New Evidence Suggests 6x increase in Foreign Grantor Trusts Could Potentially Harm Domestic Trust Clients & Companies, Wealth Advisors Trust Company report finds

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Over the last 10 years at least a 6x increase to $500 billion from international clients have funded foreign grantor trusts using domestic trust companies that could incur unpriceable business and reputational risk according to a new report published by Wealth Advisors Trust Company. Should these risks bear fruit they could damage domestic trust clients using domestic trust companies. Wealth Advisors Trust Company, a trust company based in South Dakota, is the first domestic trust company to not accept foreign grantor trusts to protect their domestic clients.

Foreign Grantor Trusts Create Potential Problem for Trust Companies in South Dakota

International money held in trusts hiding under US federal and state laws

"Foreign grantor trusts could tarnish the great reputation of South Dakota trust law"

A co-authored report by a current US international tax attorney and co-founder of a trust company based in South Dakota highlights the unpriceable risk to domestic trust companies when accepting foreign grantor trusts. Should these risks bear fruit, they could negatively affect their domestic trust clients.

The two potential risks:

(1) Wealthy non-US citizens have chosen to locate their assets under foreign grantor trusts using US trust laws. With secure and regulated markets and stable trust and estate laws, the US is an attractive location for international clients to establish a trust. It is certain that some portion of these funds were proceeds of tax evasion in the source country. Some foreign grantors may hold such illicit funds to avoid scrutiny or to seek a certain privacy level, maybe using US trust laws to reach those goals.

Seeing an estimated 6x increase in the last 10 years from foreign grantor trusts, South Dakota banking and trust regulators, taking the initiative, have identified the potential risks inherent with these types of trusts under their current guidelines.

(2) Any corporate trustee must perform due diligence on a new trust client. An example of due diligence includes tax reporting. Foreign grantor trusts include domestic and international tax issues. Most domestic trust companies do not have the capabilities to perform tax due diligence on foreign grantor trusts, nor aware of the implications if the US implements tax disclosures on foreign grantor trusts to the grantors country of origin.

Wealth Advisors Trust Company, showing thought leadership, is the first trust company in America to not accept foreign grantor trusts.

Current or prospective domestic trust clients should ask themselves why any trust company in South Dakota or elsewhere in America would accept foreign grantor trusts when regulators have issued warnings on this type of trust.

Read the report here.

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Christopher Holtby, Chief Learning Officer
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