Pre-Immigration Planning
A family that is relocating, taking a green card, or already spending the year in Miami still has a period in which a foreign trust and the entities around it can be put in order. Income-tax residency and estate-tax domicile close different parts of that window. We do the legal work with the advisers the family already trusts, so the deed, the title, and the account a custodian will open describe the same structure.
The usual matter is a family in Latin America with a child, a spouse, or a principal who will live in the United States, and the private banker or family office that already knows the balance sheet. We do not offer a menu of countries. The questions are the trust, the U.S.-situs property, and the day a person becomes a U.S. person.
Section 672(f) limits the grantor-trust rules when the person who would be treated as owner is not a U.S. person. The exceptions families actually use are narrow: most often a power to revoke that the grantor can exercise alone, or a trust that can distribute only to the grantor or the grantor's spouse during the grantor's life. An FGT in that period is generally transparent for U.S. income tax. An FNGT is a separate taxpayer. The label in the preamble is not the classification. If a child in the United States will receive money, that classification decides whether the amount is a gift from the foreign grantor or a distribution from a foreign trust. The instrument work is on Foreign Trusts.
Income-tax residency under section 7701(b) and estate-tax domicile are not the same test, and families often treat them as one date. A nonresident alien who is not a U.S. citizen is generally subject to U.S. estate tax only on U.S.-situs property, with the $60,000 exemption under section 2102. A person who is domiciled in the United States is taxed on worldwide assets. Stock of a domestic corporation and U.S. real property are U.S.-situs whether or not anyone has moved. A completed transfer of foreign-situs property before domicile is a different gift-tax fact from the same transfer after domicile. We coordinate that timing with immigration counsel and the tax adviser. The estate-tax engagement for someone who will remain a foreign national is on Wealth Structuring for Foreign Nationals. We do not tell a family that a structure removes estate tax.
PPLI is sometimes part of the architecture: a privately placed life insurance contract, owned by the right person or trust, not a retail policy. Before anyone is a U.S. person, the legal questions are who owns the contract and whether the family will direct the account. After residency, sections 7702 and 817(h), investor control, and the information returns apply to a U.S. owner. The policy does not replace the trust. It has to sit next to a deed a trustee can administer. See Private Placement Life Insurance.
Section 679(a)(4) applies when a nonresident alien transfers property to a foreign trust and then has a residency starting date, under section 7701(b)(2)(A), within five years. The statute treats that person as transferring, on the residency starting date, the portion of the trust attributable to the earlier transfer. Section 6048 reporting comes with that deemed transfer. If the trust has a U.S. beneficiary, section 679 can treat the new resident as owner of that portion. Treasury Regulation section 1.679-5 is the pre-immigration rule, including where grantor-trust status was dropped shortly before residency and the five-year clock runs from that change. Separately, once the grantor is a U.S. person, section 672(f) no longer limits sections 673 through 677 the way it does for a foreign person, so retained powers can produce a different owner than the family had been using. That is a classification risk. It is not a reason to sign a deed a bank cannot open.
A foreign grantor who is not a U.S. person does not file Form 3520. The U.S. persons do, when section 6048 or section 6039F reaches them: a reportable transfer, ownership of a foreign trust, a distribution, or a large foreign gift. A trust that was quiet while everyone was a nonresident can become a reporting file on the residency starting date, including under section 679(a)(4). Who files which form is on Form 3520 and Form 3520-A. If a form is already late, that is a different conversation from the planning that should have preceded the move.
The family's banker or family office keeps the relationship. The useful product of this work is a trust and an entity stack whose deed, signatories, and account title match, so a custodian can open the account and the tax adviser can file from the same documents. Home-country counsel has to see the transfers before they are signed. A gift that is outside U.S. gift tax can still be a tax event where the family lives now. We coordinate with those advisers. We do not ask the family to replace the person who already knows the balance sheet. The broader stack — entities, elections, and anti-deferral rules — sits on Private Wealth.
A noncitizen becomes a U.S. resident for income tax under the green card test or the substantial presence test. The residency starting date under section 7701(b)(2)(A) is what section 679(a)(4) uses. Families sometimes think the window stays open until the first Form 1040. It does not. Days already spent in the United States — a spouse in Miami, a child in school, a principal who has been coming and going — can start substantial presence before anyone describes the trip as a move. Estate-tax domicile is a separate question of where the person lives with the intent to remain. A move that is meant to last often establishes both. The planning that depends on the person still being a nonresident has to be finished before those dates, not explained afterward.
The same review covers the entities. A foreign company that was ordinary in the family's home country can be a controlled foreign corporation or a passive foreign investment company in the hands of a new U.S. person. Appreciated assets can carry U.S. tax on gain realized after residency that would not have been U.S.-source gain in the hands of a nonresident. Those computations belong to the tax adviser. Our piece is the legal architecture the computations assume: who owns what, on what date, and whether the trust is foreign, and grantor or non-grantor, when the status changes. A longer note on the sequence is in Pre-Immigration Planning for Latin American Families.
If a U.S. person is already in the family — a child born a citizen, or a beneficiary who has been here long enough to be a resident — this is no longer only a pre-immigration file. Distributions, throwback, and Form 3520 are on U.S. Beneficiaries of a Foreign Trust. The practice that holds the deed is Foreign Trusts.
Tell us who is relocating, who is already a U.S. person, and whether a trust exists. If you are the family's adviser, say so. We will follow up to schedule a conversation. No commitment required.