Cross border taxation of trusts: a review of the use of foreign trusts and the interaction between the tax laws governing trusts in the United States and New Zealand

This paper examines the interaction between United States and New Zealand tax laws applying to non-grantor, discretionary, accumulation trusts. The use of trusts for asset protection and tax planning is prolific in the United States and New Zealand. The United States discourages the use of trusts, whereas New Zealand encourages trust arrangements, through available income splitting benefits and its attractive foreign trust regime. This paper explains the tax laws pertaining to trusts in the United States and New Zealand and considers the tax impact on persons who may have their financial or family interests spread between the two countries. Particular emphasis is placed on the utility of the New Zealand foreign trust for U.S. persons. Finally, observations are made about whether the conceptually pure U.S. approach to taxation of foreign non-grantor trusts is to be preferred over the administrative simplicity inherent in New Zealand's trust regime.