In many countries around the world, trusts are growing in popularity as key tools for estate planning. Combined with their ability to shield assets from probate, the simplicity and flexibility that trusts offer make them highly desirable for individuals will all sizes and types of estates.

The US is no exception. Many domestic estate planning lawyers recommend that their clients use trusts – often even as substitutes for traditional wills (although, even with a well-drafted trust, we still recommend having a will in place). For non-US citizens, trusts can be extremely effective estate planning tools, as well.

Before We Get Started…

Before we get into our discussion of the types of trusts that are available in the US and the situations in which it may be advisable for a foreign national to establish a US trust, it is worth pointing out that “US trust” is actually something of a misnomer. While many countries have national trust laws, in the United States, trusts exist under state law. In fact, different states have different trust laws. As a result, (i) some trusts may be available in some states but not others; and, (ii) even when states offer similar types of trusts, the laws governing those trusts in each state can vary.

That said, at a high level, the state laws governing some of the most common types of estate planning trusts are relatively uniform throughout the US, and in this article, we will be discussing the different types of trusts generally without reference to any particular state’s rules or requirements.

Types of Estate Planning Trusts in the US

In the US, there are four primary ways in which estate planning trusts are classified. Trusts can be either revocable or irrevocable, and either living or testamentary:

• Revocable Trust – If a trust is revocable, this means that the person who creates the trust (commonly called a “settlor”) can modify or terminate the trust at any time.
• Irrevocable Trust – In contrast to revocable trusts, irrevocable trusts cannot be modified or terminated once established.
• Living Trust – A living (or “inter vivos”) trust is a trust that the settlor creates during his or her lifetime.
• Testamentary Trust – A testamentary trust becomes effective upon the settlor’s death.

The Revocable Living Trust

In the US, the revocable living trust is by far the most-popular form of trust used for estate planning purposes. This is because it offers a number of unique benefits.

When you establish a revocable living trust, you re-title assets in the name of the trust. But, since you retain control over the trust, you retain control over your assets, as well. As a result, by putting your assets into a revocable living trust, you:

• Ensure that your assets will transfer to the trust’s beneficiaries on your terms;
• Ensure that you will be able to use and sell your assets during your lifetime as you see fit; and,
• Ensure that your loved ones will not have to deal with the probate process (at least with regard to trust assets).

Importantly, revocable living trusts do have some limitations. Most notably, since you retain control over your assets, your assets also remain subject to the claims of your creditors. For this reason, some people choose to use various types of irrevocable trusts in their estate plans, as well.

Irrevocable Trusts

There are numerous different types of irrevocable trusts in the US, each with its own unique benefits and limitations. However, for non-US citizens, the most noteworthy is the Qualified Domestic Trust (or “QDOT”).

The Qualified Domestic Trust

A Qualified Domestic Trust is an estate planning trust that is specifically designed to facilitate the transfer of assets from a US citizen to his or her non-citizen spouse at the time of death. The unique benefit of a QDOT is that it allows for deferral of estate taxes, which can be as high as 40 percent for a non-resident. However, since these taxes are deferred, this means that they ultimately have to be paid, and this most commonly occurs on the second spouse’s death when the assets pass to the couple’s children or other beneficiaries.

Other Forms of Irrevocable Trusts

Other forms of irrevocable trusts that are popular estate planning tools in the US include:

• Charitable trusts
• Generation-skipping trusts
• Life insurance trusts
• Special needs trusts
• Spendthrift trusts

When Should a Foreign National Consider Forming a Trust in the US?

As a non-US citizen, when should you consider forming a trust in the United States as part of your estate plan? Here are a few common scenarios:

1. You own assets that are located in the United States.

Regardless of whether you live in the United States, in your country of citizenship, or in another country abroad, if you own any type of asset in the US – whether real estate, items personal property, or some type of account – you may want to consider forming a trust in the US.

2. You are planning to relocate to the United States.

If you currently live abroad and are planning to relocate to the United States, you need to think critically about your estate plan before you apply for your green card. There are a number of important reasons to make sure that you have an adequate US estate plan in place before you establish residence, and you will want to consider the different trust options that are available while planning your move from overseas.

3. You are married to a United States citizen.

If you are married to a US citizen, you might want to consider a QDOT; further, if your spouse owns property in the US, the two of you should carefully plan your collective estate to make sure that your final wishes will be carried through with minimal estate tax liability. This may mean using other forms of trusts, as well.

4. You are in the United States on a visa or green card.

Finally, if you are living in the United States, whether temporarily or as a lawful permanent resident, this is definitely a scenario where you want to consider implementing a US estate plan. Particularly if you own significant property in the United States (as discussed above), you will want to look into using trusts to make sure that your assets transfer outside of the US probate process.

Of course, these are just examples, and they are not meant to suggest that forming a trust in the US will necessarily be the best option under your unique personal circumstances. In any given situation, a different US estate planning tool may be a better option; or, if you live in another country (depending on where you live), using domestic estate planning tools in your home country could even be a smarter option.

Jiah Kim & Associates | US Estate Planning Services for Non-US Citizens

If you are a foreign national who has questions about estate planning in the United States, we invite you to contact us to schedule an initial planning session with attorney Jiah Kim. All consultations are completely confidential, and we work remotely with clients worldwide. To find out if forming a trust in the US makes sense for your situation, call us at (646) 389-5065 or schedule a planning session online now.

This blog post is written for educational and general information purposes only, and does not constitute specific legal advice. You understand that there is no attorney-client relationship between you and the blog publisher. This blog should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

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