For the trustees of a foreign (non-U.S. trust) with U.S. beneficiaries the compliance challenges can seem overly complicated and fraught with perilous compliance penalties, likewise for the U.S. beneficiary. Lancaster & Reed has been serving the needs of trustees and beneficiaries alike for over 30 years. Our goal is to cut through the fog of complicated regulations and to provide streamlined and cost effective tax compliance services for both trustee and beneficiary. We specialize in providing U.S. tax compliance services for high net worth, international families including their offshore trusts. Put our experience to work for you!
Foreign Nongrantor Trust Beneficiary Statement (FNTBS)
We routinely prepare Foreign Nongrantor Trust Beneficiary Statements on behalf of our trust clients. Our experience means there is no learning curve. Preparing a FNTBS is not something that a trustee wants to leave to an inexperienced firm approaching it on a “one off’ basis. We specialize in accounting for foreign trust matters including distributable net income (DNI), undistributed net income (UNI) and fiduciary accounting income (FAI) so you may rest assured that your U.S. beneficiary is reporting accurately to the IRS. In addition we routinely work with banks in “offshore” jurisdictions and so are familiar with those bank/investment statements/formats including those in German, French, Spanish and Italian as well as other languages.
Annual Return to Report Transactions with Foreign Trusts, Form 3520
For the U.S. beneficiary of a foreign trust, Form 3520 must be filed in each year there is a distribution received. The FNTBS is attached to Form 3520 detailing those reportable items that the U.S. beneficiary must report on their individual income tax return. A distribution of UNI can also mean the inclusion of Form 4970, Tax on Accumulation Distributions of Trusts. At Lancaster & Reed we service not only the trustee but also the beneficiary (if requested) to ensure that the reporting compliance mandate is followed through to ensure proper IRS compliance of the U.S. beneficiary. Proper reporting eliminates the undue exposure to penalties which can be up to 35% of unreported distributions. We routinely prepare Form 3520 and FNTBS for U.S. beneficiaries of foreign trusts and can assist you with all facets of foreign trust reporting.
Other considerations for trust reporting:
Controlled Foreign Corporation (CFC), Form 5471
In many cases a foreign trust may hold its investments in an underlying holding company (CFC). For a foreign trust with a U.S. beneficiary the activity of the CFC may be attributed to the U.S. beneficiary in whole or part. See CFC page here for more information.
Passive Foreign Investment Companies (PFICs), Form 8621
Routinely, foreign trust mandates for portfolio management include proper diversification which entails common or mutual fund investing. For U.S. income tax reporting foreign investment funds typically fall into PFIC classification requiring a special reporting regime. See PFIC page here for more information.
Specified Foreign Financial Assets (SFFAs), Form 8938Expanded informational reporting as a result the Foreign Account Compliance Tax Act (FATCA) introduced yet another informational form requiring in some cases duplicative reporting of SFFAs. Form 8938 may be required to be filed by the U.S. beneficiary of a foreign nongrantor trust when distributions are received and in certain cases even in years where no distributions are received. See SFFA Form 8938 page here for more information.