U.S. Taxation of Foreign Trusts: Grantor Trust Status, Gift and Estate Tax Treatment, Reporting Requirements, Planning

U.S. owners and beneficiaries of foreign trusts are subject to complex tax rules and reporting obligations that are different from those applicable to domestic trusts. Tax and estate planners must recognize the variety of tax issues associated with foreign trusts with U.S. owners or beneficiaries.

Tax and estate planners must determine under U.S. tax rules whether an arrangement is a trust, the residency of the trust as foreign or domestic, and the characterization of the trust. Determination of a trust's residency and characterization will determine the potential income and estate tax impact to the beneficiaries, including potential attribution of ownership entities owned by the trust and complex information reporting obligations.

Tax and estate planning advisers must establish strategies to ensure that U.S. owners and beneficiaries of foreign trusts avoid any unintended tax liability on interests of foreign trusts, including such trusts' interest in foreign partnerships or corporations while avoiding foreign anti-deferral rules.

Listen as our panel discusses key provisions of the Internal Revenue Code applicable to foreign trusts, the reporting regime for U.S. taxpayers' ownership of foreign trust assets, gift and estate tax treatment, Form 3520, and other key items regarding the taxation of foreign trusts.

1. Issues of foreign trusts with U.S. beneficiaries in estate planning
2. Determining tax residency and applicable rules
3. Understanding tax rules and reporting obligations of foreign trusts for U.S. estates and taxpayers
4. Foreign grantor trust vs. foreign non-grantor trust
5. Obtaining a tax-free step-up in basis
6. Applicability of foreign anti-deferral rules and methods to avoid them

The panel will discuss these and other key issues:

• What are the filing requirements for the U.S. beneficiary of a foreign trust?
• Avoiding pitfalls of complex tax rules and reporting obligations
• Understanding residency rules and the use of domestication to benefit the estate
• What "reportable events" trigger a Form 3520 filing requirement?
• What is the overlap between Form 3520 and other foreign information reporting requirements?
• What are the penalties and relief provisions for failing to file necessary forms?
• Effective techniques to avoid foreign anti-deferral rules
• Best practices for counsel regarding the taxation of foreign trusts

Learning Objectives

After completing this course, you will be able to:

• Understand key U.S. tax provisions as applied to foreign trusts
• Determine which taxpayers are subject to Form 3520 reporting requirements
• Discern what transfers and ownership structures must be reported
• Acquire methods to obtain a tax-free step-up in basis
• Recognize the IRS audit process for determining Form 3520 or 3520-A delinquency

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of estate and gift taxation and reporting, pass-through taxation, including taxation of partnerships, S corporations and sole proprietorships, qualified business income, net operating losses and loss limitations.

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