WHAT ARE THEY AND HOW DO THEY WORK?
Foreign nationals have limited options with respect to US-registered aircraft. For that reason, an ownership trust may be the most effective solution for your November aircraft.
This article will explore how ownership trusts are structured, how they work, and why they comply with US law.
WHY DO I NEED A TRUST?
Generally speaking, an aircraft can only be registered in the United States if: (1) it isn’t currently registered under the laws of a foreign country and (2) if it is owned by a US citizen (14 C.F.R 47.3).
At first glance, this law would seem to categorically exclude foreign citizens from owning November aircraft. But rest assured. The definition of “US citizen” is actually far broader than one might think. In fact, a United States citizen (under 14 C.F.R. 47.7 and 47.2) includes all of the following:
1. A natural United States citizen
2. A permanent resident alien (green card holder)
3. A Trustee that is a United States citizen and who beneficially owns an aircraft in trust for either (1) the benefit of United States citizens or permanent resident aliens, or (2) foreign citizens who have no more than 25% aggregate power to influence or limit the trustee’s authority.
4. A partnership, where all partners are natural persons and each is a United States citizen.
5. A corporation or LLC organized in the United States, of which the president and at least two-thirds of the board of directors and other managing officers are citizens of the United States, which is under the actual control of citizens of the United States, and in which at least 75 percent of the voting interest is owned or controlled by persons that are citizens of the United States. Under 14 C.F.R. 47.8 , domestic corporations can qualify as “US citizens” with the use of a voting trust. If you’re curious about this option, please visit our post on voting trusts.
WHAT IS An ownership TRUST?
Now, with the legal jargon out of the way, we can discuss what an ownership trust really is. As you can see, under Section 3 above, foreign citizens may own November aircraft through a US citizen trust.
A trust is a legal entity, much like a corporation or an LLC. It has a name, it can sign documents, and it can own things (like aircraft). However, unlike LLCs and corporations, a trust is created via a private agreement, called a Trust Agreement. The parties to this agreement are: (1) the Trustor (the foreigner who originally owns the aircraft), (2) the US Citizen Trustee (who serves as “custodian” of the aircraft), and (3) the Beneficiary of the Trust (the person for whom the aircraft is held in trust- this is the true beneficial owner).
More often than not, the Trustor and the Beneficiary are the same person. In other words, a Trustor deposits an aircraft in trust for his own benefit.
Now, we should pause here to explain the difference between a legal owner and a beneficial owner under US law. Once the trust is established, the Trustee becomes the legal owner of the aircraft. In other words, the Trustee’s name appears on the FAA Registration and all other legal documents. But the Trustee only holds the aircraft in trust for the benefit of the Beneficiary. The Beneficiary enjoys the benefits of ownership, even though the Trustee holds legal title.
CAN I CONTROL THE TRUSTEE?
The Trust Agreement establishes the parameters under which the aircraft is held in trust. In particular, it sets forth what the Trustee and the Beneficiary can and cannot do. But an aviation aircraft trust is also governed by state trust laws and by applicable federal statutes (see 14 C.F.R. 47(c)(iii)).
In particular, the FAA forbids foreign owners from exercising “influence” or limiting the Trustee’s authority. Now, this rule wasn’t enacted to curtail foreigners’ rights over the use of their own aircraft. It was implemented to ensure that United States laws and FAA regulations are complied with by foreign persons. The United States would otherwise likely have no jurisdiction over a Trust Beneficiary .
This means you (as a Beneficiary) and your Trustee (as a United States citizen), must comply with the regulations governing your operation- whether it’s Part 91, Part 135, etc. In addition, you must provide the FAA specific information about the Beneficiary, the operator, the aircraft, and its operations when the FAA makes a request .
In summary, the Trustee will honor your wishes with respect to the aircraft. Your Trustee will not sell or mortgage your airplane without your permission or request; however, you cannot limit the Trustee’s responsibility to comply with the FAA.
WHO KEEPS THE AIRPLANE?
When the aircraft is put in trust, the Beneficiary (and Operator, if they are different persons), together with the Trustee, will sign an Aircraft Operating Agreement. The aircraft may then be operated where you wish and how you wish, without the Trustee’s interference.
In fact, the Trust Agreement provides that the Trustee will not disturb your ownership and use of the aircraft. To that end, you indeed retain complete freedom and control over the use of the asset (provided, of course, that you comply with all United States rules and regulations).
WHY SHOULD I REGISTER MY AIRCRAFT IN THE UNITED STATES?
A November tail number is a valuable asset for a variety of reasons. It is widely known and commonly accepted that the FAA Registry is one of (if not the) most sacrosanct registries in the world.
In the United States, aircraft ownership, security interests, transfers, liens, encumbrances, and titles are meticulously kept and organized. This ensures that aircraft may be comfortably purchased and sold without fear of adverse title claims.
In addition, the United States is a party to the Cape Town Treaty, under which security interests of eligible aircraft and engines may be recorded in the International Registry.
Still got questions? Give us a call or visit us in downtown Fort Lauderdale. We can help you determine whether an aircraft ownership trust is right for you.