With considerable acuity, Carlyn S. McCaffrey and Elyse G.Kirschner explore the maze created by the new Code and treasury regulation provisions. In addition to affording a fascinating roadmap through the maze, their article, Learning to Live with the New Foreign Nongrantor Trust Rules, demonstrates the difficulty of addressing legislatively the multitude of trust arrangements that can be devised in the struggle between grantors worldwide and the U.S. tax authorities. The article also exposes the inevitable generation of unintended consequences, including new loopholes, that are a product of such legislation.
In a second tax article, Respect for "Form" as "Substance" in U.S. Taxation of International Trusts, Donald D. Kozusko and Stephen K. Vetter address the regulatory conundrum posed by enforcing hard-and-fast rules in the international trust context. They argue that, in the case of transfer taxation and trust income taxation, substance has often taken a back seat to form. Indeed, form is substance. This reality effects the choices that are routinely made between the utilization of one form of ownership over another. The Code very clearly details different tax consequences, depending on the choice of form made.
In the case of international trusts, under the new tax regime, the jury is still out as to whether form will be submerged by broad doctrines of economic substance and step transactions, or whether form will still prove to be the substance of the law, more generally characterizing the U.S. taxation regime relating to foreign trusts. Ironically, as Kozusko and Vetter point out, the misplaced rigor of the Code's entity attribution rules may actually subvert the substantive goals served by formalism.
The last topic explored in this issue of the Journal is asset protection, especially in conjunction with the international trust. There are articles by leading proponents, including Gideon Rothschild, Daniel S. Rubin, and Jonathan G. Blattmachr, as well as by a leading critic, Eric Henzy, who successfully challenged an asset protection structure in the recent decision of "In re" Brooks. In addition, the transcript of a spirited Round table discussion reveals the views of Barry S. Engel, one of the originators of asset protection strategies in response to the tort liability "crisis." As part of this Roundtable and in a separate article, David Aronofsky elucidates the efforts of Montana to become a bank secrecy center.
Properly understood, the asset protection debate is about the use by a high net worth individual of the international trust in an offshore jurisdiction to counterbalance the risk of unbridled tort liability in the United States. A particularly striking aspect of the Symposium's exploration of this issue is its consideration of the efforts of Alaska and several other jurisdictions within the United States to attract some of the capital administered offshore. An Alaskan asset protection trust seeks to afford the protections of an international trust but without the dangers perceived in placing capital in "exotic" jurisdictions offshore. However, the viability of the effort by Alaska and several other states may be hampered by certain constitutional constraints, most notably the Full Faith and Credit clause as applied within the United States. A Vanderbilt student and member of the Journal, Amy Lynn Wagenfeld, addresses and critiques this development.
Jeffrey A. Schoenblum,
The Rise of the International Trust,
32 Vanderbilt Law Review
Available at: https://scholarship.law.vanderbilt.edu/vjtl/vol32/iss3/1