Aircraft Trusts: Why they are Necessary for Nonresident Aircraft Owners

Civil aviation is a very popular pastime in the United States. In order to operate an aircraft in the United States, an aircraft must be registered with the Federal Aviation Administration (“FAA”) Aircraft Registry. The FAA is the primary agency in the U.S. that governs aircraft registration. The United States has the largest registry of the world’s aircraft. For a number of reasons nonresidents register aircrafts with the FAA even if the aircraft is operated in a foreign jurisdiction. In order to register an aircraft with the FAA, nonresidents often utilize aircraft trusts. This article will discuss why nonresidents that wish to register an aircraft with the FAA need to establish an aircraft trust and the U.S. tax consequences of such a trust.

Why Establish an Airplane Trust?

The FAA requires that all aircraft registered with the Aircraft Registry be registered in the aircraft’s owner’s name. The FAA has strict U.S. citizenship requirements. Under these rules, an aircraft can be registered with the Aircraft Registry if the aircraft is owned by:

1. An individual who is a U.S. citizen.
2. A partnership in which all the partners are U.S. citizens.
3. A corporation incorporated in a U.S. state or the District of Columbia, or U.S. territory or possession of which the president and at least two-thirds of the board of directors and other managing officers are U.S. citizens, and in which at least 75 percent of the voting interest is owned or controlled by U.S. citizens.
4. A citizen of a foreign country that is a U.S. permanent resident.
5. A U.S. government entity.
6. A non-U.S. citizen corporation organized and doing business under the laws of the U.S. or one of the States, as long as the aircraft is based and primarily used in the U.S. (.i.e., 60 percent of all flight hours are from flights starting and ending within the U.S.).

If an aircraft owner does not satisfy any of the above discussed rules, the aircraft owner can register the aircraft on the FAA Aircraft Registry by placing the aircraft in a trust that is recognized as a U.S. citizen.

How Does an Aircraft Trust Operate?

Under U.S. law, a trust is defined as a legal arrangement where one party (referred to as a trustee) holds assets for the benefit of another party (referred to as a beneficiary). As with any other form of trust, an aircraft trust involves two primary parties: the beneficiary, who is the beneficiary of the trust, and the trustee, who is responsible for handlining the beneficiary’s assets. Although the trustee holds the legal title to the aircraft and the aircraft is registered with the FAA in the trustee’s name, the beneficiary is the sole beneficiary of the trust. By using an aircraft trust, a nonresident can register an aircraft with the FAA Aircraft Registry.

According to the FAA, in order to register an aircraft that is in trust, the trustee must submit:

1. An affidavit showing that each beneficiary of an aircraft trust is either a U.S. citizen or a resident alien. This includes each person whose security interest in the aircraft is incorporated in the trust. If any beneficiary of the trust is not a U.S. citizen or permanent resident, the trustee or trustees must provide an affidavit stating that the trustee is not aware of any reason, situation or relationship that would give the nonresident a share of control greater than 25 percent to influence or limit the exercise of the trustee’s authority.
2. A certified true copy of the complete trust.
3. An ink-signed bill of sale from the present registered owner to the trustee.
4. An application for registration showing the trustee or trustees as the applicant, signed in ink by the trustee or trustees.

Sample Aircraft Trust

Below is a partial sample of how an aircraft trust can be drafted. It should be noted that the drafting of an aircraft trust is a highly technical area of law and one size does not fit all. The sample provided below is only meant to provide our readers with a general overview as to how an aircraft trust may be drafted.

TRUST AGREEMENT

THIS TRUST AGREEMENT, dated as of , 202, (the “Agreement”) by and between, Tom Jones, an individual citizen of the United Kingdom, as Trustor and as beneficiary pursuant to Florida Law (hereinafter referred to as the “Trustor”), and Aircraft Inc Aircraft Solutions Inc., a corporation organized and existing under the laws of Florida (“Owner Trustee”);

WITNESSETH:

WHEREAS, Trustor desires to cause title to the Aircraft (as hereinafter defined) to be conveyed to Owner Trustee;

WHEREAS, Trustor desires to document the creation of a trust (the “Trust”) organized and operated under Florida law and contribute the Aircraft thereto in order to ensure the eligibility of the Aircraft for United States registration in the name of the Owner Trustee with the Federal Aviation Administration (the “FAA”);

WHEREAS, this Agreement is designed to create a Utah business trust in order that the Owner Trustee may hold title to the Aircraft until such time as Trustor directs the Owner Trustee to distribute the Aircraft in accordance with Trustor’s written instructions;

WHEREAS, Owner Trustee is willing to accept the trusts as herein provided; and

WHEREAS, Owner Trustee will file a Certificate of Registration on or after the date hereof with the Florida Division of Corporations and Commercial Code registering the trust as a “Business Trust”.

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, Trustor and Owner Trustee agree as follows:

ARTICLE 1

DEFINITIONS

Capitalized terms used in this Agreement shall have the respective meanings assigned thereto below, unless such terms are otherwise defined herein or the context hereof shall otherwise require. The terms “hereof”, “herein”, “hereunder” and comparable terms refer to this Agreement, as amended, modified or supplemented from time to time, and not to any particular portion hereof. References in this Agreement to sections, paragraphs and clauses are to sections, paragraphs and clauses in this Agreement unless otherwise indicated.

“Affidavit” means the Affidavit of Owner Trustee pursuant to the Federal Aviation Regulations, the form of which is attached hereto as Exhibit A.

“Aircraft” means the aircraft or undivided fractional interest of all aircraft more fully described in the Supplement to the Trust Agreement attached hereto, the form of which is attached hereto as Exhibit A, which are transferred to the Owner Trustee in trust under this Agreement and such other aircraft and engines as are added to the terms of this Agreement by supplement and/or amendment.

“Aircraft Registration Application” means AC Form 8050-1 Aircraft Registration Application by Owner Trustee covering the Aircraft.

“Cape Town Treaty” means Convention on International Interests in Mobile Equipment, the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment, together with the Regulations and IR Procedures issued by the Supervisory Authority for the IR, and all other rules, amendments, supplements, modifications, and revisions thereto.

“Certificate of Beneficial Interest” means any certificate issued by the Owner Trustee to the Trustor which evidences the Trustor’s beneficial interest in the Trust substantially in the form of Exhibit B attached hereto.

“Citizen of the United States” means “citizen of the United States” as that term is defined in the United States Code.

“FAA” means the Federal Aviation Administration of the United States or any Government Entity succeeding to the functions of such Federal Aviation Administration.

“FAA Bill of Sale” means an AC Form 8050-2 Bill of Sale for the Aircraft from Trustor or the current owner of the Aircraft to Owner Trustee.

“FAA Trust Policy” means (i) Notice of Proposed Policy Clarification for the Registration of Aircraft to U.S. Citizen Trustees in Situations involving Non-U.S. Citizen Trustors and Beneficiaries and (ii) Notice of Policy Clarification for the Registration of Aircraft to U.S. Citizen Trustees in Situations involving Non-U.S. Citizen Trustors and Beneficiaries, as each may be modified, amended or supplemented from time to time and as may be further enforced or interpreted by the FAA.

“Fee Letter” means the letter provided to Trustor or its representative by Owner Trustee outlining Owner Trustee’s fees for services provided under this Agreement.

“International Registry” means the International Registry of Mobile Assets located in Dublin, Ireland and established pursuant to the Cape Town Treaty, along with any successor registry thereto.

“Lease” means any agreement (including an Operating Agreement) from time to time entered into by Owner Trustee and Lessee that transfers the right to possess, use and operate the Aircraft to such Lessee.

“Lessee” means any counterparty to the Owner Trustee under any Lease.

“Operating Agreement” means any agreement (including a lease) that transfers the right to possess, use and operate the Aircraft from Owner Trustee to Trustor.

“Person” means any individual, corporation, partnership, joint venture, association, company, trust, non-incorporated organization, other business entity or institution, but not including a government or any agency or political subdivision thereof.

“Regulatory Authority” means (i) the FAA, (ii) any other duly authorized air authority representatives of the United States, (iii) the government where the Aircraft is habitually based or operated, or (iv) any other governmental entity of the United States or any state of the United States.

“Transaction Documents” means this Agreement, the FAA Bill of Sale, Warranty Bill of Sale, the Operating Agreement, and the Lease and agreements entered into by Owner Trustee with X Aviation, Inc., X Sales, Inc, and/or X Services, Inc. related to the Aircraft, and any documents pertaining to and relating to any of the foregoing.

“Trust Estate” means all estate, right, title and interest of Owner Trustee in and to the Aircraft, and the Transaction Documents, including, without limitation, all amounts of the rentals under any of the Transaction Documents, insurance proceeds (other than insurance proceeds payable to or for the benefit of Owner Trustee, for its own account or in its individual capacity, or Trustor), and requisition, indemnity or other payments of any kind for or with respect to the Aircraft, (other than amounts owing to Owner Trustee, for its own account or in its individual capacity, Trustor or any Lessee of the Aircraft).

“Trustor” means Tom Jones and thereafter any Person to whom the original Trustor transfers its beneficial interest in the Trust within the meaning of Florida law.

“Warranty Bill of Sale” means a full warranty bill of sale for the Aircraft, executed by Trustor or current owner in favor of Owner Trustee and, if applicable, specifically referring to each engine installed on the Aircraft.

ARTICLE 2
CREATION OF TRUST

Section 2.01 Transfer of Control. Trustor shall cause title to the Aircraft to be conveyed to Owner Trustee by FAA Bill of Sale or such other transfer documents as needed.

Section 2.02 Acceptance and Declaration of Trust. Owner Trustee accepts the Trust created hereby, and declares that it will hold the Trust Estate upon the trusts hereinafter set forth for the use and benefit of Trustor, in accordance with and subject to all of the terms and conditions contained in this Agreement, and agrees to perform the same, including without limitation the actions specified in Section 4.01 hereof, and agrees to receive and disburse all moneys constituting part of the Trust Estate, all in accordance with the terms hereof. Trustor’s beneficial interest in the Trust Estate shall be evidenced by the Certificate of Beneficial Interest.

Section 2.03 Name of Trust Certificate. On or after the date hereof, the Owner Trustee will file a Certificate of Registration with the Florida Division of Corporations to register the Trust as a Business Trust. The Trust governed by this Trust Agreement shall be known as the “XX Business Trust,” which name shall be used for describing this Trust going forward under the relevant Uniform Commercial Code.

Section 2.04 Grantor Trust Provisions. Notwithstanding any other provision of this Agreement, the intention is that this Trust be a grantor trust for federal income tax purposes for those periods of time during which the Trustor or any other person holds one or more of the powers described in the Internal Revenue Code, the effect of which is that the Trustor shall be taxed on any income of this Trust.

Section 2.05 Principal Office. The Trust’s principal office is located in Florida. All records of the Trust required by the Act will be maintained at the principal office. The Trustee may at any time alter the location of the Trust’s principal office.

Section 2.06 Situs of Trust. The Trust will be administered in the State of Florida.

ARTICLE 3

THE OWNER TRUSTEE

Section 3.01 Status. Owner Trustee hereby represents and warrants that it is a Citizen of the United States.

Section 3.02 Removal. Owner Trustee may be removed at any time, but for cause only, by a written instrument or instruments signed by an authorized person or persons, subject to the regulatory limitation that non-U.S. citizens shall not hold more than 25 percent of the aggregate power to remove a trustee. For purposes of this Section, “for cause”, may include willful misconduct or gross negligence, but “for cause” will not include the refusal of Owner Trustee to act or refrain from acting in a manner that (1) would violate the laws, regulations, court orders, or lawful directions of a government agency; (2) is outside the scope of Owner Trustee’s authority; (3) is contrary to its obligations under the Agreement; or (4) is the subject of a mere disagreement between Owner Trustee and Trustor. Such removal shall take effect immediately upon the appointment of a successor Owner Trustee pursuant to Section 3.04, whereupon all powers, rights and obligations of the removed Owner Trustee under this Agreement (except the rights set forth in Section 3.08) shall cease and terminate. Without any affirmative action by Trustor, any Owner Trustee shall cease immediately to be an Owner Trustee at such time as it ceases to be a Citizen of the United States or at such time as it for any reason is not free from control by Trustor as described in Article 9, and shall give immediate notice thereof to Trustor. Any Owner Trustee shall also give Trustor notice of a possible change of citizenship at the later of (i) 90 days prior to a change in citizenship and (ii) actual knowledge by the Owner Trustee that such a change in citizenship is probable.

Section 3.03 Resignation. Owner Trustee may resign at any time upon giving 30 days prior written notice of such resignation to Trustor. Such resignation shall take effect upon the thirtieth day as specified in such notice (“Resignation Date”). As long as the appointment will be completed on or prior to the Resignation Date, at the request of Trustor, Owner Trustee will consent to the appointment of a successor Owner Trustee pursuant to Section 3.04, Successor Owner Trustee whereupon all powers, rights and obligations of the resigning Owner Trustee under this Agreement (except the rights set forth in Section 3.08, Fees, Compensation) shall cease and terminate.

Section 3.04 Successor Owner Trustee. Promptly upon receipt of a notice of resignation from the Owner Trustee in accordance with Section 3.03, a successor trustee may be appointed by a written instrument signed by a duly authorized officer of Trustor and the successor trustee shall execute and deliver to the predecessor Owner Trustee an instrument accepting such appointment. Such successor trustee shall be a citizen of the United States and shall assume all powers, rights and obligations of such Owner Trustee hereunder immediately upon the resignation of such Owner Trustee becoming effective. Such successor, concurrently with such appointment, shall file an Affidavit with the FAA and all other documents then required by law to be filed in connection therewith. If the Trustor shall not have so appointed a successor Owner Trustee within 30 days after such resignation or removal, the Owner Trustee, in its sole discretion, may (i) resign as set forth in Section 3.03 or (ii) apply to any court of competent jurisdiction to appoint a successor Owner Trustee to act until such time, if any, as a successor or successors shall have been appointed by the Trustor as above provided. Any successor Owner Trustee so appointed shall immediately and without further act be superseded by any successor Owner Trustee appointed by the Trustor as above provided.

Section 3.05 Merger. Any corporation into which Owner Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which Owner Trustee shall be a party, or any corporation to which substantially all the corporate trust business of Owner Trustee may be transferred, shall, subject to the terms of Section 3.04, be Owner Trustee without further act.

Section 3.06 Tax Returns. Owner Trustee shall keep all appropriate books and records relating to the receipt and disbursement by it of all monies under this Agreement or any agreement contemplated hereby. Except as otherwise provided herein Trustor will prepare all tax returns required to be filed, including without limitation any tax returns in the determination of Owner Trustee that are required to be filed, with respect to the trust hereby and Owner Trustee, upon request, will furnish Trustor with all such information as may be reasonably required from Owner Trustee in connection with the preparation of such tax returns. Owner Trustee will execute and file the tax returns as prepared by Trustor unless otherwise advised by Owner Trustee’s tax adviser. In the event Owner Trustee determines that a tax return is required to be filed, and Trustor does not take appropriate steps to prepare and file such tax return, or if Owner Trustee is obligated to or otherwise advised by its tax adviser to prepare and file such return, Trustor hereby agrees to cooperate with Owner Trustee to provide such information as may be reasonably required by Owner Trustee for Owner Trustee to file such tax return, and Trustor hereby consents to the filing of such tax return. Trustor shall reimburse Owner Trustee for the reasonable costs and expenses associated with the preparation of any tax return as contemplated hereunder.

Section 3.07 Vacancies. If any vacancy shall occur in the position of Owner Trustee for any reason, including, without limitation, removal, resignation, loss of United States citizenship or the inability or refusal of such Owner Trustee to act as Owner Trustee, the vacancy shall be filled in accordance with Section 3.04.

Section 3.08 Fees; Compensation. The Owner Trustee shall receive from the Trustor as compensation for the Owner Trustee’s services hereunder, fees in accordance with the Fee Letter previously provided to Trustor or its representative by Owner Trustee, or as otherwise agreed from time to time by the Owner Trustee and the Trustor. Furthermore, Owner Trustee shall be reimbursed by the Trustor for all reasonable costs and expenses incurred or made by it in accordance with any of the provisions of this Agreement. If an event of default under any Lease shall occur, the Owner Trustee shall be entitled to receive reasonable compensation (including without limitation compensation for Owner Trustee’s reasonable attorney fees) for its additional responsibilities, and payment or reimbursement for its expenses. Owner Trustee shall have a lien on the Trust Estate, prior to any interest therein of Trustor, to secure payment of all such fees, costs, expenses, and compensation (provided, however, any such lien shall automatically terminate upon distribution or removal of the Aircraft from the Trust Estate).

Section 3.09 No Duties. Owner Trustee shall not have any duty (i) to see to any insurance on the Aircraft or maintain any such insurance, (ii) to see to the payment or discharge of any tax, assessment or other governmental charge or any lien or encumbrance of any kind owing with respect to, or assessed or levied against, the Aircraft (provided, however, that Owner Trustee shall not create, permit or suffer to exist any lien or encumbrance on any part of the Aircraft which results from claims against Owner Trustee unrelated to its capacity as Owner Trustee hereunder), (iii) to confirm or verify any notices or reports, (iv) to inspect the Aircraft at any time or ascertain the performance or observance by either of any Lessee or Trustor of its covenants under any Lease, or (v) except as set forth herein, to see to any recording or see to the maintenance of any such recording or filing with the FAA or other government agency.

Section 3.10 Status of Moneys Received. All moneys received by Owner Trustee under or pursuant to any provisions of this Agreement shall constitute trust funds for the purpose for which they are paid or held, and shall be segregated from any other moneys and deposited by Owner Trustee under such conditions as may be prescribed or permitted by law for trust funds.

Section 3.11 Owner Trustee May Rely. Owner Trustee shall not incur any liability to anyone in acting or refraining from acting upon any signature, instrument, notice, resolution, request, consent, order, certificate, report, opinion, bond or other document or paper reasonably believed by it to be genuine and reasonably believed by it to be signed by the proper party or parties. As to any fact or matter, the manner or ascertainment of which is not specifically described herein, Owner Trustee may for all purposes hereof rely on a certificate, signed by or on behalf of the party executing such certificate, as to such fact or matter, and such certificate shall constitute full protection of Owner Trustee for any action taken or omitted to be taken by it in good faith in reliance thereon. In the administration of the Trust, Owner Trustee may, at the reasonable cost and expense of Trustor, seek advice of counsel, accountants and other skilled persons to be selected and employed by them, and Owner Trustee shall not be liable for anything done, suffered or omitted in good faith by it in accordance with the actions, advice or opinion of any such counsel, accountants or other skilled persons.

Section 3.12 Owner Trustee Acts as Trustee. In accepting the Trust, Owner Trustee acts solely as trustee hereunder and not in any individual capacity (except as otherwise expressly provided in this Agreement or any Lease), and all persons other than Trustor having any claim against the Owner Trustee by reason of the transactions contemplated hereby shall not have any recourse to Owner Trustee in its individual capacity.

Section 3.13 No Expenses for Owner Trustee. Owner Trustee shall not have any obligation by virtue of this Agreement to expend or risk any of its own funds, or to take any action which could, in the reasonable opinion of Owner Trustee, result in any cost or expense being incurred by Owner Trustee. Owner Trustee shall not be required to take any action or refrain from taking any action under this Agreement unless it shall have been indemnified by Trustor in a manner and form satisfactory to Owner Trustee against any liability, cost or expense (including reasonable attorneys’ fees) which may be incurred in connection therewith. No provisions of this Agreement shall be deemed to impose any duty on Owner Trustee to take any action if Owner Trustee shall have been advised by counsel that such action would expose it to personal liability, is contrary to the terms hereof or is contrary to law.

Section 3.14 Notice of Event of Default. In the event that a responsible officer of the Owner Trustee shall have actual knowledge of a default or an event of default under any Lease, the Owner Trustee shall give or cause to be given prompt notice of such default or event of default to the Trustor. Unless the Lease is an agreement between Owner Trustee and Trustor and Trustor was the defaulting party, the Owner Trustee shall take such action with respect to such default or event of default as shall be specified in written instructions from the Trustor. For all purposes of this Agreement and any Lease, in the absence of actual knowledge of a responsible officer of the Owner Trustee, the Owner Trustee shall not be deemed to have knowledge of a default or event of default unless notified in writing by the Trustor.

Section 3.15 Certain Duties and Responsibilities of Owner Trustee.
(a) Owner Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Agreement and in the Transaction Documents or as required by law and no implied duties, covenants or obligations shall be read into this Agreement or the Transaction Documents against Owner Trustee. Owner Trustee agrees that it will deal with the Aircraft or any other part of the Trust Estate in accordance with the terms of this Agreement and any Transaction Document or as required by law.
(b) Whether or not herein expressly so provided, every provision of this Agreement relating to the conduct or affecting the liability of or affording protection to Owner Trustee shall be subject to the provisions of this Section 3.15.

Section 3.16 No Representations or Warranties as to the Aircraft or Documents.
OWNER TRUSTEE MAKES (i) NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE VALUE, CONDITION, DESIGN, OPERATION, MERCHANTABILITY OR FITNESS FOR USE OF THE AIRCRAFT OR AS TO THE TITLE THERETO, OR ANY OTHER REPRESENTATION OR WARRANTY WITH RESPECT TO THE AIRCRAFT WHATSOEVER, except that, in its individual capacity warrants that on the date on which the Aircraft is transferred to the Trust contemplated by this Agreement, Owner Trustee shall have received whatever title was conveyed to it, and (ii) no other representations or warranties are made by the Owner Trustee other than to the extent expressly made herein by Owner Trustee, except that Owner Trustee represents and warrants that it has full right, power and authority to enter into, execute, deliver and perform this Agreement and that this Agreement constitutes the legal, valid and binding obligation of the Owner Trustee.

Section 3.17 Limitations of Liability. Under no circumstance shall Owner Trustee be liable to the Trustor under any provision of this Agreement or any other document, instrument or agreement entered into by the Owner Trustee and/or the Trust with respect to the Aircraft, except and solely to the extent of any loss or claim incurred by the Trustor which is attributable to the gross negligence or willful misconduct of Owner Trustee in its individual capacity or in its capacity as Owner Trustee. Owner Trustee, in its individual capacity, shall have no liability to any other Person, other than the Trustor (as specifically set forth in the immediately preceding sentence) for any loss, claim, penalty or tax as a result of, or in connection with, the transactions contemplated by this Agreement. Under no circumstance shall Owner Trustee in its individual capacity be liable to any Person under any provision of this Agreement, if any failure to comply with the requirements of any provision of this Agreement is caused by or is otherwise attributable to any action or inaction (whether or not performed in a timely manner) of any other Person (including the Trustor). Any claim by any Person other than the Trustor resulting from or relating to the transactions contemplated by this Agreement and/or Owner Trustee’s role as Owner Trustee hereunder shall be brought exclusively against the Trust and/or the Owner Trustee and not against Owner Trustee in its individual capacity, and shall be satisfied solely with and shall be limited to, the assets of the Trust Estate. To the extent that Owner Trustee, in its capacity as Owner Trustee hereunder, has any duties, fiduciary or otherwise to any Person, such duties are hereby eliminated and replaced solely and exclusively by the express duties of the Owner Trustee to the Trustor as set forth herein. This Section 3.17 is not in any way intended to change the Owner Trustee’s duties under the Federal Aviation Regulations as the registered owner of the Aircraft.

ARTICLE 4

THE TRUST ESTATE

Section 4.01 Authorization and Direction to Owner Trustee. Trustor hereby authorizes and directs Owner Trustee, not individually but solely as Owner Trustee hereunder, and Owner Trustee covenants and agrees:
(a) to execute and deliver each agreement, instrument or document (if such agreement, instrument or document is in a form reasonably acceptable to Owner Trustee) to which Owner Trustee is a party in the respective forms thereof in which delivered from time to time by Trustor for execution and delivery and, subject to the terms hereof, to exercise its rights and perform its duties under the Transaction Documents in accordance with the terms thereof, including without limitation, accepting title to, and delivery of, the Aircraft and leasing the Aircraft to any Lessee or, subject to the provisions of Section 7 hereof, distributing the Aircraft to Trustor pursuant to the specific written instructions of Trustor;
(b) to take title to and effect the registration of the Aircraft with the FAA in the name of the Owner Trustee by duly executing and filing or causing to be filed with the FAA (i) the Aircraft Registration Application, (ii) the Affidavit, (iii) the FAA Bill of Sale, (iv) an executed counterpart of this Agreement, and (v) any other document or instrument required therefore including any Transaction Document or Operating Agreement, except that the Owner Trustee may request that an Operating Agreement not be filed with the FAA, but only reviewed and returned;
(c) to execute and deliver each of the Transaction Documents or each other document which Owner Trustee is required to deliver pursuant to the Transaction Documents or this Agreement and Owner Trustee is hereby authorized to execute documents as a surety for the obligations of Trustor or as directed by the Trustor;
(d) subject to the terms of this Agreement, to perform the obligations and duties and exercise the rights of Owner Trustee under the Transaction Documents (in connection therewith, Trustor confirms Owner Trustee is authorized to execute documents as a surety for obligations of the Trustor or as directed by the Trustor);
(e) upon request by FAA, and with the cooperation of Trustor, to provide the FAA with the following information in an expeditious manner (generally within 2 business days of the request or immediately in an emergency identified by the FAA): (i) the identity and contact information (address, phone number, email) of the person or entity normally operating, or maintaining the operations of the Aircraft; (ii) where that person or entity resides or is incorporated and has its principal place of business; (iii) the location of the Aircraft maintenance and other records; and (iv) where the Aircraft is normally based and operated;
(f) upon request by FAA, and with the cooperation of Trustor, to provide the FAA with the following information in an expeditious manner (generally within 5 business days of the request or immediately in an emergency identified by the FAA): (i) information about the operator, crew (names and pilot certificate numbers) and Aircraft operations on specific dates; (ii) information about where the Aircraft will be on a specific date in the future; and (iii) maintenance and other Aircraft records;
(g) to immediately forward all applicable FAA airworthiness directives received from the FAA to the Trustor, Lessee, and Operator, as applicable under any Transaction Document, by the most expeditious means available;
(h) to notify the FAA Aircraft Registry by the most expeditious means available of the Owner Trustee’s resignation under Section 3.03, Resignation, or removal under Section 3.02, Removal, or of the termination of the Trust under Section 7.01, Termination Date;
(i) to permit the inspection of the Aircraft and/or records by the Regulatory Authority, when an appropriate request is made by the FAA or other governmental entity entitled to inspect the Aircraft and/or records; and
(j) to establish the Owner Trustee as a Transacting User Entity (as provided in the Cape Town Treaty) on the International Registry, and register, consent to registration of or discharge interests on the International Registry as instructed by the Trustor and as required pursuant to the Transaction Documents.

Section 4.02 Supplier Warranties. Trustor hereby assigns to Owner Trustee any and all warranties and indemnities of, and other claims against, any supplier relating to the Aircraft.

Section 4.03 Advances by Trustor. Trustor shall make advances to Owner Trustee in such amounts and at such times as may be necessary to permit Owner Trustee to satisfy its obligations under any Lease and this Agreement.

Section 4.04 Trustor’s Duties. Trustor acknowledges that the FAA or other Regulatory Authority may require the owner of an aircraft to provide certain information regarding the ownership, operation and condition of the aircraft and there may be additional requirements applicable to the Owner Trustee as set forth in the FAA Trust Policy, and Trustor hereby covenants and agrees:
(a) Trustor has reviewed the FAA Trust Policy and will provide the Owner Trustee and the FAA with the information required by the FAA Trust Policy;
(b) Trustor has provided a completed Customer Identification Program Form, as provided to Trustor by Owner Trustee (the “CIP Form”) and represents and warrants that (i) the information contained therein and submitted therewith, including, but not limited to information pertaining to each individual beneficial owner of the Trust, is true, correct and complete as of the date of this Agreement, and (ii) the information pertaining to each individual identified in the CIP Form has been and will hereafter be provided to Owner Trustee by Trustor only with the express consent of such individual; and Trustor further covenants to (iii) either monitor or cause the information provided in and submitted with the CIP Form regarding all parties (including, but not limited to, the beneficial owners of the Trust) and the Aircraft, to be monitored, and to notify and provide non-expired, true, correct and complete updated information to Owner Trustee within twenty (20) calendar days after any information in the CIP Form changes; (iv) monitor and cause each individual beneficial owner of the Trust to provide updated information to FinCEN within thirty (30) calendar days after any information provided by them in connection with obtaining their FinCEN Identifier changes; (v) provide to Owner Trustee an updated CIP Form or written confirmation that none of the information contained in or submitted with the prior version(s) of the CIP Form submitted by Trustor has changed or expired, on an annual basis or any other time as requested by Owner Trustee or as required by the FAA Trust Policy; and (vi) if requested by a Regulatory Authority, provide the CIP Form and related information to the Regulatory Authority;
(c) upon a request by the FAA, Trustor shall provide: (i) within two (2) business days of the request or immediately in an emergency identified by the FAA, the information specified in Section 4.01(e) hereof, and (ii) within five (5) business days of the request or immediately in an emergency identified by the FAA, the information specified in Section 4.01(f) hereof;
(d) in connection with any transfer of Trustor’s beneficial interest in the Trust (other than a collateral assignment thereof), to provide Owner Trustee the identity and contact information with respect to the new Trustor and to update the operator information provided pursuant to Section 4.04(g) and 4.04(h) and provide Owner Trustee a new CIP Form signed by the new trustor and/or new operator of the Aircraft;
(e) That the information received by the Owner Trustee pursuant to this Agreement or as Owner Trustee may have in its possession, may be delivered to the Regulatory Authority, without further consent or acknowledgment of the Trustor, or any other third party;
(f) If (i) the FAA amends, supplements or modifies in any way, the FAA Trust Policy, Trustor agrees to abide by such changes, and if necessary, agrees to amend this Agreement such that this Agreement will comply with the changes to the FAA Trust Policy, including without limitation amending the CIP Form and the request for information contained therein, or (ii) any other Regulatory Authority requests information in connection with the operation and use of the Aircraft, Trustor agrees to provide such information to the Regulatory Authority in a form that is acceptable both to the Regulatory Authority and the Owner Trustee;
(g) to provide as expeditiously as possible to Owner Trustee, in response to a request by Owner Trustee, the identity and contact information for the operator of the Aircraft under any Transaction Document, bailment agreement or similar arrangement transferring possession and operational control of the Aircraft entered into from time to time by Trustor, or any lease, bailment, or other arrangement entered into from time to time by a third party, whether or not at Trustor’s direction; and
(h) to require that any Transaction Document, bailment, or similar arrangement transferring possession and operational control of the Aircraft provide the following or similar provisions to the same effect:
(i) that all further transfers of the rights to possession and operational control of the Aircraft to a transferee must be in writing; provide the identity and contact information about the transferee; and the transferee’s assurance that if and when the transferee is notified that the Owner Trustee has made a request, to promptly provide information (including without limitation the information contained in the CIP Form) related to crewmembers of the Aircraft and the Aircraft’s operations on specific dates, the location of the Aircraft, and the maintenance and other aircraft records for the Aircraft;
(ii) that each such further transferee or operator (x) shall provide its reasonable cooperation to Owner Trustee, Trustor and the FAA in an expeditious manner with respect to any request from the FAA or other applicable governmental entity for information and access to records of the Aircraft which it is legally entitled to receive, and (y) shall authorize the Regulatory Authority, upon any request which the FAA or such other governmental entity is legally entitled to make under law applicable to such transferee or operator of the Aircraft, to inspect the Aircraft; and
(iii) that each such further transferee or operator agrees that the above- referenced information and inspection requirements would be made and agreed in all subsequent or downstream leases, operating agreements and bailment agreements thereby requiring each such subsequent transferee or operator to provide such contact information in the event that there has been a transfer of possession and operation to another party, to update such information when any changes occur, and to promptly confirm such information (including without limitation the information contained in the CIP Form) at any time upon request by Owner Trustee or Trustor, to provide its reasonable cooperation to Owner Trustee, Trustor and the FAA in an expeditious manner with respect to any request from the FAA or other applicable governmental entity for information and access to records of the Aircraft which it is legally entitled to receive made pursuant to existing regulations and policies, and (z) to authorize the FAA or such other governmental entity to inspect the Aircraft to the extent that it is legally entitled to make such request under law applicable to Owner Trustee, Trustor, the relevant counterparty to any such subsequent or downstream agreement or the Aircraft.

ARTICLE 5

DISTRIBUTIONS

Section 5.01 Receipts. Except as otherwise provided in this Agreement, any payment received by Owner Trustee for which provision as to the application thereof is made in any Lease shall be applied promptly to the purpose for which such payment shall have been made in accordance with the terms of such Lease; and any payment received by Owner Trustee for which no provision as to the application thereof is made in any Lease or in this Article 5 shall, unless Trustor shall have otherwise instructed Owner Trustee in writing, be distributed promptly to Trustor.

Section 5.02 Manner of Making Distributions. Owner Trustee shall make all distributions to Trustor under this Agreement and any Lease promptly upon the receipt of proceeds available for distribution, but shall not be obligated to make any distributions until the funds therefor have been received by Owner Trustee. All distributions to Trustor hereunder shall be made to such account and in such manner as Trustor shall from time to time direct in writing.

ARTICLE 6

INDEMNIFICATION OF OWNER TRUSTEE BY TRUSTOR

Section 6.01 Indemnification. Trustor hereby agrees, whether or not any of the transactions contemplated hereby shall be consummated, to assume liability for, and does hereby indemnify, protect, save, defend, and/or keep and hold harmless Aircraft Solutions Inc., both in its capacity as trustee and in its individual capacity, and each of its successors, assigns, legal representatives, agents, employees, officers, directors, shareholders, and affiliates controlled by, controlling, or under common control with Aircraft Solutions Inc. (collectively, with Aircraft Solutions Inc., the Indemnitees”), on demand, from and against any and all liabilities, obligations, losses, damages (whether direct, indirect, incidental, special or consequential), taxes (excluding any taxes payable by Aircraft Solutions Inc. in its individual capacity on or measured by any compensation received by Aircraft Solutions Inc. in its individual capacity for its services hereunder), tariffs, duties, governmental charges, claims, actions, suits, demands, charges, fees, judgments, actions, and other legal proceedings (whether civil or criminal), penalties, fines, sanctions, and any reasonable costs, expenses or disbursements (including, without limitation, reasonable ongoing fees of Owner Trustee and reasonable attorneys; fees and expenses) of any kind and nature whatsoever (collectively, the “Claims and Expenses”) that may be imposed on, incurred by or asserted against Aircraft Solutions Inc. as trustee or individually and the other Indemnitees (whether or not also indemnified against by a Lessee under any Lease or also indemnified against by any other person) in any way relating to or arising out of this Agreement or any Lease or the enforcement of any of the terms hereof or thereof, or in any way relating to or arising out of the manufacture, purchase, acceptance, non-acceptance, rejection, ownership, delivery, lease, possession, use, operation, import, export, condition, sale, return or other disposition of the Aircraft (including, without limitation, latent and other defects, whether or not discoverable, and any claim for patent, trademark or copyright infringement), or in any way relating to or arising out of the administration of the Trust Estate or the action or inaction of Aircraft Solutions Inc. as trustee or individually hereunder, including without limitation all such Claims and Expenses to the extent caused by or resulting from the ordinary negligence of Aircraft Solutions Inc. as trustee or individually or any of the Indemnitees, whether active or passive, and whether concurrent with the negligence of Trustor, except (a) in the case of willful misconduct or gross negligence on the part of Aircraft Solutions Inc. as trustee or, if applicable, individually, in the performance or nonperformance of its duties hereunder, or (b) those resulting from the inaccuracy of any express representation or warranty of Aircraft Solutions Inc. as trustee or, if applicable, individually (or from the failure of Aircraft Solutions Inc. as trustee or, if applicable, individually to perform any of its covenants) contained in this Agreement or any Lease, or (c) in the case of the failure to use ordinary care on the part of Aircraft Solutions Inc. as trustee or, if applicable, individually in the disbursement of funds. The indemnities contained in this Article 6 extend to Aircraft Solutions Inc. and shall not be construed as indemnities of the Trust Estate. Trustor hereby acknowledges that it is the express intent of Trustor that it hereby agrees to indemnify, protect, save and keep harmless Aircraft Solutions Inc. as trustee and individually and the Indemnitees from and against Claims and Expenses as described in this Section 6.01 to the extent caused by or resulting from the ordinary negligence of Aircraft Solutions Inc. as trustee or individually and the Indemnitees. The Indemnities contained in this Article 6 shall survive the termination of this Agreement. In addition, and to secure the foregoing indemnities, Aircraft Solutions Inc. shall have a lien on the Trust Estate, which shall be prior to any interest therein of Trustor (provided, however, any such lien shall automatically terminate upon distribution or removal of the Aircraft from the Trust Estate). For the avoidance of doubt, the foregoing indemnities shall apply to any Claims and Expenses that may result from, arise out of, or are in any manner related to the Regulatory Authority’s receipt of the information set forth in Sections 4.01 and 4.04 hereof or the obligations of Trustor under Article 10.

ARTICLE 7

TERMINATION

Section 7.01 Termination Date. The Trust shall terminate without any notice or other action of Owner Trustee upon such date as may be directed by Trustor and the sale or other final disposition by the Owner Trustee of all property constituting the Trust Estate. Otherwise, the Trust shall have perpetual existence.

Section 7.02 Distribution of Trust Estate Upon Termination. Upon any termination of the Trust pursuant to the provisions of Section 7.01 hereof and once Owner Trustee’s fees, costs, expenses and compensation as contemplated in Section 3.08 or any other amounts due Aircraft Solutions Inc. as trustee or individually in connection with this Agreement have been paid, title of the Trust Estate shall revert to Trustor or its nominee (including but not limited to executing a bill of sale in a form recordable with the FAA conveying title of the Aircraft to Trustor and registering said sale as a contract of sale on the International Registry). SUCH TITLE SHALL BE CONVEYED IN AN “AS IS, WHERE IS” CONDITION WITH ALL FAULTS, WITHOUT ANY REPRESENTATION OR WARRANTY OF ANY NATURE, TYPE OR KIND BEING MADE BY (i) OWNER TRUSTEE OR (ii) OWNER TRUSTEE IN ITS INDIVIDUAL CAPACITY, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF TITLE, ANY EXPRESS OR IMPLIED (STATUTORY OR OTHERWISE) WARRANTY OF MERCHANTABILITY, OPERATION, DESIGN, CONDITION, VALUE, AIRWORTHINESS, MAINTENANCE, DURABILITY, FITNESS FOR USE, OR SUITABILITY OF THE AIRCRAFT, INCLUDING ANY COMPONENT THEREOF, OR ANY OTHER ASSET IN ANY RESPECT WHATSOEVER OR IN CONNECTION WITH THE AIRCRAFT OR FITNESS FOR ANY PARTICULAR PURPOSE, AS TO THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, AS TO THE ABSENCE OF ANY INFRINGEMENT OF ANY PATENT, TRADEMARK OR COPYRIGHT, AS TO THE ABSENCE OF OBLIGATIONS BASED ON STRICT LIABILITY IN TORT, OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP OF THE AIRCRAFT OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE AIRCRAFT, except that Owner Trustee warrants in its individual capacity that the Aircraft shall during the term of this Agreement be free of liens attributable to Owner Trustee in its individual capacity.

Section 7.03 Termination Pursuant to FAA Trust Policy or Failure to Comply with Article 10. Trustor agrees that it is required to abide by the FAA Trust Policy and to comply with Article 10 of this Agreement; and failure to do so, or to provide the information set forth in Section 4.04 hereof, or the laws under Article 10, shall constitute a breach by Trustor of this Agreement. Under such circumstance, Owner Trustee, in its sole discretion, may resign pursuant to Section 3.03 hereof or terminate this Agreement in accordance with the terms and conditions hereof and distribute the Trust Estate (less any fees and costs owed to Owner Trustee) as provided herein. Prior to any resignation or termination, Owner Trustee shall provide a 30 day’s prior written notice to Trustor and all entities that are party to the Transaction Documents, as applicable. Upon such termination, this Agreement will be of no further force or effect.

ARTICLE 8

MISCELLANEOUS

Section 8.01 Nature of Title of Trustor. Trustor shall not have legal title to any part of the Trust Estate. No transfer, by operation of law or otherwise, of the right, title and interest of Trustor in and to the Trust Estate or the trusts hereunder, in accordance with the terms hereof, shall operate to terminate this Agreement or the trusts hereunder or entitle any successor or transferee of Trustor to an accounting or to the transfer to it of legal title to any part of the Trust Estate.

Section 8.02 Power of Owner Trustee to Convey. Any assignment, sale, transfer or other conveyance by Owner Trustee of the interest of Owner Trustee in the Aircraft or any part thereof made pursuant to the terms of this Agreement or the Transaction Documents shall bind Trustor and shall be effective to transfer or convey all right, title and interest of Owner Trustee and Trustor in and to the Aircraft or such part thereof. No permitted purchaser or other permitted grantee shall be required to inquire as to the authorization, necessity, expediency or regularity of such assignment, sale, transfer or conveyance or as to the application of any sale or other proceeds with respect thereto by Owner Trustee.

Section 8.03 Trust Agreement for Benefit of Certain Parties Only. Nothing herein, whether expressed or implied, shall be construed to give any person other than Owner Trustee and Trustor any legal or equitable right, remedy or claim under or in respect of this Agreement; but this Agreement shall be held to be for the sole and exclusive benefit of Owner Trustee and Trustor.

Section 8.04 Notices. Unless otherwise expressly provided herein, all notices, instructions, demands and other communications hereunder shall be in writing and shall be delivered personally or sent by registered or certified mail, postage prepaid and return receipt requested, or sent by electronic mail (“Email”), with a confirming copy sent by air mail, postage prepaid, and the date of personal delivery or Email or 7 business days after the date of mailing (other than in the case of the mailing of a confirming copy of an Email), as the case may be, shall be the date of such notice, in each case addressed to:

Section 8.05 Co-Trustee and Separate Trustees. If at any time it shall be necessary or prudent in order to conform to any law of any jurisdiction in which all or any part of the Trust Estate is located, or Owner Trustee being advised by counsel shall determine that it is so necessary or prudent in the interest of Trustor or Owner Trustee, or Owner Trustee shall have been directed to do so by Trustor, Owner Trustee and Trustor shall execute and deliver an agreement supplemental hereto and all other instruments and agreements necessary or proper to constitute one or more other Persons (any and all of which shall be a Citizen of the United States) approved by Owner Trustee and Trustor, either to act as co-trustee jointly with Owner Trustee, or to act as separate trustee hereunder (any such co-trustee or separate trustee). In the event Trustor shall not have joined in the execution of such agreements supplemental hereto within 10 days after the receipt of a written request from Owner Trustee so to do, or in case an event of default, as defined in any Lease, shall have occurred and be continuing, Owner Trustee may act under the foregoing provisions of this Section 8.05 without the concurrence of Trustor; and Trustor hereby appoints Owner Trustee its agent and attorney-in-fact to act for it under the foregoing provisions of this Section 8.05 in either of such contingencies. Every additional trustee hereunder shall, to the extent permitted by law, be appointed and act, and Owner Trustee and its successors shall act, subject to the following provisions and conditions:
(a) all powers, duties, obligations and rights conferred upon Owner Trustee in respect of the custody, control and management of moneys, the Aircraft or documents authorized to be delivered hereunder or under any Lease shall be exercised solely by Owner Trustee;
(b) all other rights, powers, duties and obligations conferred or imposed upon Owner Trustee shall be conferred or imposed upon and exercised or performed by Owner Trustee and such additional trustee (U.S. citizen) jointly, except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed (including the holding of title to the Trust Estate) Owner Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations shall be exercised and performed by such additional trustee;
(c) no power given to, or which it is provided hereby may be exercised by, any such additional trustee, shall be exercised hereunder by such additional trustee, except jointly with, or with the consent in writing of, Owner Trustee;
(d) no trustee hereunder shall be personally liable by reason of any act or omission of any other trustee hereunder;
(e) Trustor, at any time, by an instrument in writing may remove any such additional trustee. In the event that Trustor shall not have executed any such instrument within 10 days after the receipt of a written request from Owner Trustee so to do, Owner Trustee shall have the power to remove any such additional trustee without the concurrence of Trustor; and Trustor hereby appoints Owner Trustee its agent and attorney-in-fact for it in such connection in such contingency; and
(f) no appointment of, or action by, any additional trustee will relieve the Owner Trustee of any of its obligations under, or otherwise affect any of the terms of, this Agreement or any Lease.

Section 8.06 Situs of Trust; Applicable Law. The Trust has been accepted by Owner Trustee and will be administered in the State of Florida (State of United States). The validity, construction and enforcement of this Agreement shall be governed by the laws of the State of Florida (State of United States), including without limitation the Act, without giving effect to principles of conflict of law. Trustor hereby irrevocably submits to the jurisdiction of any Florida state or federal court sitting in Utah and any appellate court from any thereof in any action or proceeding arising out of or relating to this Agreement. The Trustor irrevocably (i) waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum, and (ii) consents to the service of any and all process in any such action or proceeding by the mailing of copies of such process to the Trustor at its address specified in Section 8.04 hereof. The Trustor agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Section shall affect the right of the Owner Trustee to serve legal process in any other manner permitted by law or affect the right of Owner Trustee to bring any action or proceeding against Trustor or its property in the courts of any other jurisdictions, including without limitation the jurisdiction of the courts in which the Registrar of the International Registry has its center of administration or the jurisdiction of the location of the Aircraft. If any provision of this Agreement shall be invalid or unenforceable, the remaining provisions hereof shall continue to be fully effective, provided that such remaining provisions do not increase the obligations or liabilities of Owner Trustee.

Section 8.07 Amendment. This Agreement may not be amended, modified, supplemented, or otherwise altered except by an instrument in writing signed by the parties hereto.

Section 8.08 Successors and Assigns. In accordance with the terms hereof, this Agreement shall be binding upon and shall inure to the benefit of, and shall be enforceable by, the parties hereto and their respective successors and permitted assigns, including any successive holder of all or any part of Trustor’s interest in the Trust Estate.

Section 8.09 Headings. The headings of the Articles and Sections of this Agreement are inserted for convenience only and shall not affect the meaning or construction of any of the provisions hereof.

Section 8.10 Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original, and such counterparts together shall constitute and be one and the same instrument.

ARTICLE 9

CERTAIN LIMITATIONS

Section 9.01 Limitations on Control, Exceptions.
(a) Limitation on Control. Notwithstanding any other provision of this Agreement, but subject to paragraph (b) of this Section 9.01, the Trustor will have no rights or powers to direct, influence or control the Owner Trustee in the performance of the Owner Trustee’s duties under this Agreement, including matters involving the ownership and operation of the Aircraft. The Owner Trustee shall exercise its duties under this Agreement in connection with matters involving the ownership and operation of the Aircraft, as the Owner Trustee, in its discretion, shall deem necessary to protect the interests of the United States, notwithstanding any countervailing interest of any foreign power which, or whose citizens, may have a direct or indirect interest in the Trustor and any such action by the Owner Trustee shall not be considered malfeasance or in breach of any obligation which the Owner Trustee might otherwise have to the Trustor; provided, however, that subject to the foregoing limitations, the Owner Trustee shall exercise this discretion in all matters arising under the Agreement, including the ownership and operation of the Aircraft with due regard for the interests of the Trustor. In exercising any of its rights and duties under this Agreement in connection with matters which may arise not relating to the ownership and operation of the Aircraft, the Owner Trustee shall be permitted to seek the advice of the Trustor before taking, or refraining from taking, any action with respect thereto. The Owner Trustee shall notify the Trustor of its exercise of rights and duties under this Agreement in connection with matters involving the ownership and operation of the Aircraft.
(b) Certain Exceptions. Subject to the requirements of the preceding paragraph (a), the Owner Trustee agrees that it will not, without the prior written consent of the Trustor, sell, mortgage, pledge or otherwise dispose of the Aircraft or other assets held in the Trust Estate relating thereto, or amend any Lease or other document (other than a document over which the Owner Trustee has the absolute and complete discretion established under Section 9.01(a) Limitation on Control of this Agreement) or give any consents thereunder except as otherwise expressly provided for herein.
(c) Purpose. The purpose of this Section 9.01 is to assure that (i) the Aircraft shall be controlled with respect to such matters as are described in Section 9.01(a) of this Agreement by a Citizen of the United States and (ii) the Trustor shall have no power to influence or control the exercise of the Owner Trustee’s authority with respect to such matters and (iii) Owner Trustee shall be able to give the affidavit required by the Federal Aviation Regulations, Section 9.01 shall be construed in furtherance of the foregoing purpose.

Section 9.02 General. Notwithstanding anything to the contrary in this Agreement, the Owner Trustee and the Trustor hereby agree as follows: If persons who are neither Citizens of the United States or resident aliens have the power to direct or remove the Owner Trustee, either directly or indirectly through the control of another person, those persons together shall not have more than twenty five percent (25%) of the aggregate power to direct or remove the Owner Trustee.

Section 9.03 Priority. In creating and accepting the Trust, Trustor and Owner Trustee each acknowledges that in case of conflict, the limitations in Article 9 of this Agreement are paramount and superior to any other terms and conditions in this Agreement; or in any other document or documents including without limitation, under the Transaction Documents or under any document to which Trustor and Owner Trustee are a party in respect of the Trust. It is understood and agreed by the parties hereto that nothing in this Agreement shall relieve any of the Trustor, the Owner Trustee or any other Person of any obligation to comply with any law, rule or regulation of any governmental authority with respect to the ownership and operation of the Aircraft.

ARTICLE 10

COMPLIANCE WITH LAWS

Section 10.01 Covenant to Comply with Customs Laws, Export Restrictions and U.S. Laws. Trustor acknowledges that the United States and other jurisdictions have laws and regulations, and in certain cases charge taxes and fees, relating to the import or export of aircraft (collectively, the “Customs Laws”). Trustor further acknowledges that the Aircraft may be subject to restrictions involving the export and re-export of the same pursuant to the laws and regulations of the United States, that the laws and regulations of the United States restrict the transfer of any interest in the Aircraft to certain persons (collectively, the “Export Restrictions”) and that such Export Restrictions may apply to the Aircraft even after the Aircraft has been physically removed or transferred from the United States. Trustor also acknowledges that Owner Trustee may be subject to the laws and regulations of the United States, including, without limitation, those promulgated by any Regulatory Authority, the U.S. Department of Treasury’s Office of Foreign Assets Control (“OFAC”) the U.S. Export Administration Regulations (EARS), and the U.S. International Traffic in Arms Regulations (ITAR) (collectively, the “U.S. Laws”). Trustor agrees that it will comply with, and will not knowingly permit the Aircraft to be used in a manner that is contrary to, Customs Laws, Export Restrictions and U.S. Laws applicable to (1) Trustor; (2) Owner Trustee; or (3) the Aircraft, including the acquisition, possession, operation, use, maintenance, leasing, subleasing, sale, or other transfer or disposition thereof.

Section 10.02 Approval of Transfer. Trustor agrees that it will not permit the assignment of this Agreement, any transfer of the beneficial interest of the Trustor created by this Agreement, or a lease or sublease of the Aircraft, or the sale or other transfer or disposition of the Aircraft (collectively, a “Transfer”) without Owner Trustee’s prior written approval of such Transfer. Owner Trustee shall not unreasonably delay its decision on a request for approval from Trustor nor shall it unreasonably withhold its approval to such request. To facilitate Owner Trustee’s evaluation of the Transfer, Trustor agrees that it will use reasonable efforts to provide Owner Trustee with any information reasonably requested by the Owner Trustee regarding the Transfer, the proposed transferee and/or the ownership or intended operations of the proposed transferee. Owner Trustee’s decision to approve or disapprove the proposed Transfer shall not be deemed to have been unreasonably delayed if Owner Trustee has not obtained the information it needs to make the decision, and Owner Trustee’s approval of the proposed Transfer shall not be deemed to have been unreasonably withheld if Owner Trustee has determined that the Transfer will or may reasonably be expected to put Owner Trustee at risk of violating any laws or regulations applicable to Owner Trustee including, without limitation, the Customs Laws, the Export Restrictions and/or U.S. Laws. If Owner Trustee withholds approval of a Transfer as set forth herein, then: (i) subject to the terms of this Agreement, Owner Trustee may resign; and (ii) Owner Trustee shall have no obligation to consent to or facilitate a Transfer while Owner Trustee’s resignation is pending.

Section 10.03 OFAC Compliance. Trustor affirms that as of the date hereof it, and any Lessee or other operator of the Aircraft, is in full compliance, and during the term of this Agreement will remain in full compliance, with all laws and regulations applicable to it including, without limitation, (a) ensuring that no person who owns a controlling interest in or otherwise controls Trustor and that no person to whom a Transfer is made, directly or indirectly, is or shall be (1) listed on the Specially Designated Nationals and Blocked Person List maintained by OFAC, Department of the Treasury, and/or any other similar lists maintained by OFAC pursuant to any authorizing statute, Executive Order or regulation or (2) a person designated under Executive Order No. 13224 (September 23, 2001), any related enabling legislation or any other similar Executive Orders.

Section 10.04 EEI Filings. The EARS (i) generally classify aircraft as Commerce Control List items and may require the filing of Electronic Export Information (EEI) in the Automated Export System (AES) prior to being exported from the United States and (ii) in certain instances may require a specific export license for the aircraft itself and/or the components/technologies thereon from the Department of Commerce, Bureau of Industry and Security. The filing of the EEI in the AES is mandated by the U.S. Census Bureau in the Foreign Trade Regulations. Trustor affirms that as of the date hereof it, and any Lessee or other operator of the Aircraft, is in full compliance, and during the term of this Agreement will remain in full compliance, with the EARs. Trustor will provide Owner Trustee (i) evidence of EEI filings to the extent the aircraft is exported during the term of this Agreement or deemed to be exported at such time as this Agreement is terminated (ii) or evidence satisfactory to the Owner Trustee that EEI filings were not required.

Section 10.05 Corporate Transparency Act. Trustor agrees to fully comply with the Corporate Transparency Act, as these may be amended from time to time.

How is an Aircraft Trust Taxed?

The next question is how is an aircraft trust taxed for U.S. tax purposes. An aircraft trust is taxed for U.S. purposes as a grantor trust. A grantor trust is a term that refers to any trust in which the grantor (the individual or entity that established the trust) is considered the owner of the assets of the trust for income tax purposes. This means, as the grantor, the nonresident is responsible to pay any U.S. tax that is generated from the trust assets. A nonresident beneficiary of a grantor trust may need to annually file a Form 1040-NR U.S. Nonresident Alien Income Tax Return with the Internal Revenue Service (“IRS”) to report any U.S.-sourced income from the treaty that is not exempt by treaty. Even if U.S.-source income is exempt by a treaty, a Form 1040-NR will need to be filed with the IRS claiming the treaty position. An example of potentially taxable U.S. source income would be income received from the rental of the aircraft. If the nonresident intends to use the aircraft in a U.S. trade or business, the nonresident could be subject to U.S. income tax liability and will need to file a tax return with the IRS. In certain cases, a trustee of an aircraft trust may also be required to collect a 7.5 percent federal excise tax imposed on taxable transportation of persons under the Internal Revenue Code.

Conclusion

An aircraft trust may be utilized by a nonresident who wishes to register an aircraft on the FAA Aircraft Registry. Anyone considering establishing an aircraft must carefully select a trustee, consider how the trust instrument is drafted, and the U.S. income tax consequences of establishing an aircraft trust.

Anthony Diosdi is an international tax attorney at Diosdi & Liu, LLP. Anthony focuses his practice on domestic and international tax planning for multinational companies, closely held businesses, and individuals. Anthony has written numerous articles on international tax planning and frequently provides continuing educational programs to other tax professionals.

Anthony is a member of the California and Florida bars. He can be reached at 415-318-3990 or adiosdi@sftaxcounsel.com.

This article is not legal or tax advice. If you are in need of legal or tax advice, you should immediately consult a licensed attorney.