Structuring U.S. Trusts Classified as Foreign Trusts for Income Tax Purposes

This CLE/CPE course will provide a deep dive into the planning opportunities and reporting requirements for U.S.-based trusts that must file as non-domestic trusts for income tax purposes. The panel will discuss what constitutes "substantial decisions by non-U.S. persons" for trusts, structuring considerations to maximize income tax savings by utilizing a U.S.-based foreign trust, and how FATCA and other foreign tax reporting requirements on non-domestic entities impact trust drafting and operation.

Even though a trust is incorporated in the U.S., with a U.S.-based trustee, it may still be required to be classified as a foreign trust for purposes of U.S. income tax reporting and withholding. Trusts with non-U.S.-based persons making material decisions on the operation of the trust and trusts with non-U.S. settlors must be treated as foreign trusts, even if based in the U.S., and follow the more complicated filing rules for non-domestic trusts.

This classification difference provides sophisticated planning opportunities for tax counsel advising both resident and nonresident individuals. Increasingly, foreign-based trust companies are relocating trusts previously operating offshore into the United States, and U.S.-based trust companies are following suit.

By structuring a trust document properly, tax counsel can help clients maximize both privacy from disclosure and income tax savings. Tax counsel structuring trust documents to operate as foreign trusts while having situs in the U.S. must have detailed knowledge of the FATCA filing requirements to ensure the trust documents achieve the intended tax savings purpose.

Listen as our experienced panel of expert advisers provides a practical guide to navigating the complexities of the planning opportunities of U.S.-based foreign trusts.