Foreign Trusts, Gifts and Inheritances for US-Connected Families

Foreign trusts, gifts and inheritances matter because a transfer that looks simple in one country can create US tax, reporting or estate planning issues when a US-connected person is involved.

This can apply where:

• a US person receives a gift from a non-US relative
• a US person receives an inheritance from abroad
• a US person is beneficiary of a foreign trust
• a US person transfers assets to a foreign trust
• a foreign trust has a US owner or US beneficiary
• a non-US spouse receives assets from a US person
• a US person owns foreign property or foreign financial assets
• family members live in different countries
• wills and beneficiary forms do not align
• assets are held through companies, trusts or foundations
• an inheritance includes foreign funds, property or business interests

The IRS says Form 3520 is used by US persons and executors of estates of US decedents to report certain transactions with foreign trusts and receipt of certain foreign gifts.

The planning point is that foreign gifts and inheritances should not be treated casually simply because they come from family.

Documentation, reporting, tax position, ownership, investment assets and future residence should be reviewed before major transfers are made where possible.

Many gifts and inheritances are personal.

Parents help children.

Grandparents leave money to grandchildren.

A spouse transfers assets.

A family sells property.

A trust distributes capital.

An overseas estate pays beneficiaries.

Emotionally, the transfer may be straightforward.

Technically, it may involve several systems at once.

For example:

• the donor may live in one country
• the recipient may live in another
• one person may be a US citizen
• another may be a non-US person
• the asset may be in a third country
• the trust may be governed by foreign law
• the property may be subject to local inheritance rules
• the account may be a foreign financial asset
• the investment may create PFIC issues
• the estate documents may not align
• the transfer may create reporting obligations

This is why the planning needs to be joined up.

A US-connected family may need input from:

• a cross-border financial planner
• a US tax adviser
• a local tax adviser
• an estate planning lawyer
• a trust specialist
• a property lawyer
• an investment adviser

The aim is not to overcomplicate family wealth.

The aim is to avoid avoidable tax, reporting, ownership and estate planning problems before wealth moves across borders.

This page is for general information only and does not constitute personalised financial, tax, legal, estate planning, trust, gift, inheritance, probate, investment, pension transfer, US tax, Form 3520, Form 3520-A, FBAR, FATCA or currency advice.

Foreign trusts, foreign gifts, foreign inheritances, trust distributions, estate administration, wills, probate, beneficiary planning, US tax, local tax, estate tax, gift tax, inheritance tax, Form 3520, Form 3520-A, Form 8938, FBAR, FATCA, PFICs, investment assets, property, currency and future residence depend on personal circumstances and may change.

US tax advice should be taken from a suitably qualified US tax adviser or CPA. Local tax, legal, trust and estate planning advice should also be taken where relevant.

Financial planning should be coordinated with legal, tax, trust, estate, pension and investment advice where appropriate.

Do not provide false or misleading information to a tax authority, trustee, executor, financial institution or reporting authority.

Investing involves risk. Investment values can fall as well as rise, and you may get back less than you invest.

Currency movements can affect the value of gifts, inheritances, trust distributions, property, investments and future spending.