Foreign Trusts
For families who hold wealth in a foreign trust — and for the private bankers, family offices, and RIAs who advise them — the U.S. question is classification, reporting, and what the deed actually does. We advise on foreign grantor trusts, foreign non-grantor trusts, Forms 3520 and 3520-A, and U.S.-situs assets inside the trust. The family is the client. We coordinate with tax advisers. We do not replace them.
The usual matter is a non-U.S. settlor, a trust organized outside the United States, and at least one person or asset with a U.S. connection: a child studying or working here, a spouse with a green card, a Miami apartment, or a brokerage account that holds stock of U.S. corporations. We also read trusts that were signed years ago, when no one in the family was a U.S. person, and that now need to be matched to the facts. This is counseling on legal structure. It is not litigation, and it is not Advisers Act or RIA-compliance work. The broader stack — entities, treaties, Form 8832, PPLI, PFIC — sits on Private Wealth. The narrower estate-tax engagement for foreign nationals sits on U.S. wealth structuring.
A trust is foreign unless it meets both the court test and the control test in section 7701(a)(30)(E). It is a grantor trust only if someone is treated as the owner under sections 671 through 679. For a non-U.S. settlor, section 672(f) limits that treatment to narrow cases, most often a power to revoke that the grantor can exercise alone, or a trust whose only lifetime distributions are to the grantor or the grantor's spouse. An FGT is generally transparent for U.S. income tax during that period. An FNGT is a separate taxpayer, with distributable net income and, if income accumulates, undistributed net income that can follow a later distribution to a U.S. beneficiary. The label in the preamble is not the classification. See FGT vs. FNGT for International Families and the court test and the control test.
U.S. persons who transfer property to a foreign trust, who are treated as owners, or who receive distributions — and, above a threshold, certain foreign gifts — generally report on Form 3520. Form 3520-A is the annual information return of a foreign trust with a U.S. owner. A foreign grantor who is not a U.S. person does not file these forms. The U.S. persons in the family do, when the statute reaches them. Penalties under section 6677 are computed on the reportable amount even when no extra income tax is due. We assign responsibility for the classification the forms will report. The family's tax adviser prepares the returns. See Form 3520 and Form 3520-A.
Grantor status that depends on a lifetime power under section 672(f) ends at death. If the trust is still foreign and no one else is the owner, it becomes an FNGT. Income attributed to the grantor in prior years is not, in the ordinary case, a pool of undistributed net income. Accumulation starts when non-grantor status starts. Distributions to U.S. beneficiaries after that point are trust distributions, not gifts from a living grantor, and the throwback rules in sections 665 through 668 can apply. U.S.-situs assets the decedent is still treated as owning are a separate estate-tax question, with the $60,000 exemption for a non-resident alien. See When the Foreign Grantor Dies.
A U.S. beneficiary does not choose the classification. During a true FGT, a distribution is often treated as a gift from the foreign grantor, reportable on Form 3520 if it crosses the foreign-gift threshold. From an FNGT, the same wire can carry current income or accumulated income, and without a beneficiary statement the default can treat the whole amount as an accumulation distribution. Loans of cash or marketable securities, and uncompensated use of trust property, can be distributions under section 643(i). See U.S. Beneficiaries of Foreign Trusts and The Throwback Rule.
Putting a Brickell condominium or a custody account into a foreign trust does not, by itself, decide U.S. estate tax. Stock of a domestic corporation is U.S.-situs property under section 2104(a) even if the account is booked abroad. A revocable FGT often keeps those assets in the settlor's U.S. gross estate. An irrevocable FNGT can be built to complete the transfer, at the cost of a different income-tax regime for U.S. beneficiaries. Income-tax withholding on dividends and rent is a third question. See U.S.-Situs Assets Inside a Foreign Trust and Irrevocable Trusts and the $60,000 Exemption.
The instrument, the trustee resolutions, the account title, and the information returns have to describe the same structure. We work with the family's tax adviser on DNI, UNI, and the forms, and with the trustee and the custodian on who may instruct, who is a beneficial owner for KYC, and whether a protector's veto is a substantial decision under the control test. A deed that a bank will not administer is not a plan. If a family member is about to become a U.S. person, that review happens before the status change. See When a Family Member Becomes a U.S. Person and Pre-Immigration Planning.
International families often already have the trust. It was signed in Panama, the Cayman Islands, the BVI, Liechtenstein, or under a common-law deed drafted for a different purpose. Someone later opened a U.S. brokerage account, bought Florida real estate, or sent a child to university in the United States. The U.S. analysis starts from the powers in the instrument: who can distribute, who can remove the trustee, whether a protector must consent, and whether a court in the United States can supervise administration. Those facts decide foreign versus domestic. A separate reading decides grantor versus non-grantor.
We do not sell a trust product, and we do not ask the family to abandon the advisers who already know the balance sheet. The work is to make the legal architecture accurate, so the trustee can act, the custodian can hold the assets, and the tax adviser can file from documents that match the deed. Where the trust should move toward a U.S. structure — by changing trustees and substantial decisions, or by a decanting that the tax adviser has modeled — that is a legal step, not a slogan. See Domestication, migration, and decanting and Protectors and reserved powers.
Para familias que prefieren leer en español: Form 3520 y el foreign trust, cuando fallece el settlor de un FGT, activos de situs estadounidense dentro del Trust, y distribuciones a un beneficiario US person.
Private bankers, RIAs, and family offices keep the relationship. They bring a trust matter when the client needs a structure the bank or custodian can open and maintain: KYC that matches the deed, and title that matches the trust and the entities. We design or repair that U.S. architecture — classification, the reporting position, and the powers in the instrument — so the account can open and the adviser's work with the family can proceed. The engagement starts with a conflict check and a written scope. The adviser joins the calls the family wants and receives what the family authorizes. We coordinate with the family's tax counsel. Portfolio management and RIA compliance stay with the adviser.
Counsel for wealth advisers · Foreign trusts for family offices · Refer a cross-border matter
Write as the family, or as the adviser introducing a family. Tell us the settlor's residence, whether anyone is a U.S. person, and what the trust holds. We will schedule a conversation. No commitment required.