trusts.
As the trend toward U.S. situs trusts gains momentum, it highlights the evolving landscape of wealth management and the shifting preferences of high-net-worth individuals and international families seeking optimal security, privacy, and tax advantages. The modern trust laws and favorable conditions offered by U.S. jurisdictions continue to position the United States as an attractive destination for wealth preservation and strategic financial planning.
Klug Counsel and its team of tax planning attorneys represent companies, start-ups, private equity funds, family offices, and high-net-worth individuals with international tax needs. Through their strategic partnerships with law firms and other professional service firms in the United States and around the world, they are able to meet the tax and business needs of their clients in the U.S. and internationally.
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