Foreign Granted Trusts

There have been inquiries regarding the succession of foreign granted trusts. One question, in particular, is if an individual should be named as the successor of a foreign granted trust, and the grantor is still alive, would he/she need to report this to the IRS?

According to the instructions in IRS Form 3520-A (Annual Information Return of a Foreign Trust With a U.S. Owner) “Each person treated as an owner of any portion of a foreign trust under (tax code) sections 671 through 679 is responsible for ensuring that the foreign trust files form 3520-A and furnishes the required annual statements to its U.S. owners and U.S. beneficiaries.”

There is a requirement that Form 3520 must be filed by the grantor of a foreign trust, by any U.S. person who receives a distribution from a foreign trust, by any U.S. person who has loaned money to or borrowed money from a foreign trust and by US citizens who have received gifts over $100,000 from foreign individuals, or gifts from foreign corporations or partnerships in excess of $12,097 for the year 2004.

There is usually only one trust granter in most foreign trusts. But, as suggested by IRS instructions, it is possible that there could be more than one trust grantor, although it’s rare for someone to be
a “successor” grantor. But it is possible for a trust beneficiary to become a trust grantor because of the terms of the trust.

The instructions to Form 3520 provide basic information about who is a trust grantor. However, the final determination depends on the terms of the trust and it what manner the trust is funded. If the foreign trust was prepared by a qualified U.S. tax lawyer, that individual should be able to tell if anyone is a current trust grantor or could become a trust grantor due to provisions of the trust agreement.

If the trust is a boiler plate trust prepared by a company selling off-the-shelf entities, then there may be a need to consult with a U.S. tax lawyer to get an answer to this question

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