Trusts are a classic planning tool for the transfer of a family’s wealth down to future generations. Cross-border families will often consider establishing a trust governed by local law or outside of the United States if the matriarch or patriarch is not a U.S. resident (i.e., is not a U.S. taxpayer). However, if any of the current or future beneficiaries are, or will become, a U.S. taxpayer (“U.S. beneficiary”), a foreign trust will create additional tax complexity for such beneficiary at some point. In the past few years, there also has been a push to consider the United States as a place to govern trusts where no beneficiary is expected to be a U.S. beneficiary. This is largely driven by the OECD’s implementation of the Common Reporting Standard (“CRS”), under which jurisdictions agree to exchange financial account information with each other in an effort to combat offshore tax evasion. Almost 100 jurisdictions have agreed to participate in CRS but, as of the date of this article, the United States continues to be a non-participating jurisdiction, resulting in a number of trusts either being established in or transitioned to the United States. In this article, I will discuss some of the tax, planning, and practical issues involved in considering the domestication of foreign trust structures.
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