I N F O R M AT I O N A L G U I D E TO

U . S . F O R E I G N G R A N TO R T R U S T S

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endeavoured to offer current, accurate and clearly expressed information. However, since inadvertent errors may occur, relevant legislation and regulations may change and/or the application of laws and regulations may vary, the information may be
neither current nor accurate. All individuals should obtain specific professional advice with regard to the respective tax or other professional area. No action should be taken or omitted to be taken in reliance upon any of the information provided and in no
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Introduction
Non U.S. citizens and non U.S. residents may have an opportunity to use U.S. foreign grantor trusts for wealth and
succession planning for beneficiaries who pay or will pay U.S. tax. This publication focuses on a general overview of foreign
grantor trusts and some of their uses.

What is a trust?
A trust is a legal relationship among three parties the settlor/grantor, the trustee and the beneficiaries in which the
settlor/grantor gives property to the trustee to hold for the beneficiaries. At creation of the trust, the trustee becomes
the legal owner of the trust property and the beneficiaries become the beneficial owners. The administration of the trust
property is governed by the trust deed, which sets out the terms of the trust.

What is a foreign trust for U.S. tax purposes? What is a foreign grantor trust for U.S. tax
A foreign trust for U.S. tax purposes is a trust governed by purposes?
laws of a jurisdiction outside the U.S. These trusts may be
When the grantor of a trust is not a U.S. citizen or resident,
used for wealth, estate and tax planning purposes. To ensure
a foreign trust may qualify as a foreign grantor trust for U.S.
a trust is considered a foreign trust for U.S. tax purposes,
tax purposes. To qualify as a foreign grantor trust one of
either of the following must be satisfied:
the following two conditions must be met:
}} Court Test: A court within the U.S. must not be able to }} the trust must be fully revocable by the grantor (i.e. the
exercise primary jurisdiction over the administration of the
grantor must retain control over the assets of the trust), or
trust, or
}} during the lifetime of the grantor, only the grantor or the
}} Control Test: One or more U.S. persons must not have
grantors spouse may receive distributions from the trust
authority to control, by vote or otherwise, all substantial
(whether income
decisions of the trust. The U.S. person need not have
or capital).
formal control (i.e. be a trustee or a fiduciary) as long as the
authority exists this test will be triggered.

How is a foreign grantor trust taxed under U.S. tax law?

In a foreign grantor trust neither the trust nor the U.S. beneficiaries are generally subject to U.S. tax in connection with
the realization of the income by the trust or the distribution of income to the beneficiaries. The income of the trust is
considered to be the income of the grantor and the grantor may be taxed in this respect depending on the residency of
the grantor.
If a distribution is made by a foreign grantor trust to a U.S. beneficiary, the trust distribution is treated as a gift from the
grantor and such gifts are generally not considered to be taxable income for the U.S. beneficiary. Although generally not
taxable, distributions to a U.S. beneficiary from a foreign grantor trust must be reported to the I.R.S. in the same manner
as other distributions for information purposes.
 U.S. FOREIGN GRANTOR TRUST

U.S. tax treatment of trust after the death of the grantor

Upon death of the grantor no U.S. estate tax is imposed, so long as the trust and any foreign corporations it owns are
structured and administered properly.
At death, the foreign grantors trust will become an irrevocable foreign non-grantor trust if it remains in a non U.S.
jurisdiction. A foreign non-grantor trust is generally taxed as if it were a non resident, non citizen individual. Therefore
after death of the grantor, the foreign non-grantor trust is subject to U.S. income tax on its U.S. source income as well as
income effectively connected with trade or business in the U.S.

Special Considerations Focus on Cidel

Given that there may be U.S. tax consequences at some
point in the life of a foreign grantor trust, Cidel maintains Extensive experience acting as
separate accounting records for each foreign grantor trust Corporate Trustee in the efficient
to ensure this can be accounted for if required. Cidel, execution of
as trustee, helps coordinate U.S. and other reporting complex structures
requirements. Additionally, each grantor is required to
annually sign a declaration confirming that his/her status as a Trust services offered in a variety
non U.S. citizen or resident has not changed. of jurisdictions

Highly qualified team including

lawyers and accountants
Professional Advice
Cidel works with professional advisors to implement a Proven ability to provide ideas to
wide range of structures worldwide. U.S. tax and reporting tax professionals worldwide
requirements depend on many factors, therefore you should
seek professional tax advice prior to implementing Open architecture platform allows
any structure. for wide variety of assets and
currencies to
be held
 MISSION STATEMENT
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GRP 06/2016 cidel.com

CIDEL

Cidel is an international financial services group that designs and implements customized financial solutions to help clients build, preserve and transfer wealth. With a
strategic network of operations in Canada and internationally, Cidels broad range of investment, trust and structuring capabilities provide clients with solutions that are
global, innovative, transparent and compliant.
Cidel is an operating name of Cidel Asset Management Inc.