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 can be the right vehicle for the settlor and for beneficiaries who are not U.S. persons. It becomes a different machine when a child is a U.S. person and the child's own wealth, or the child's receipts, run through it. Some families keep the principal foreign trust for the non-U.S. settlor and use a separate trust for the U.S.-person child. That separation is a drafting and classification choice. It is not a product, and it does not come with a tax result we will promise.
The practice page for the U.S. beneficiary is U.S. beneficiaries of a foreign trust. The trust itself is Foreign Trusts. The Spanish note is un Trust separado para un beneficiario US person.
What the single trust forces onto the child
During a true foreign grantor trust, a distribution to a U.S. beneficiary is generally treated for income tax as if it came directly from the foreign grantor, and it is reported on Form 3520 as a distribution from a foreign trust, whatever the amount; the beneficiary should receive a Foreign Grantor Trust Beneficiary Statement. After the grantor dies, or if the trust is a foreign non-grantor trust, the same payment can carry current income or accumulated income, and the throwback rules can apply. A U.S. person who transfers his or her own property into that foreign trust can be an owner under section 679. A foreign company under the trust can be a PFIC as to the U.S. person. None of those consequences is avoided by calling the child a discretionary beneficiary. They are avoided, when they are avoided, by not putting the child's property and the child's receipts in the vehicle that produces them. See sections 679 and 684, the throwback rule, and distribuciones a un beneficiario US person.
What "separate" has to mean
A separate trust has its own instrument, its own trustee actions, and its own books. A paragraph in the parent's deed that "sets aside" a share for the U.S. child, inside the same foreign trust, is not a separate trust. It is a share of the trust the child is already a beneficiary of. If the separate trust will be domestic, the court test and the control test have to be met on purpose, by people who are U.S. persons controlling the substantial decisions and a U.S. court that can supervise. If it will remain foreign, the family should know why, and the tax adviser should model the reporting before anything is contributed. See the court test and the control test.
A pattern we see for families from Mexico, Brazil, or Chile is a parent who will not become a U.S. person and a child who already is one, with the child's salary, gifts, and an expected inheritance all aimed at the parent's foreign trust. Families from Colombia, Argentina, or Peru describe the same split. The parent's trust can continue for the parent and for the beneficiaries who are not U.S. persons. The child's trust, if there is to be one, is funded with what the child should own, on a date the tax adviser accepts. Home-country succession rules, and home-country tax on either trust, stay with home-country counsel. We do not write those rules, and we do not write around them.
Coordination, not a second product
We draft or read the second instrument against the first, so the two trusts do not appoint the same people to the same powers by accident. The tax adviser confirms the income-tax and reporting position of each. The firm assigns responsibility for the classification. Private placement life insurance is a different tool, used when an insurance adviser and a carrier are already in the matter, and only then. The page, if that is the question, is private placement life insurance. It is not a substitute for deciding which trust owns which asset.
The account for whichever trust is funded has to be titled in that trust's name. See funding a foreign trust and opening a U.S. account.