TYPES
OF OFFSHORE TRUSTS
There
are two types of offshore trusts Americans can utilize:
1. The Foreign Asset Protection Trust ("FAPT"). The FAPT is typically an offshore trust which for purposes of U.S. tax law is a "grantor trust".9 Beneficiaries can include the Settlor. The FAPT is taxed as if it is a domestic U.S. trust (it is tax neutral).
2. The Foreign Non-Grantor Trust ("FNGT"). Generally, by
definition, the FNGT does not run afoul of IRC §§672-679. The FNGT:
(i) is an offshore trust with a U.S. citizen or resident as the Settlor; (ii)
is irrevocable; and (iii) is for the benefit of persons other than the Settlor
and the Settlor's children (until one tax year after the Settlor and the Settlor's
spouse have died). It is not tax neutral. It is used for long term planning
to enable assets to be built up without U.S. tax, and then, passed on to a
younger generation with minimal taxes being paid.
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