According to Bloomberg Business, more Americans who are living
outside the U.S. gave up their citizenship in the first quarter of 2015
than ever before. (see article at http://bloom.bg/1zOKGM2).
The reason is that last year asset disclosure rules under the Foreign
Account Tax Compliance Act (“FACTA”) kicked in. FACTA requires U.S.
financial institutions to impose a 30 percent withholding tax on
payments made to foreign banks that don’t agree to identify and provide
information on U.S. account holders. The new laws, combined with past
rules, can make tax filing difficult for U.S. citizens living overseas
who set up trusts. In short, the complexity of the law, increasing tax
liability, and the cost of compliance are prompting U.S. Citizens to
throw in the towel and pledge allegiance to a different flag.
The good news is that one does not have to leave building to save
taxes. Trusts such as a Nevada Incomplete Gift Non Grantor Trust (also
called a “NING”) are gaining in popularity for those residing in high
income tax states. The benefit of a NING is that it includes asset
production along with the elimination of state income taxes because the
trust is located in a state with no income tax. For a California
Resident, the savings can be substantial considering that the top
marginal state income tax rate in California can reach 13.3%. If a
California resident implemented a NING Trust, unrealized capital gains
and investment portfolio income would be shielded from California income
tax under many circumstances. Sounds too good to be true, doesn’t it?
Well, no. It is true. The Franchise Tax Board has stated that if a
non-California trustee could make distributions in the trustee’s discretion
to a California beneficiary, the undistributed income of such trust
should not be subject to California tax. You don’t even have to leave