ACTEC Trust & Estate Talk Taxation of Foreign Non-Grantor Trusts
Oct 14, 2025
Brent Nelson, an ACTEC Fellow and expert in cross-border trust taxation, dives deep into the complexities of foreign non-grantor trusts. He clarifies how classification hinges on trustee control and the differences between grantor and non-grantor rules. Brent discusses strategic planning for U.S. beneficiaries, including timing for residency changes and managing distributions to avoid penalties. He also explains crucial U.S. reporting obligations, ensuring listeners are well-equipped for successful cross-border estate planning.
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Grandfather's Trust Becomes U.S.-Linked
- A non-citizen, non-resident grandfather created an irrevocable foreign trust with a foreign trustee years ago.
- A grandchild later moved to the U.S., unexpectedly connecting the trust to U.S. tax rules.
What Makes A Trust Foreign Or Non-Grantor
- A trust is foreign when a foreign trustee has substantial decision-making authority, even if assets or beneficiaries are in the U.S.
- A foreign trust with a foreign settlor is a non-grantor trust unless the settlor retains revocation or is the sole beneficiary(s).
Act Early To Reshape Trust Before U.S. Residency
- Act before a beneficiary becomes a U.S. tax resident to change trust status or restructure assets and shares.
- Consider dividing the trust, altering assets, and using entity election under Section 7701 to improve U.S. tax outcomes.