Cross-Border Estate Planning After Tax Reform: New Opportunities and Obligations

Description

The recent tax overhaul Act represents the most sweeping set of changes to the U.S. income tax code in over 30 years, and will have a particularly dramatic impact on tax planning and compliance of U.S taxpayers with cross-border assets, as well as foreign taxpayers with U.S. assets. The Act also provides additional opportunities for U.S. estate planning. Private client counsel and advisers must grasp the implications of the new law on any client with cross-border assets and activities, including interests in foreign companies and trusts.

In the offshore context, the Act sets a new framework for the treatment of foreign-sourced income received by U.S taxpayers, adopting a territorial tax regime while enacting a "deemed repatriation" requirement to end prior deferral benefits for U.S. shareholders of foreign business entities. The Act also significantly expands the base of cross-border income that will be subject to current U.S. taxation and certain information reporting obligations imposed on U.S. persons. There may also be significant tax implications to U.S. beneficiaries of trusts with interests in foreign entities.

Some of the changes contained in the law create potential opportunities for inbound investments and business activities. Entrepreneurs and investors will want to investigate the optimal structure for their interests given the permanent lowering of the corporate tax rate and the new pass-through income deduction. The permanent lowering of the corporate tax rate may make the use of foreign "blocker" corporations to hold U.S. real estate a more tax-efficient vehicle than under the prior regime, whereas the new pass-through income deduction may be advantageous for closely-held companies with active businesses. Counsel to non-U.S. persons seeking to invest in U.S. assets including U.S. real property should determine whether clients can achieve tax savings through a blocker corporation.

Due to the changes in foreign anti-deferral rules for U.S. individuals and trusts with offshore holdings, as well as offshore structures established for the benefit of U.S. persons, tax and estate planners should be prepared to examine the tax effectiveness of existing trust structures and to re-organize holdings in the United States as well as offshore to avoid unexpected tax consequences.

Listen as our experienced panel provides a critical first look at the cross-border implications of the tax reform law.