Individuals who are US taxpayers, or become US taxpayers, and have a relationship with a non-US trust are frequently subject to excessive US tax rates, penalties, and onerous filing obligations. Some of the worst potential outcomes arise where:
Individuals receive a distribution from a non-US trust, especially where the non-US trust has been in existence for a long time and has significant reserves;
Individuals acquire a green card or otherwise become a US taxpayer within 5 years of transferring assets to a non-US trust and they haven’t received proper advice or haven’t planned appropriately.
In other cases where individuals have funded a non-US trust and have certain powers in relation to it, they are regarded as “owning” trust assets, and are subject to US tax on trust income. Some of the more common issues arising for US taxpayers with non-US trust relationships are outlined in the article below.