September 27, 2021

Domestic Trust – Does Yours Satisfy the Court Test?

September 27, 2021/ Ruchelman P.L.L.C.

In comparison to tax laws in many countries, where the tax residence of a trust may depend on the residence of the trustee or the relevant law for the trust, U.S. tax law provides that the residence of a trust is dependent on two factors. All trusts no matter where formed are considered to be foreign trusts unless two tests are met, causing the trust to be considered a domestic trust. The first is a court test, under which a U.S. court is able to exercise primary supervision over trust administration. The second is a control test, under which U.S. persons control all substantial trust decisions. Nina Krauthamer and Galia Antebi point out that while the tax law is clear, applicable trust law – not tax law – may contain hidden risk regarding the court test. Comments to Section 108 of the Uniform Probate Code and Uniform Trust Code provide that the identification of a trust’s principal place of administration will ordinarily determine which the court that has primary jurisdiction over the trust. Advisers representing foreign families should be mindful because facts change and unknown facts may exist. Officers of a privately held trust company may live and carry out their duties outside the U.S. or an individual trustee may move outside the U.S. Where either fact exists, a U.S. domestic trust may find that it has become a U.S. foreign trust. The result may not be pretty.

May 27, 2021

The 15 Most Important Questions That Should Be Asked When Estate Planning for a Foreign Parent with U.S. Children

May 27, 2021/ Ruchelman P.L.L.C.

· U.S. estate tax planning is said to be among the most complicated aspect of tax planning because of the numerous moving parts and the changing needs and objectives of the family. The exercise becomes complicated when the client is not a U.S. person, but the heirs live in the U.S. and have started families in the U.S. For an estate planner with a focus on domestic clients, the customary tools may not work. It is easy to know what you know, but not always easy to know what you don’t know. Neha Rastogi and Stanley C. Ruchelman ask and answer 15 questions that highlight the favorable and unfavorable provisions of U.S. tax law affecting nonresident, non-citizen individuals having U.S. persons as heirs.

January 15, 2015

Filing Requirements Upon Conversion of a Trust Between Foreign and Domestic Status

January 15, 2015/ Web Developer

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INTRODUCTION

Whether a trust is categorized as a U.S. domestic trust or a foreign trust leads to different tax consequences and different filing obligations. This leads to the following questions: Which tax return must be filed when a trust is converted from a U.S. domestic trust to a foreign trust, and which applies when a foreign trust is converted to a U.S. domestic trust? A Chief Counsel Advice Memorandum, C.C.A. 201432022 issued on August 8, 2014, provides guidance on filing requirements in these fact patterns. Though it stated the obvious, the C.C.A. still leaves questions open, in particular with respect to grantor trusts. This article summarizes the conclusion reached by the C.C.A. and addresses issues for which clarification was not provided.

C.C.A. 201432022

In approaching the issue, the C.C.A. began by outlining the rules under which the filing status of a trust is determined for U.S. federal income tax purposes.

U.S. Trust versus Foreign Trust – General Tax Rules

Domestic trusts, like U.S. citizens and residents, are taxed on worldwide income, whereas foreign trusts, like nonresident aliens, are taxed only on U.S.-source income and income effectively connected with the conduct of business in the United States.