Business Law • Aviation Law • Travel Industry Law

t: (416) 681-9900   f: (416) 681-9500

Developments in Non-Citizen Trusts and Business Aviation

It has recently come to our attention that one American financial institutions acting as owner trustees for the purposes of aircraft registration under the United States FAA Aircraft Registry system, had begun denouncing their appointments as trustees and commencing the process for either transferring or collapsing the existing trust structures.

Background

Under the rules for registering aircraft in the United States, a non-U.S. citizen is not eligible to register an aircraft, except pursuant to certain exemptions and legal ownership structures. The use of non-citizen trust structures, which are accepted under the American legislation and by the FAA, allows a foreign national to register an aircraft under FAA registry. Some Canadian owners use this mechanism for numerous reasons, but primarily to allow for more seamless travel in the United States.

Recent Developments

The situation is still unfolding. It is our understanding that the one financial institution which acts as trustees with regards to these non-citizen registrations, initially began resigning from their role as trustees with respect to foreign owners based in the higher risk countries. These moves were made at the request of American banking and aviation regulators, as well as due to internal risk assessments conducted by that financial institution. More recently, regulators and the internal risk assessment groups, have come to the conclusion that this financial institution should resign from acting as trustee for all business aviation transactions. This will likely leave several hundred Canadian trust beneficiaries seeking successor trustees, or other trust solutions so that they can retain their aircraft registered under the FAA Registry.

For aircraft owners that are faced with this dilemma, they will need to find a suitable successor trustee. Certainly, due to the intricacies and requirements of business aviation operations, these individuals may want to select the mechanism which will have the least amount of impact on their aircraft operations. And additionally, the resignation of a trustee, may give rise to certain tax implications, depending on the jurisdiction in which the trustee and/or the aircraft are located in at the effective time of the resignation.

The other option for aircraft owners, is to establish a new trust rather than appointing a successor trustee. Obviously, any of the above noted changes, will be complicated and need to be coordinated with any lenders that are involved with the aircraft asset. Lenders may also seek to have input on the decision as to whether a new non-citizen trust or the appointment of a subsequent trustee is the preferred avenue to follow.

As this issue is developing, it is our intention by this advisory to inform Canadian aircraft owners who may be either already informed of the anticipated resignation, or potentially faced with having to deal with a resignation. We are currently discussing potential resolutions with other financial institutions and authorized trustees who specialize in the business aviation market.

View all news