2. Why join STEP? Stanley Barg TEP STEP USA Chair

3. About STEP 3  24 years ago, no network  Today – STEP members have a network of over 20,000 members based in 95 countries  STEP members in 110 branches and chapters which span across 51 countries  An international network to exchange knowledge and education – building to lifetime education  A cross professional network – for instance, the emergence of special interest groups  Influence with regulators and government protecting jobs  Clients and other advisors seek high professional standards –TEP- the only worldwide recognised qualification

4. Membership by region 4

5. Membership buoyant 5

6. Membership growth in the USA 6

7. 7 Today – STEP has 1076 members in across 15 STEP branches and chapters in the US. STEP Members in the USA STEP Boston STEP Chicago STEP Long Island STEP Los Angeles STEP Miami STEP Mid Atlantic STEP New York STEP Orange County STEP San Diego STEP San Francisco STEP Seattle/Pacific Northwest STEP Silicon Valley STEP Southwest Florida STEP Texas STEP Wyoming

8. STEP Membership STEP Membership is considered a mark of excellence and our high professional standards are recognised internationally. Trust and Estate Practitioners (TEPs) are the most experienced and senior practitioners in their field. Under our new Qualifications and Membership Framework (QMF), you can gain credits from completing STEP Certificates and Diplomas that, when combined with your prior qualifications and work experience, will assist you in becoming a Full Member of STEP and using the TEP designation.

9. STEP PowerPoint Template 9 Member Benefits

10. STEP Journal 10

11. STEP International & North America News Digest 11 Twice weekly and fortnightly e-news sent to STEP members

12. STEP Directory online member search 12 Looking for an attorney in Paris? Looking for a Trust Officer in Hong Kong? Looking for an accountant in London? Use the Online Directory at: www.step.org/online- directorywww.step.org/online- directory for fast access to your member network. www.step.org/member-directory

13. Qualifications Catalogue 13

14. Special Interest Groups (SIGs) Business Families (Total membership 1,675) Charities (Branches run their own charity groups) Contentious Trusts and Estates (Total membership 1,224) Cross-Border Estates (Total membership 1,570) International Client (Total membership 44) Mental Capacity (Total membership 1,159) Philanthropy Advisors (Total membership 914)

15. STEP Conferences & Events Over 500 events per year 15 www.step.org/events STEP New York & NYSB, New York, March 11 – 12, 2016 STEP Australasian Conference, New Zealand, March17 – 18, 2016 STEP South Africa Conference, Cape Town, April 4 – 5, 2016 Caribbean Conference, St Lucia, April 25 – 27, 2016 STEP West Coast Conference, Los Angeles, USA, May 5-6, 2016 STEP Canada 18th National Conference, Toronto, June 9-10, 2016 STEP Israel Annual Conference, Israel, June 15-16, 2016 Global Congress, Amsterdam, June 30 – July 1, 2016 LATAM Conference, Panama, October, 2016 STEP Asia Conference, Hong Kong, November 1- 2, 2016

16. Criteria to become a STEP Member 16  Professional qualification  5 years at specialist level (Full membership), 2 years (Technician membership)  Involved in trusts and/or estate planning  Multidisciplinary: Attorney/Accountant/ Senior Trust Officer  Domestic OR international practice  Send completed application form and resumé to: STEP, Artillery House South, 11-19 Artillery Row, London SW1P 1RT, United Kingdom

17. Special Membership Offer in Florida 17 Offer valid until March 31, 2016 Save $135 one time joining fee Receive up to 2 months free membership Not paying membership renewal until April 2017

18. 18 Thank you! For further information please visit: www.step.org/usa or you can email step@step.orgwww.step.orgstep@step.org

19. U.S. ESTATE PLANNING STRATEGIES FOR THE INTERNATIONAL FAMILY Stanley A. BargKozusko Harris Duncan Email: sbarg@kozlaw.com575 Madison Ave. February 17, 2016New York, NY 10022 Washington, DC ◊ New York, NY ◊ New Haven, CT ◊ Chicago, IL

20. Importance of Estate and Tax Planning  Persons subject to U.S. taxation can realize substantial savings through estate and asset planning.  U.S. recognizes broad range of trusts and trusts play an important role in many structures.  Particularly effective for non-U.S. persons who take professional advice before coming to or investing in the U.S.  Also important for U.S. persons who acquire assets outside the U.S. or who have family members who reside outside the U.S. and may not be U.S. persons. 20

21. Citizens and Residents of the U.S. 21  Must pay U.S. income taxes on their worldwide income.  Includes, inter alia, all interest income and capital gains derived from anywhere in the world. (Please note that, for this purpose, gain is determined by reference to historic cost basis even if the asset was acquired many years before becoming a U.S. resident.)  Shares owned in a foreign corporation may be subject to current U.S. tax on the pro-rata share of the corporation’s undistributed earnings if the company is a controlled foreign corporation (CFC) or a passive foreign investment company (PFIC).  Citizens – There are said to be 6 million American citizens who live outside the U.S.  Residents for Income Tax Purposes.  Green Card Holders  Substantial Presence Test  Treaty Tie-Breakers: An individual who is a resident of the U.S. and a country with which the U.S. has an income tax treaty that contains the necessary relief provisions, may apply these rules to determine which country can claim the individual as a resident for tax purposes.  Does not apply to citizens  Problems for Green Card Holders

22. Who Is A U.S. Citizen ? 22  Persons born in the U.S.  Naturalized persons.  Persons born outside the U.S. with a U.S parent in certain circumstances. Depends on:  Year of child’s birth  U.S. physical presence of U.S. parent  Examples Children born to two U.S. citizen parents are U.S. citizens Children born after 12/23/52 and before 11/14/86 One parent is a U.S. citizen; and Was physically present in the U.S. for at least 10 years prior to the child’s birth (at least 5 of which were after the age of 14). Children born on or after 11/14/86 One parent is a U.S. citizen; and Was physically present in the U.S. for at least 5 years prior to child’s birth (at least 2 of which were after age 14).

23. Immigration Status: Permanent Residence 23  A foreign national who is a “lawful permanent resident” of the U.S. during a calendar year is a resident of the U.S. in that year.  A lawful permanent resident is generally referred to as a “green card holder”.  A lawful permanent resident is one who has been granted the privilege of residing permanently in the U.S. as an immigrant. Application for a green card is not sufficient to establish residence for income tax purposes. (Compare with transfer tax.)  Taxation applies irrespective of whether the individual has any real intention of residing in the U.S. on a permanent basis.  Resident status is deemed to continue unless it is rescinded or administratively or judicially determined to have been abandoned.  Please note that one cannot merely put the card aside even if it has expired.  The time at which the loss of lawful permanent resident status is effective for tax purposes depends on whether the loss occurs at the initiative of the taxpayer or of the government. If initiated by the individual, the loss is effective when the application is filed with the Immigration and Naturalization Service or with a consular office. If initiated by the government, residence ends upon issuance of a final administrative or judicial order.

24. Substantial Presence Test 24  An individual is considered a resident alien under the substantial presence test if he or she was in the U.S. 183 days or more during any calendar year.  Resident alien status can also be established under a three-year test which counts 183 days to include:  each day in the current year; plus  during the first preceding year, 1/3 days in the U.S.; plus  during the second preceding year, 1/6 days in the U.S.  General rule: to avoid resident alien status, average annual days lived in the U.S. should not exceed approximately 120 days.  Test is based on a strict counting of the days.

25. Substantial Presence Test - Exemptions 25  Certain individuals such as students who enter the U.S. on an F-1 visa, or other student visa are exempt from the substantial presence test for a period of time, usually five years.  Closer connection test: One who meets the substantial presence test but who is physically present in the U.S. for fewer than 183 days in one calendar year and who has a “tax home” outside the U.S. for the entire year can avoid U.S. residence by establishing a closer connection with another country.  No individual who has taken steps toward applying for a green card can maintain a “closer connection” with a foreign country.  Both the closer connection to the foreign country and the foreign tax home must be maintained during the entire year.  The Regulations permit a foreign individual to have a closer connection to 2 foreign countries (but not more) if a tax home is maintained in one of the 2 countries at all times during the year, and if the individual changes the tax home only once during the year, has at all times a closer connection to the country of each tax home than to the U.S., and is subject to tax as a resident in each of the 2 foreign countries at least during the time the tax home is maintained there.  Use of treaties.

26. Substantial Presence Test - Definitions 26  “United States” means the 50 states and the District of Columbia but not the territories, possessions and commonwealths  Includes the territorial waters of the U.S. and the seabed in the territorial waters  “Day” includes any part of a day with 3 modifications:  Regular commuters for employment from a place of residence in Mexico or Canada to the U.S.  An individual who is in transit between 2 points outside the U.S. and who is physically present in the U.S. for less than 24 hours is not treated as present in the U.S.  Crews of foreign vessels

27. Dual-Status Years 27  Refers to years in which an individual is both a resident and a nonresident.  First Year of Residency:  An individual who is a resident for the current year, but was not a resident at any time in the prior year, is a resident only for the portion of the current year which begins on the residency starting date: Under the substantial presence test, the residency starting date is the first day in the current year on which the individual was present in the U.S. (One can exclude visits of up to ten days if there was a closer connection to a foreign country in which the individual has a tax home than to the U.S.) Under the green card test, the residency starting date is when the individual is present in the U.S. while a lawful permanent resident.  Last Year of Residency:  The last day on which the individual is present in the U.S. or the last day on which the individual still holds a green card, whichever is later, but, to avoid U.S. residency during the last portion of the year, the individual must prove a closer connection to a foreign country than to the U.S.  Can also exclude temporary visits of less than 10 days under the same circumstances as for one coming to the U.S.  There is no lapse in the case of an individual who is resident in any part of each of two consecutive years.

28. Liability for U.S. Estate and Gift Tax 28  U.S. Citizens and those deemed “resident” in the U.S. for Estate and Gift Tax Purposes are subject to a complex tax regime on worldwide assets.  U.S. “Non-residents” are subject to Estate and Gift Tax on U.S. situs assets.  Real Estate.  Tangible personal property (e.g. art) located in the U.S.  Securities of U.S. companies (estate tax only).

29. Liability for Estate and Gift Taxes 29  Residency for Estate and Gift Tax purposes is based upon domicile.  Distinct from “substantial presence” and Green Card analysis for Income Tax purposes. Domicile: where one lives with the intent to remain.  Green Card holders are generally presumed to be residents, but can, under limited circumstances, rebut the presumption based upon “intention.”  Similarly, although one with a temporary visa is generally not considered a U.S. domiciliary, under certain circumstances, courts have held that temporary visa holders demonstrating intent to remain might be domiciliaries for Estate and Gift Tax purposes.

30. The Use of Trusts  Important part of estate plan for virtually every person of means  Control  Privacy  Asset protection  Tax efficiency  Hybrid Trusts  Business Trusts  Purpose Trusts  Foundations 30

31. Classification of Foundations Memorandum AM2009-012  Entity Classification of Liechtenstein Anstalts and Stiftungs.  Issued by Internal Revenue Service Office of Chief Counsel 16 October 2009.  In most cases Anstalts are properly classified as business entities.  Stiftungs will be classified as trusts, unless under the facts and circumstances, the entity was created primarily for commercial purposes. 31

32. U.S. Trusts for U.S. Tax Purposes  Objective Rule – A trust is considered domestic for U.S. tax purposes only if:  a U.S. court can exercise primary supervision over its administration (the court test); and  the U.S. fiduciaries have the authority to control all substantial decisions relating to the trust (the control test).  A trust that does not satisfy both tests is a foreign trust for U.S. tax purposes.  Trusts that become foreign because of appointment of new trustee 32

33. The Court Test Treas. Regs. § 301.7701-7(c)  A court is able to exercise primary supervision over the trust if a U.S. court has authority to render orders or judgments resolving substantially all issues concerning administration of the entire trust.  A trust that is registered with a U.S. court under the registration provisions of a statute similar to Article VII of the Uniform Probate Code meets the court test. If the parties take steps with a U.S. court that cause the administration of the trust to be subject to the primary supervision of the court, the trust meets the court test even if both a U.S. court and a foreign court have jurisdiction over the trust.  A trust fails the court test if the trust instrument includes a migration clause but a migration of the trust only in the case of foreign invasion or widespread confiscation or nationalization of property is not regarded as a migration clause.  Safe Harbor:  The trust instrument does not direct that the trust be administered outside of the U.S.  The trust is actually administered exclusively in the U.S.  The trust is not subject to an automatic migration provision. 33

34. The Control Test Treas. Regs. § 301.7701-7(d)  One or more U.S. persons must have the authority to control all substantial decisions of the trust.  Substantial decisions include:  Whether and when to distribute income or corpus  The amount of any distributions  The selection of a beneficiary  Whether a receipt is allocable to income or principal  Whether to terminate the trust  Whether to compromise, arbitrate or abandon claims  Whether to sue on behalf of the trust or to defend suits against the trust  Whether to remove, add or replace a trustee  Investment decisions 34

35. Grantor Trusts  Trust assets treated as owned by the foreign grantor and not subject to U.S. tax unless U.S. source.  The Internal Revenue Service Office of Chief Counsel in a chief counsel advice memorandum said that grantor trusts are disregarded as entities separate from their owners for all federal income tax purposes. CCA 201343021 released November 1, 2013  “The Service position of treating the owner of an entire trust as the owner of the trust’s assets is consistent with and supported by the rationale for attributing items of income, deduction, and credit to the owner. Accordingly, we conclude that a trust that is treated as a grantor trust is ignored as a separate entity apart from the owner for all federal income tax purposes…”  Need to identify the “Grantor”  Distinguished from the Settlor  Multiple contributors to the trust  Trusts that fund other trusts 35

36. Grantor Trusts with Foreign Grantors  General rule: A trust (foreign or domestic) is treated as a grantor trust only if the person deemed to own the trust is a US citizen or resident or a domestic corporation.  Designed to preclude the use of the grantor trust rules to eliminate all US income taxation on foreign-source income of a foreign grantor trust distributed to US beneficiaries  Exceptions: Revocable Trusts Problems for trusts which were once non-grantor trusts Irrevocable Trusts Benefiting Only the Grantor and/or the Grantor’s Spouse Grandfather rule 36

37. Grantor Trusts with U.S. Grantors 37  Section 674 – grantor or non-adverse party has power over beneficial enjoyment  Section 675 – grantor retains power to deal with or borrow from trust without adequate and full consideration  Section 676 – power to revoke  Section 677 – grantor or non-adverse party has power to distribute income to grantor or spouse  Section 679 – distribution from a foreign trust may be made to or accumulated for a U.S. beneficiary during taxable year  Section 678 – person other than grantor treated as owner

38. Tax Implications of Non-grantor Trusts 38  Trust treated as owner of trust assets and not subject to US tax unless U.S. source  Distributions to U.S. beneficiaries will carry out income:  To the extent distributions from DNI the retain the character of income (DNI is current year income)  To the extent distributions exceed DNI, FAI and trust has UNI, income is deemed ordinary and subject to interest charge (“Throwback rules”) UNI is income from prior years that has not been distributed FAI is fiduciary accounting income

39. Mitigation of Throwback Tax 39  Isolate Tainted Income with Cleansing Distribution A wholly discretionary trust that makes a distribution to a foreign person carries out income of the distributing trust. The distribution could be to a foreign trust. A distribution to a U.S. beneficiary in a subsequent year will not carry out income of the trust if all income has been “stripped” by the distributions to foreign persons in prior years.  Distribution of no more than current income in any year  Use of Default Method  Life Insurance Products  Sale of a beneficial interest in the trust  Domestication  Fiduciary Accounting Income Limitations: No accumulation distribution is deemed to have occurred if the total trust distributions do not exceed the year’s fiduciary accounting income. Code § 665(b)  Resettlement to a new (grantor) trust using a general power of appointment Distinguish from use of a distribution or pour-over. The powerholder is the grantor of a trust funded by using general power of appointment. Reg. §1.671-2(e)(5).

40. Use of Business Entities in Estate Planning  Family Limited Partnerships  Partnerships and LLCs  Facilitation of Transfers of Interests  Used with trusts  Use of Disregarded Entities

41. Check The Box Entities  Election out of default classification  Made on Form 8832, Entity Classification Election  Generally effective on date filed  75-day retroactive election  12-month prospective election  Timing Issues  60-month moratorium on change after election

42. 42  Over the past several years, exponential increase of foreign investment in US real estate market.  Haven from more volatile share prices.  Important domestic US effect in the moderation of long term interest rates (National Association of Realtors).  On January 13, 2016 the Financial Crimes Enforcement Network (FinCEN) issued a Geographic Targeting Order (GTO) directed at US title insurance companies requiring them, for a temporary period (from March 1, 2016 until August 27, 2016), to identify the “beneficial owners” behind any legal entity that is used to purchase high-end residential real estate in Manhattan and Miami-Dade County on an “all cash” basis.  Applies if the purchase price is $1million or more in Miami-Dade County and $3 million or more in Manhattan. Foreign Investment in US Real Estate

43. Tax Entity Alternatives  Individual Ownership  Partnerships  Corporations  Trusts  Debt

44. Expatriations 44  According to U.S. Treasury reports, 4,279 individuals, a record number, expatriated in 2015. The compares to 3415 in 2014 and 2,999 in 2013 which were also both records.  According to a July 14, 2014 survey released by the deVere Group, the increased desire to expatriate has been as a result of FATCA making it difficult to bank overseas and a belief that they are under suspicion by the IRS.  ABA Tax Section has asked the IRS to confirm that some expatriates will not be treated as U.S. citizens. (Bloomberg Daily Tax Report 3/3/2015.)  Applies to individuals who ceased being U.S. citizens prior to the enactment of the American Jobs Creation Act which was effective June 3, 2004 or those who complied with the provision of the law as it existed between 2004 and the enactment of the Heroes Earnings Assistance and Relief Act in 2008.

45. Expatriation 45  Applies a mark-to-market rule (i.e., exit tax) under which covered expatriates are treated as having sold all property for fair market value.  Trustees of nongrantor trusts must withhold 30% on any distribution made to a covered expatriate.  Estate or gift tax is imposed on the receipt of bequests and gifts from a covered expatriate. Also applies to transfers in trust.

46. Expatriation 46  Current expatriation tax regime was effective as of June 17, 2008.  A person who renounces U.S. citizenship or who gives up a U.S. green card after holding the green card in at least 8 of the past 15 calendar years.  Applies to “covered expatriates” who meet any of three standards:  The taxpayer’s five-year average income tax exceed $161,000 (for 2016), adjusted for inflation;  The taxpayer’s net worth as of the date of expatriation exceeds $2 million (not adjusted); and  The taxpayer fails to certify that compliance for the 5 years preceding expatriation. Certification is made on IRS Form 8854.  Exceptions:  Certain dual citizens from birth who have not resided in the U.S. for more than 10 of the past 15 years; and  Certain persons who expatriate before age 18½.

47. Expatriation 47  Mark-to-market tax on expatriation - §877A  Deemed to have sold all assets for FMV as of date of expatriation  $693,000 exemption (Inflation adjusted amount)  Assets of grantor trust deemed owned by expatriate  Non-grantor trust not deemed owned by expatriate, but  Trustee must subsequently withhold 30% of all distributions from non-grantor trust  Non-grantor trust is any trust that expatriate is not a grantor

48. Expatriation 48  Gifts/bequest from covered expatriate - §2801  U.S. person who receives gift/bequest from covered expatriate subject inheritance tax = 40%  Test for covered expatriate on date of expatriation  Transfers to domestic trust trigger tax  No tax on transfer to foreign trust, but tax on subsequent distribution to U.S. person

49. U.S. ESTATE PLANNING STRATEGIES FOR THE INTERNATIONAL FAMILY Stanley A. BargKozusko Harris Duncan Email: sbarg@kozlaw.com575 Madison Ave. February 17, 2016New York, NY 10022 Washington, DC ◊ New York, NY ◊ New Haven, CT ◊ Chicago, IL