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FAA Reverses 2010 Moratorium on Non-Citizen Trusts, Concerns Still Remain
June 24, 2013
Following three years of discussion between the Federal Aviation Administration (FAA) and aviation industry representatives, the agency on June 18 issued on a clarification of its position on the issue of non-citizen trusts (NCTs), which allows registration of aircraft to U.S. citizen trustees in situations involving non-U.S. citizen trustors and beneficiaries.
Registering an aircraft through an NCT allows owners to register the aircraft on the United States aircraft registry under an N-number, even if they are not a U.S. citizen or legal resident, through use of a U.S. citizen trustee.
Citing concerns that NCTs jeopardized the FAA’s oversight authority over N-registered aircraft, the agency issued a moratorium on the use of NCTs in May 2010. That ban was subsequently relaxed following an immediate outcry from aviation groups, including NBAA. Both sides then engaged in discussions to determine language preserving the use of NCTs while also addressing the agency's concerns.
"While not perfect, this clarification is largely what our industry had expected, based on earlier discussions between the FAA and the industry working group," said Mike Nichols, NBAA vice president, operational excellence & professional development. "Although some lingering questions and concerns remain, this is significantly better than the earlier moratorium."
Industry working groups – including the NBAA Tax Committee, Regulatory Issues Advisory Group and Aviation Insurance Committee – are examining the clarification for areas requiring additional information, and reviewing their options for response within the 90-day period before the clarification becomes law.
One of the issues the industry will seek further clarification on is language stating trustee operating agreements may be voided if the information presented on those agreements does not match the aircraft registration on file with the FAA. While that may sound simple, aviation attorney Frank Polk noted potential concerns.
"The key question is who will be doing this examination, and what will they be looking for?" Polk asked. "What are examples of language in an operating agreement, leases or other documents that will cause the FAA to reject the trustee's application for aircraft registration?"
The policy clarification also states that owner trustees are required to provide basic operational information about an owned aircraft within two business days following an FAA request, and more detailed information within five days.
“If the FAA takes an aggressive position against trustees who, though acting in good faith, cannot provide the requested information in the time frame desired, it could have a significant negative impact on the industry,” Polk said.
“However, based on preliminary analysis – and considering we started approximately three years ago when the FAA announced that NCTs could no longer be used – this is a relatively reasonable document that I think the industry can live with, as long as many of the questions and gray areas are addressed in the next few months," he concluded.
Additional information, including links to the complete FAA policy clarification, is available at NBAA’s Non-Citizen Trust resource page.