Owner trusts are a prevalent arrangement for holding title to an aircraft. There are a variety of different owner trust options permitted by the FAA. But, perhaps most commonly, they are used for situations where the aircraft’s owner cannot meet the requirements to register the aircraft with the Federal Aviation Administration (“FAA”). The FAA requires the aircraft owner to qualify as a U.S. citizen under the FAA definition to register the aircraft in the U.S. The qualifications to be classified as a U.S. citizen are specific, complex, and confusing.
What is an Aircraft Owner Trust?
An “Aircraft Owner Trust” is an ownership structure approved by the FAA between a trustee (U.S. citizen) and an aircraft owner. An owner trust is a relationship where the trustee holds legal title to the aircraft for the benefit of a third party legally known as the “trustor” or “beneficiary.” The trustee never operates the aircraft but instead then leases the aircraft back to the trustor, beneficiary, or third party.
How Does an Aircraft Owner Trust Work?
- The aircraft is placed in the owner trust, and the title of the aircraft is then registered in the trustee’s name not in its individual capacity but solely as owner trustee.
- The beneficiary of the owner trust has a beneficial interest in the owner trust.
- The FAA corresponds with the owner trustee.
- The owner trustee then communicates all the information to the beneficiary.
- The owner trustee can dissolve the owner trust at any time for any reason but cannot sell the aircraft without the beneficiary’s permission.
- The owner trustee can transfer the title back to the beneficiary at any time. Still, the beneficiary may not be able to keep an FAA registration due to the change in ownership.
- An operating or lease agreement is formed between the owner trustee and the beneficiary; through the contract, the beneficial owner is given the right to operate the aircraft as an operator.
- The operator is required to maintain, operate, and insure the Aircraft pursuant to FAA requirements.
What are the Advantages of Putting My Aircraft in an Owner Trust?
Holding the title of an aircraft in an owner trust is a routine and highly regulated way of registering an aircraft in the U.S. There are many benefits to doing so, including the following:
1. Non-Citizen Owner Registration
A common use of an owner trust to hold title is to provide those who do not qualify as U.S. citizens under the FAA’s definition the ability to register their aircraft in the U.S. Owner trusts of this type are sometimes called “non-citizen owner trusts.” Due to the thorough details required in the registration, the FAA has approved using an owner trust for those not classified as U.S. citizens. Although media portrayal has occasionally depicted non-citizen owner trusts as “exotic arrangements,” this form of owner trust has been used for decades in the U.S. One of the main benefits non-citizen owners obtain from registering their aircraft with the FAA is that N-numbered aircraft generally assure a higher resale value than if registered elsewhere.
2. Anonymity
Certain aircraft owners strongly desire to preserve confidentiality regarding their aircraft ownership and use. But, under the Freedom of Information Act (“FOIA”), a person generally has the right to access federal agency records subject to specific exclusions and exceptions. Since the Trust Agreement, Operating Agreement, and other required FAA registration documents are filed with the FAA registry, they are public and subject to FOIA requests. But there is a workaround whereby the trustee company constructs a double-blind owner trust. Using a double-blind owner trust, the beneficiary owner enjoys all the benefits of owning an aircraft but is not publicly reflected as the owner on the FAA registry. This creates a level of anonymity for the true owner. Of note, a double-blind owner trust is available for both US and non-U.S. Citizens.
3. Estate Planning Motivations
An owner trust is often used to transfer ownership to others as a comprehensive estate plan. Using an owner trust to hold your aircraft can prevent the possibility that your title will go to probate. Thus, instead of needing to go to the court to appoint someone, the trustee can manage the property per the agreement laid out in the creation of the owner trust.
What Are the Disadvantages of Putting My Aircraft in An Owner Trust?
There are two downside considerations regarding holding your aircraft title in an owner trust: (1) cost and (2) separation of ownership.
1. Costs
As with all operations, there is a cost associated with using an owner trust. The cost varies by provider and trust type. From our experience, normal owner trust costs start at a little over $4,000 for the setup and nearly $3,000 per year. Thus, for a normal owner trust, you should expect to pay around $7,000 at the closing for the first full year and then around $3,000 yearly. For a double-blind owner trust, the setup cost tends to be around $5,500 with a yearly fee of $5,500, meaning at the closing for the first full year, you should expect to pay $11,000.
2. Separation of Ownership
By putting your aircraft in an owner trust, you are placing a separation of ownership between the true owner of the aircraft and the asset. The aircraft is not registered to the true owner but to the owner trustee. Further, any communication from the FAA regarding the aircraft is sent to the owner trustee, who is responsible for forwarding the information to the beneficiary. So long as the relationship between the true owner and owner trustee is positive, this should have no downside. However, suppose the true owner is concerned about a lack of communication or a negative relationship with the owner trustee. In that case, this could be a disadvantage of holding the aircraft in an owner trust.
Thus, an owner trust is a popular instrument for an aircraft owner to hold their aircraft title. Further, it has proven invaluable for the economic purposes of keeping the aviation economy open to persons who would not classify as U.S. citizens and would therefore be unable to register with the FAA.
If you want to know whether an owner trust is the right arrangement for you to hold your aircraft, please call us at the number below or email us at Counsel@BizjetLaw.com.