When private-wealth advisers say "Cayman sandwich," they usually mean a Cayman Islands company placed between a foreign person, or a foreign trust, and the assets underneath. The assets are often a U.S. limited liability company, a brokerage account, or an interest in an operating business. The share register shows the company. The family thinks of the parent, or of the trust. The bank often prefers to see the company. Those three descriptions can all be true, and they answer different questions.
This note is about why that layer shows up, how it sits next to a foreign trust, and the U.S. reporting that appears when a U.S. person is already in the family or later joins it. It is not a recommendation of any jurisdiction, and it is not tax advice. We advise on the legal structure. The family's tax adviser prepares the returns. The engagement for the trust is Foreign Trusts. Holding U.S. assets as a foreign national is on Wealth Structuring for Foreign Nationals. The broader practice is Private Wealth.
What the stack actually is
The usual picture is short. A foreign individual, or the trustee of a foreign trust, owns the shares of a Cayman Islands company. The company owns the next thing down: membership interests in a U.S. LLC, a custody account, or shares of an operating company. Sometimes there is no trust, and the person owns the company directly. Advisers call both a sandwich. The name describes the order of the layers. It does not describe the tax result. The company is a legal person, with directors and a register. The trust, if there is one, is a relationship governed by its deed. One does not turn into the other. This is also not the Cayman feeder an institutional fund uses for investors outside the United States. That structure is a different note, Why Institutional Funds Use a Cayman Feeder.
Why the company is there
Four practical reasons account for most of the files. Banks and custodians onboard a company more readily than a trust. Directors can sign, and the institution is not asked to interpret a deed on the first call. Families turned away when the account was to be titled in the trust are often accepted when it is titled in the company the trust owns. That is an onboarding fact. The bank has not stopped looking through the company. Liability is the second reason. An operating interest or a property with tenants sits more cleanly in an LLC, with the Cayman company as the member, than in the trust itself. The LLC is one wall. The company is a second. Neither is automatic. It depends on the operating agreement, on guarantees, and on whether the accounts were kept separate.
The third reason is a family that does not live in one place. A company is a single object the advisers can point to. The deed still says who may remove directors and who may receive a distribution. The fourth reason is U.S. estate tax, and it is the one that gets repeated until it sounds like the whole point. Stock of a domestic corporation is situated in the United States. Stock of a foreign corporation generally is not. A non-resident alien who owns U.S. shares directly can have those shares in the U.S. gross estate, with a credit that shelters $60,000. The same person who owns shares of a Cayman company, which owns the portfolio or the LLC, is holding foreign stock. That difference is real, and it is only the start. Situs of an LLC interest is its own question, and we do not treat the interest as if the label on the agreement answered it. U.S. real estate inside a foreign corporation raises FIRPTA on a sale, which is separate from the estate tax. Assets still owned directly are not covered by the company. See U.S.-Situs Assets Inside a Foreign Trust.
Where a foreign trust sits in the stack
When a trust owns the company, the trust still has to be classified. The labels are income-tax labels. They are not the estate-tax answer. A foreign grantor trust, an FGT, is a foreign trust that a person is treated as owning under the grantor rules. For a foreign person that treatment is narrow. It often depends on a power, exercisable by the grantor alone, to take the assets back, or on distributions limited to the grantor and the grantor's spouse during the grantor's life. While it holds, income is attributed to the grantor, and a distribution to a U.S. child is often a gift from that grantor rather than a distribution of trust income. A foreign non-grantor trust, an FNGT, is a foreign trust that no one is treated as owning. The trust is its own taxpayer. Income can accumulate, and a later distribution to a U.S. beneficiary can carry the accumulation. Death of a foreign grantor commonly ends FGT status when the lifetime power ends, the trust stays foreign, and no one else is the owner.
The company does not choose between an FGT and an FNGT. The deed does, together with who can actually decide. The company can be owned by either, or by the individual with no trust at all. The comparison is FGT vs. FNGT for International Families. What changes at death is When the Foreign Grantor Dies. Whether the trust is foreign at all is separate again. A trust is foreign unless a U.S. court can exercise primary supervision and U.S. persons control every substantial decision. The company underneath does not decide that. A U.S. person who directs the company's investments, or who can remove its directors, can matter to the control test if those are substantial decisions of the trust. See The Court Test and the Control Test and Protectors and Reserved Powers.
CFC, PFIC, and the trust returns
A Cayman company whose owners all have limited liability is often a foreign corporation for U.S. tax purposes unless a classification election on Form 8832 says otherwise. The certificate of incorporation does not settle it. See The Form 8832 Election. If the company is a foreign corporation, two regimes open when a U.S. person owns it, or is treated as owning it.
A controlled foreign corporation, a CFC, is a foreign corporation in which U.S. shareholders own more than half of the vote or the value. A U.S. shareholder, for this purpose, is a U.S. person who owns 10 percent or more of the vote or the value. Attribution can run through family members and, in defined ways, through a trust, so the trustee's name on the register is not the end of the question. U.S. shareholders of a CFC can have current inclusions, including GILTI, whether or not the company pays a dividend. Form 5471 is the information return. Omitting it is its own failure, and the failure does not require an underpayment of tax. A passive foreign investment company, a PFIC, is a foreign corporation with 75 percent or more passive gross income, or with 50 percent or more of its assets producing passive income. A company that holds a brokerage account, or an LLC that holds marketable securities, often meets one of those tests. A U.S. person who holds the shares reports it on Form 8621. The default treatment of an excess distribution, or of gain on a sale, spreads the amount over the holding period and adds an interest charge. A CFC is generally not treated as a PFIC as to a U.S. shareholder who is subject to the CFC rules. A U.S. person below that 10 percent threshold can still be in the PFIC regime. The two forms are not substitutes. See Controlled Foreign Corporations and PFIC Rules.
The trust returns sit beside those forms when a foreign trust owns the company. Form 3520 can apply to a U.S. person who creates a foreign trust, transfers property to one, receives a distribution, or receives a large gift or bequest from a foreign person. Form 3520-A applies when a U.S. person is treated as the owner of the foreign trust. It does not apply merely because a beneficiary is a U.S. person, and it does not apply merely because a Cayman company is in the chain. A distribution from an FGT and a distribution from an FNGT are not reported the same way. See Forms 3520 and 3520-A and U.S. Beneficiaries of Foreign Trusts. The file often arrives when a beneficiary becomes a U.S. person. The company may have been tolerable while every owner was foreign. From that date the CFC question and the PFIC question are open, and the years before the status change can still sit inside the holding period. What to arrange before someone becomes a U.S. person is covered in Pre-Immigration Planning and in When a Family Member Becomes a U.S. Person.
What to ask before the account is opened
Who controls the board? The constitutional documents and the deed should agree on who appoints directors, who removes them, and whether a protector or the settlor must approve an investment, a distribution, or a change of directors. If an administrator signs whatever the family sends, the bank's file and the tax file are describing different control. A power kept so the trust remains an FGT can be the same power that keeps the grantor treated as owning the trust property for estate tax.
Who does the bank record as the beneficial owner? The shareholder of record may be the trustee of a named trust. The institution will still ask for the settlor, the protector, and the beneficiaries with a present interest. The company shortens the signature block. It does not end look-through.
What happens when the grantor dies, and what happens if a beneficiary becomes a U.S. person? The company does not dissolve at death. Someone needs the successor directors, whether the shares stay in the trust, and which assets the decedent is still treated as owning. If the trust becomes an FNGT, distributions to U.S. beneficiaries change character. Before anyone in the family becomes a U.S. person, ask whether that person will be treated as owning the Cayman shares, whether the company would be a CFC, a PFIC, or both, and who would file Form 5471 and Form 8621. Ask whether a transfer by that person into the trust, including one made through someone else, would make the person an owner and bring Form 3520-A. If those answers are not written down, the sandwich is an account-opening device with the reporting left open.
A usable file is the deed, the company's constitutional documents, the registers, the operating agreement underneath, a chart of who can decide, and one sentence on whether any U.S. person owns the trust or the company. If that sentence cannot be written, the account is early. That reading is what we do on Foreign Trusts and on Wealth Structuring for Foreign Nationals.