Transferring the Beneficial Ownership of a Trust

Many of our customers are familiar with the process of registering in trust, and the reasons to do so; yet questions remain regarding transferring the beneficial ownership of a Trust.

A great example we hear is “If I sell my aircraft, does the new buyer need a new trust?” Simply answered, “No, you can transfer your beneficial interest to the new owner.”

But what goes into this simple answer is rather complex. There is always a lot involved – preparation and due diligence – in any given aircraft transaction. 

There are vigorous steps involved in establishing an aircraft trust to begin with – a transfer of beneficial ownership must meet the same requirements, but once met, the transfer can be seamless. 

A Little Background

Aircraft, like many other high-value assets, can be owned in trust by a third party, transparently and legally.  Known as owner trusts, they have been approved for use by the FAA and used for legitimate business purposes in US aviation for 40 years. 

Owner trusts were originally developed to facilitate the registration of US airlines. Because airlines are publicly traded, their ownership changes on a regular basis, making it impossible to determine whether they meet FAA registration requirements. Airlines must be registered in the US in order to effectively operate, so trusts were created to solve this problem. 

Given the global nature of the aircraft market – sales, leases, financings, investing and other transactions involving parties from many locations – the benefits of registering in trust became apparent to multiple different entities for multiple different reasons.

Further, with general aviation being a popular pastime in the US, whether for pleasure or business, there are many scenarios in which an owner trustee relationship is a good decision. 

While FAA registration is the primary reason for aircraft trusts, they also might be set up for structural purposes, simplification purposes, or convenience. Whatever the reason, a trust can be maintained for an indefinite period of time.

It is also noteworthy that, in general, aircraft that maintain their N-registration generally have higher resale values.

How does it work? 

Transferring the beneficial ownership of a Trust typically begins with a letter from the beneficial owner stating their intent to transfer the interest of their aircraft to somebody else and who that person is. 

The new beneficiary is still obliged to meet FAA requirements, which includes individual identification, proof of insurance on the aircraft, and copies of corporate documents if applicable. 

Once the trustee collects these documents and the new owner pays a transfer fee, the trustee will file documents with the FAA to change the beneficial owner of the trust. Title remains in the name of the trustee, though the beneficial ownership of the aircraft has actually changed hands.  

The beneficial owner doesn’t have to be the operator, either. The operator can be anyone the beneficiary chooses. Passport, proof of residence, and information about where the aircraft is hangared is collected, and the new operator assigned. These documents are included in what is provided to the FAA.

Key Information & Reporting

It is important to understand that Know Your Customer (KYC) still applies to a transfer of beneficial title – it is not a “workaround” of FAA requirements. Properly identifying prospective customers, in this case a new beneficiary, remains part of the aircraft trust process.

Owner trustees must also be able to provide key information regarding beneficiaries within two business days upon request, including operator identity and principal place of residence or business, location of aircraft maintenance records, and where the aircraft is hangared. More detailed information about operations and crew can be required within five days.

Quality trustees thoroughly vet their trustors long before they ever put them in trust and have this information on file. Owner trustees are frequently in contact with the owner or operator, with airworthiness directives, insurance renewals, FCC renewals, and reregistration of the aircraft.

Because of the nature of the trust relationship, trustees further develop and maintain relationships with their beneficiaries throughout the life of the trust. The same applies to new beneficiaries, making the transfer of beneficial ownership of an aircraft a seamless process.