What are the exceptions that would permit me not to pay the tax on income?
The regulations offer four exceptions: (1) Any transfer of property to a foreign trust by reason of your death; (2) Any transfer of property to a foreign trust described in sections 402(b) (employee’s trust), 404(a)(4) (stock bonus, pension or profit sharing trust organized outside the United States, or 404A (foreign deferred compensation plan; (3) Any transfer of property to a foreign tax-exempt trust described in section 501(c)(3) (without regard to the requirements of section 508(a)); and (4) Any transfer of property to a foreign trust to the extent the transfer is for fair market value. Reg. 1.679-4. Question 3: If I transfer appreciated assets into my foreign asset protection trust, will have to pay capital gains when I make the transfer? Answer: No. Generally, I.R.S. considers the transfer to a foreign trust a “sale” that triggers capital gains (Reg. 1.684-1), but the Code also provides an exception to the general rule for transfers to a grantor trust (Reg. 1-684-3). See question
