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Why would you set up a foreign grantor trust when there are no US assets, only foreign assets?

A client has approached me about the need to set up a foreign grantor trust. She is a US citizen ad her father is a non US tax person - a citizen and resident of another country. If there are no US assets, they are all foreign assets - real estate and some other personal - why would you use a foreign grantor trust.

I understand if there were US sited assets as the foreign person would need to file a gift tax return and pay gift taxes if a foreign grantor trust is not used.

Presumably there is no estate tax as the decedent would be a foreign peson.

Any help in understanding is greatly appreciated!
Estate, Gift & Trust
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Tax Professional Answers

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Fred Rollo
Reading between the lines, your client may be assuming that an ex-US trust established by her non-resident, non-citizen is a "grantor" trust for US purposes. However, if the father settles non-US assets on trust for other members of his family (including the daughter), it may be that the only US reporting issue will be for distributions the daughter receives.

The father's intent may have more to do with his own tax and succession issues than with US tax issues per se. What may be required is for you to liaise closely with the father's advisers to ensure what they have in mind causes no unwelcome US income, gift or estate tax issues for your client.

Depending on the jurisdiction/s of residence of the father and locus of the assets, the father's advisers may have significant hurdles to clear.
Leave a Comment 420 weeks ago

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Hugo Van Zyl
thank you for the reply. 

I have no link to the person having posted the original question, herewith an example that may answer the questions you asked: My client is UK born and passport holder yet has been tax resident in SA for some 30 years now.  He and his wife created a Cayman's based Trust for their benefit on tax emigration from the UK. Until 2001 they paid no tax in SA on trust income as South Africa applied a source based tax regime. He now pays tax on the underlying trust income as South Africa moved to a worldwide tax regime (few exceptions but not relevant in this case. The point is he pays tax in SA on attributed trust income. Upon last dying spouse the children will be added as beneficiaries and one daughter lives in the USA. She is middle aged and has no children and married to a USA national and accepted as a USA tax resident. 

Will the current trust, once she is added as beneficiaries qualify as a grantor trust or should we spin of say 20% to a new trust for parent benefit or her and her parents benefit?

We can add USA or non-USA assets.

Any suggestions and traps we should be mindful off?

Leave a Comment 417 weeks ago


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