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ALI-ABA Course of Study International Trust and Estate Planning August 18 - 19, 2011 San Francisco, California TABLE OF CONTENTS Page PROGRAM xi FACULTY PARTICIPANTS xv STUDY MATERIALS 1. Income Taxation of Non-Resident Aliens 1 By Michael J. Miller 2. Transfer Taxation of Non-Resident Aliens 13 By Charlotte K. Ito Presentation Slides 26 3. Foreign Trusts and Alternative Vehicles 33 By Henry Christensen, III 4. Don’t Block the Box: U.S. Federal Income Tax Issues for Trusts and Estates That Own 63 Shares in Foreign Corporations By M. Read Moore Table of Contents 64 Study Material 65 5. Outbound Transfers Code Sections 679 and 684 137 By Robert C. Lawrence, III Table of Contents 138 Study Material 139 6. Enforcement Issues in Offshore Planning in 2011: Clients, Fiduciaries and Practitioners 159 Increasingly Caught Between Overlapping and Conflicting Laws and Ethics By Bruce Zagaris Table of Contents 161 Study Material 163 7. Marital Deduction Planning for Non-U.S. Citizen Spouses 237 By Michelle B. Graham Table of Contents 238 Study Material 241 Exhibit A. Statement of Information 277 Exhibit B: Agreement to Pay Section 2056A Estate Tax 279 Exhibit C: Agreement to Roll Over Annuity Payments 280 Exhibit D: Form of Bond 281 Exhibit E: Form of Letter of Credit 283 Presentation Slides 285 vii 8. Asset Protection Trusts (APTs): Non-Tax Issues 293 By Frederick J. Tansill Table of Contents 295 Study Material 301 Exhibit A: Overview of Selected [Offshore] Jurisdictions 379 Exhibit B: Domestic Venues for Asset Protection Trusts 398 Exhibit C: Local Counsel and Representative Banks and Trust Companies in Certain Offshore Jurisdictions 415 Exhibit 1: Affidavit of Solvency (Sample) 418 Exhibit 2: “Island Castaways” 424 Exhibit 3: “What ACTEC Fellows Should Know About Asset Protection” 429 Exhibit 4: No U.S. Connections Allowed With an Offshore Trust? Wrong! Use Onshore Contracts 437 Exhibit 5: “The Ruse That Roared” 443 Exhibit 6: Letter of Wishes (Sample) 448 Exhibit 7: “Litigation Boom Spurs Efforts to Shield Assets” 450 Exhibit 8: “Shelter from the Storm” 454 9. The State of Expatriation 2011(3) 537 By Michael G. Pfeifer 10. U.S. Immigration and Citizenship Planning for High Net Worth Clients 565 By Stephen Trow Presentation Slides 589 11. Offshore Tax Enforcement, Voluntary Disclosures and Undeclared Foreign Accounts – 607 2011 By Scott D. Michel Study Material 609 Exhibit 1: IRS Criminal Investigation OVDI Follow Up Questions 643 Exhibit 2: High Net Worth Audit Information Document Request 646 Exhibit 3: Final Rules and New “FBAR” Form Issued 658 Exhibit 4: TDF 90-22.1 (“FBAR”) and Instructions 661 Exhibit 5: Draft IRS Form 8938 670 Presentation Slides 673 12. Developments in Offshore Tax Compliance 683 By John C. McDougal 13. Questions for Ethics Roundtable 745 By Michael G. Pfeifer 14. Taxing Foreign Nongrantor Trusts and Their US Beneficiaries 753 By Carlyn S. McCaffrey 15. Divided by a common law? 853 by Shan Warnock-Smith QC and Andrew De La Rosa 16. Enforcement Issues in Offshore Planning in 2011: Clients, Fiduciaries and Practitioners 885 Increasingly Caught by Overlapping & Conflicting Laws & Ethics By Bruce Zagaris 17. The Mogranthau Letter 973 Submitted by John C. McDougal viii 18. Exhibit C: Local Counsel and Representative Banks and Trust Companies 987 By Frederick J. Tansill 19. U.S. Taxation of Foreign Trusts, Trusts with Non-U.S. Grantors and Their U.S. 1001 Beneficiaries* By Ellen K. Harrison, Elyse G. Kirschner, and Carlyn S. McCaffrey Study Materials 1003 PowerPoint Presentation 1099 ix 2 ALI-ABA Course of Study International Trust and Estate Planning August 18-19, 2011 San Francisco, California PROGRAM Thursday, August 18, 2011 7:45 a.m. Registration and Networking Session 8:40 a.m. Administrative Remarks - ALI-ABA Staff WEBCAST SEGMENT A: TAXATION OF NONRESIDENT ALIENS; IMPACT OF TREATIES AND FOREIGN LAW 8:45 a.m. Opening Remarks and Course Overview - Messrs. Moore and Pfeifer 9:00 a.m. Income Taxation of Nonresident Aliens (NRAs) - Mr. Miller General "residence" rules; problems with short-term nonresidence; taxation of investment income, business income, and real estate income; compliance issues; use of income tax treaties and dual status returns 9:45 a.m. Transfer Taxation of NRAs - Ms. Ito "Domicile" as the basis of taxation; substantive gift, estate, and GST tax rules; planning for NRAs with U.S. situs property; use of estate and gift tax treaties 10:30 a.m. Networking and Refreshment Break 10:45 a.m. Trusts and Alternative Foreign Vehicles - Mr. Christensen U.S. tax definition of "trust"; U.S. tax treatment of civil law constructs (anstalts, foundations, and usufructs); civil law treatment of common law trusts, including recent case law; effect of the Hague Convention 11:30 a.m. Important English Trust Law Issues for American Lawyers – Mr. de la Rosa and Ms. Warnock-Smith Exploration of critical differences in English and American trust law and styles of trust drafting that affect U.S. lawyers working in the international trusts and estates field, including the use of discretionary trusts, protectors, powers of advancement, and indemnities; consideration of choice of law issues; issues related to court proceedings involving trusts and estates in offshore jurisdictions 12:15 p.m. Lunch Break WEBCAST SEGMENT B: TREATMENT OF "OUTBOUND" GRANTOR TRUSTS OF U.S. PERSONS; ETHICAL ISSUES IN INTERNATIONAL PLANNING 1:45 p.m. Considerations for Underlying Foreign Corporations - Mr. Moore Overview of U.S. anti-deferral tax regimes: CFCs and PFICs; attribution of ownership through trusts; planning considerations for U.S. owners and beneficiaries, including use of "check-the-box" rules 2:30 p.m. “Outbound” Grantor Trusts of U.S. Persons - Mr. Lawrence Taxation of U.S. grantors of foreign trusts with U.S. beneficiaries; Sections 679 and 684; direct and indirect transfers; "qualified obligations" 3:15 p.m. Networking and Refreshment Break xi 3:30 p.m. Ethical Issues in Offshore Planning - Mr. Zagaris Application of due diligence and "know-your-client" principles to lawyers involved in wealth planning and management; update on anti-tax haven initiatives: organization for Economic Cooperation and Development (OECD), Financial Action Task Force (FATF), Financial Stability Forum (FSF), etc.; limits on "bank secrecy" and practical lessons of dealing with increasingly complex tax and regulatory regimes 4:15 p.m. Ethics Roundtable - Faculty Panel 5:00 p.m. Questions and Answers 5:15 p.m. Adjournment for the Day; Networking Reception for Registrants and Faculty Friday, August 19, 2011 8:00 a.m. Continental Breakfast and Networking Session WEBCAST SEGMENT C: TAXATION OF FOREIGN TRUSTS AND TRUSTS WITH FOREIGN SETTLORS; MARITAL PLANNING FOR FOREIGN SPOUSES; USE OF OFFSHORE INSURANCE PRODUCTS 8:30 a.m. Planning Chairs' Recap of Day One - Messrs. Moore and Pfeifer 8:45 a.m. “Inbound” Grantor Trusts - Ms. Harrison Definition of "grantor"; limits on foreign grantor trusts; treatment of indirect distributions; anti-avoidance rules; pre-immigration trusts 9:30 a.m. Foreign Non-Grantor Trusts - Ms. McCaffrey Taxation of, and planning with, foreign non-grantor trusts; alternatives for reporting distributions to U.S. beneficiaries 10:15 a.m. Networking and Refreshment Break 10:30 a.m. Marital Deduction Planning for Non-Citizen Spouses – Ms. Graham Limitations on availability of marital deduction where spouse is not a U.S. citizen; lifetime planning and use of "qualified domestic trusts" (QDOTs) at death; qualifying retirement benefits for marital deduction; pre- and post-mortem planning to minimize limitations 11:15 a.m. “Asset Protection Trusts” (APTs): Non-Tax Issues - Mr. Tansill Proper objectives of APTs; factors in choosing the "best jurisdiction"; U.S. and foreign APTs: Are they equal? 12:00 noon Lunch Break WEBCAST SEGMENT D: SPECIAL ISSUES (EXPATRIATION AND ASSET PROTECTION TRUSTS); ISSUES IN OFFSHORE TAX COMPLIANCE 1:30 p.m. Expatriation - Mr. Pfeifer Expatriation provisions after 2008 HEART Act changes; problems with scope and administration of "mark-to-market," deferred compensation and non- grantor trust provisions; new Section 2801 "inheritance" tax; practical issues with advising citizens and long-term residents 2:15 p.m. U.S. Immigration and Citizenship – Mr. Trow Immigration planning for high net worth clients; common non-immigrant (temporary) visas; investment-based options for obtaining permanent resident (green card) status; obtaining and terminating American citizenship xii 3:00 p.m. Networking and Refreshment Break 3:15 p.m. Developments in Offshore Tax Compliance (Practitioner View) - Mr. Michel Targeted and pattern document requests and examinations; changes to taxpayer "voluntary disclosure" policy and procedure; statutes of limitation in the international tax area; implications of HIRE/FATCA reporting provisions, and recent developments with foreign financial account reporting on Form TDF 90-22.1 ("FBAR"); IRS enforcement policies and their application, including penalty exposure 4:00 p.m. Developments in Offshore Tax Compliance (IRS View) - Mr. McDougal Updates on recent IRS initiatives to identify taxpayers with undisclosed offshore financial accounts and transactions: Offshore credit cards, offshore merchant accounts, offshore private banking and more; expanding limits of offshore information gathering and enforcement; hearings of Senate Permanent Subcommittee on Investigations; IRS view of taxpayer voluntary disclosure procedure 4:45 p.m. Questions and Answers 5:00 p.m. Adjournment Total 60-minute hours of instruction: 13, including 1.5 hours of ethics xiii 2 ALI-ABA Course of Study International Trust and Estate Planning August 18-19, 2011 San Francisco, California PLANNING CHAIRS Michael G. Pfeifer, Esquire M. Read Moore, Esquire Caplin & Drysdale, Chartered McDermott Will & Emery LLP Suite 1100 227 West Monroe Street One Thomas Circle, NW Chicago, IL 60606 Washington, DC 20005 FACULTY Henry Christensen III, Esquire Robert C. Lawrence, III, Esquire McDermott Will & Emery LLP Cadwalader, Wickersham & Taft LLP 340 Madison Avenue One World Financial Center New York, NY 10173 New York, NY 10281 Mr. Andrew de la Rosa Carlyn S. McCaffrey, Esquire International Chancery & Trusts Chambers McDermott Will & Emery PO Box 10100 340 Madison Avenue 5th Floor, Queensgate House New York, NY 10173 South Church Street Grand Cayman KY1-1001 John C. McDougal, Esquire Office of Chief Counsel, Small Michelle B. Graham, Esquire Business/Self Employed Division Luce Forward Hamilton & Scripps, LLP Internal Revenue Service P.O. Box 2329 U.S. Dept of the Treasury Rancho Santa Fe, CA 92067 Main Street Center Suite 1601 600 East Main Street Ellen K. Harrison, Esquire Richmond, VA 23219 Pillsbury Winthrop Shaw Pittman LLP 2300 N Street, NW Scott D. Michel, Esquire Washington, DC 20037 Caplin & Drysdale, Chartered Suite 1100 Charlotte K. Ito, Esquire One Thomas Circle NW Fox Rothschild LLP Washington, DC 20005 Suite 1500 235 Pine Street San Francisco, CA 94104 xv Michael J. Miller, Esquire Shân Warnock-Smith, QC Roberts & Holland LLP International Chancery & Trusts Chambers Suite 3700 PO Box 10100 825 Eight Avenue 5th Floor, Queensgate House New York, NY 10019 South Church Street Grand Cayman KY1-1001 Frederick J. Tansill, Esquire Frederick J. Tansill & Associates, LLC Bruce Zagaris, Esquire Suite 104 Berliner, Corcoran & Rowe, L.L.P. 6723 Whittier Avenue Suite 1100 McLean, VA 22101 1101 17th Street, NW Washington, DC 20036 Stephen Trow, Esquire Trow & Rahal, P.C. Suite 920 5335 Wisconsin Avenue, NW Washington, DC 20015 NOTE: Please go to www.ali-aba.org/CT012 for biographical information about this faculty. xvi
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