The most common reason for setting up an aircraft trust is to provide a solution for aircraft owners who do not meet FAA registration requirements in the United States. You can read about the stringent eligibility requirements in our previous blog, What is an Aircraft Trust. In this article, we’ll discuss how trusts help those aircraft owners who do not meet the requirements.
1. Non-Citizens who reside in the US use trusts to register their private aircraft with the FAA.
Foreign nationals may live in the US, but if they are not a US citizen and have not been lawfully admitted for permanent residence, they cannot register their private aircraft with the FAA. A trust can allow them to own an aircraft and operated it in the United States with an FAA registration.
2. Foreign Nationals who are US property owners register in trust to enable frequent trips to their second homes.
Many aircraft owners who have summer homes or second homes in the United States visit their property on a regular basis. As their primary residence is outside of the US, they would not want to apply for US citizenship. An FAA registration will make it easier for them to operate their plane within the US.
3. Non-US citizens may find it difficult to register their private aircraft in their home country.
The FAA has very favorable maintenance and registration requirements, and they are known for being supportive and understanding of private aviation. Some countries, however, have aircraft requirements that focus on the operations of commercial airliners. Their rules and regulations can be very onerous and burdensome to private aircraft owners. For this reason, owners may choose to register their aircraft outside of their home country. For example, in our interview with client Roger Harr, Roger pointed out that he was one of the first Cirrus owners in Europe. He bought his Cirrus before it was approved for purchase by EASA (the European Aviation Safety Agency), and the only way he could own and operate his new plane was to register it in the United States. Owners who live in countries with similar limitations on GA aircraft may create a trust so that they can register their aircraft with the FAA in the United States.
4. Publicly traded corporations have difficulty meeting FAA requirements.
Corporations or associations organized under US or state law must have at least 75% of the voting interest owned or controlled by US citizens. Publicly-traded corporations – including many (if not most) US commercial airline companies- have very little control over their ownership structure. It’s not possible for them to guarantee who owns 75% of their interests at any given time as ownership changes daily. A trust can allow public corporations -including airlines – to own and operate aircraft in the United States.
5. Trusts provide a solution for foreign businesses that will lease a plane in the US.
The financing, leasing and operating arrangements of aircraft of all sizes have changed considerably over the years. In today’s global economy, aircraft sales, leases, financings and other transactions involve parties from many locations. It is not uncommon to have foreign lessors or foreign entities owning aircraft that operate under multinational lease arrangements. We can again point to air carriers from all nations as an example. Investors from around the globe own interests in airlines that are leased to air carriers who operate and register in the US. Even in cases where the aircraft is leased to a US citizen or entity, it cannot be registered in the United States because the actual owner lessor might not meet the FAA registration requirements. A trust can allow that plane to be registered and more easily operated in the United States.
6. Short-term trusts help new owners prepare their aircraft for export to their own country.
There are occasions where a foreign entity buys an aircraft, but it requires maintenance before it can leave the country. The new owner cannot register the plane in their own name in the US, and they can’t have the plane unregistered. They can register in a short-term interim trust while the plane is being worked on. Once repairs have been made, it can be exported out of the country.
7. Repossessed or stored aircraft.
Aircraft that are repossessed by lenders who are not US citizens can place the aircraft into trust and register it at the FAA. This allows the aircraft to be subject to FAA maintenance requirements which help maintain a higher resale value. It also allows these lenders to more effectively market the aircraft to US buyers.
8. Foreign Manufactures can register new aircraft for sale in the US.
Not all aircraft are manufactured in the US. New aircraft are owned by the manufacturer before being sold to a new buyer. Non-US aircraft manufacturers can register aircraft in trust to be demonstrated in the US and marketed to the US buyer market.
In the United States, the FAA is well-known and well respected. This may help owners when they are selling their plane. Trust beneficiaries own the aircraft, and they can operate, sell, or borrow against it as with any regular structure. It’s important to note that trusts do not in any way work to enable owners to avoid paying taxes on the aircraft. They are an efficient and inexpensive way to meet FAA qualifications. Read more about FAA requirements in our blog, What is an Aircraft Trust.