What is a foreign grantor trust and who does it affect?
The label describes a trust that is not a United States trust but has a United States settlor treated as its grantor. Two consequences follow. The trust's income is taxed to that settlor, wherever in the world it arises and whether or not it is paid out, and the settlor carries United States information reporting about a structure that may be entirely ordinary in the country where it was set up. Most people meet the term after the fact: the trust was established under local law, for local reasons, by someone who happened to hold a United States passport, and nobody asked the second question at the time.
Do I report a foreign trust if it made no distributions?
Yes. Distributions and reporting are different obligations, and the information reporting attaches to the existence of the arrangement and the settlor's relationship to it, not to money moving. A dormant trust holding one property and paying nothing to anyone can still generate annual filings, and those filings carry penalties of their own that have nothing to do with whether any tax was due. The practical effect is that families discover the problem in a year when nothing happened, which is also the year in which it is easiest to put right.
I am a US citizen abroad with a family trust — is it foreign?
Probably, and citizenship rather than where you live is what triggers the question. United States tax obligations follow the person, so a trust established under the law of another country, administered there, with trustees and assets there, is foreign from the United States point of view while you remain a United States person. What then matters is whether you are treated as grantor, which usually turns on powers or interests you kept when you funded it, and what the trust holds. Bring the deed, the funding history and the trust accounts; those three documents answer most of it.
What happens to a foreign grantor trust when the settlor dies?
The grantor dies and grantor treatment dies with them, because the treatment exists to attribute income to a living person who has not truly given the property away. What follows is usually taxation of the trust or of the beneficiaries instead, and the reporting changes shape with it. The date of death becomes a hinge in the file: income before it belongs in one place, income after it in another, and the trustees need to know which side of the line each receipt fell on before they distribute anything.
Are distributions from a foreign grantor trust taxable to the beneficiary?
While grantor treatment applies, a distribution is generally not a fresh receipt of income for the beneficiary, because the income has already been attributed to the settlor. That is why the character of a distribution depends on the year it is made in rather than on its size. Once grantor treatment ends the analysis changes completely, and distributions can carry income out to whoever receives them, sometimes with an additional charge that reflects the delay between the income arising in the trust and being paid. A beneficiary should ask which regime the trust was in during the year of the payment.
Why did my bank ask whether our trust is a foreign grantor trust?
Financial institutions have to classify the entities they hold accounts for, and the trust's status decides what they report and to whom. A question in that form usually comes from an account-opening or account-review process rather than from a tax authority, but the answer given to the bank should match the answer given on the returns, because both descriptions end up in the same exchange of information between countries. If nobody has ever looked at the trust's status, an account review is a good moment to settle it rather than a form to guess at.
I have not filed for several years while living abroad — what are my options?
Both countries have routes back, and using one before they contact you is what preserves the relief. On the US side there are procedures aimed at taxpayers whose failure was not wilful, including one designed for people living outside the country, and separate procedures for late account reports and information returns alone. Canada has its voluntary disclosures programme and taxpayer relief for penalties and interest. Filing quietly and hoping is the one approach with no protection attached to it. See catch-up filing.
What is a totalization agreement and how do I use one?
A social security agreement that stops you contributing to two systems for the same work, and lets periods in both count towards benefit eligibility in either. Which system you stay in depends on the agreement's rules for your situation — a seconded employee usually remains in the home system for a set period, a locally hired one usually joins the host system. You evidence it with a certificate of coverage obtained before or shortly after the assignment starts. See certificates of coverage.
