Recalde Law Firm, P.A. is a Florida law firm with an office in Miami, Florida. We advise on United States law only. We do not practice Mexican law, and we do not give Mexican tax or succession advice. We do not practice the law of any other country. Formation of a non-U.S. entity, and the local law of that jurisdiction, are matters for local counsel. We handle the U.S. architecture: classification, the documents a U.S. custodian and a U.S. court will read, and coordination with the family's tax adviser.
A foreign trust settled by a person who is not a U.S. person, and classified as a foreign grantor trust under section 672(f), is a different pattern from a transfer by a U.S. person into a foreign trust. Sections 679 and 684 are the U.S.-person pattern. They matter before someone becomes a U.S. person, and they matter when a U.S. child puts property into a parent's foreign trust. This note is for advisers and family offices. It is not a visa strategy. Immigration status is a different profession. We plan for the tax classification that follows a status the family already expects.
The pre-status work is pre-immigration planning. The trust, once it exists, is Foreign Trusts. Who counts as a U.S. person is who is a U.S. person.
Section 679
Section 679(a)(1) treats a U.S. person who transfers property to a foreign trust as the owner of the portion attributable to that property if the trust has a U.S. beneficiary. The statute contains exceptions, including a transfer by reason of death. A transfer for fair market value is not the kind of transfer the section is aimed at, within the limits the statute and regulations actually draw. We do not restate those limits as a checklist the reader can apply alone. The point is the direction: a U.S. person who gives, or is treated as giving, property to a foreign trust with a U.S. beneficiary is often an owner of that portion, with the reporting that follows from ownership.
Section 679(a)(4) reaches a person who is not yet a U.S. person. If a nonresident alien has a residency starting date within five years after transferring property to a foreign trust, the section applies as if the individual transferred, on the residency starting date, the portion of the trust attributable to that property. A gift to a foreign trust made "while we were still nonresident," inside that window, is not outside the statute. Families from Mexico, Brazil, or Colombia plan this before a move. Families from Argentina, Chile, or Ecuador do the same planning with a different date. The date is the tax adviser's. We do not describe a visa.
A U.S. child who transfers property into a parent's foreign trust is the other ordinary case. The child is already a U.S. person. The parent's trust may have other U.S. beneficiaries, including the child. Section 679 does not ask whether the parent is a sympathetic settlor. It asks whether a U.S. person transferred property to a foreign trust with a U.S. beneficiary. An indirect transfer counts. Paying expenses, or contributing through another person, is still a transfer if that is what happened.
Section 684
Section 684 generally recognizes gain when a U.S. person transfers property to a foreign trust, as if the property had been sold for fair market value. Section 684(b) turns that rule off for a transfer to a trust to the extent the trust is treated as owned by a person under the grantor-trust rules. The two sections are designed to meet. If section 679 makes the U.S. transferor the owner, section 684's gain recognition generally does not apply to that transfer, and the cost is grantor status and reporting instead. If grantor status does not apply, section 684 is the rule to model before the asset moves. Section 684(c) can also treat a domestic trust that becomes foreign as a transfer. A domestication plan run in reverse is not free.
Section 684(b) relief is not permanent. If owner status later ends, for example because the trust no longer has a U.S. beneficiary, Treas. Reg. § 1.684-2(e) can treat the U.S. person as transferring the property to the foreign trust at that time, so section 684 can return.
We do not state the amount of gain, and we do not state that a structure avoids it. The tax adviser computes it. The firm assigns responsibility for whether 679 applies, whether 684 applies, and whether the trust is foreign. Outbound-transfer reporting that can accompany a section 684 transfer is part of that same tax file, not a separate product.
Before the status changes, and after a child already has it
Read the trust, and any proposed contribution, before the residency starting date. After that date, section 679(a)(4) has already described the transfer. If a U.S. person is about to fund a parent's foreign trust, stop and classify before the wire. The reporting that follows an owner is Form 3520 and, where there is a U.S. owner, Form 3520-A, discussed on Form 3520 and Form 3520-A. A separate vehicle for a U.S. beneficiary, which some families use so that the child's own assets are not contributed into the parent's foreign trust, is a separate trust for a U.S. beneficiary.