As the world continues to flatten, what once was a challenge (for Trustees to administer a Trust with Beneficiaries located in different states within the United States) has now become a challenge to observe the many laws of both the United States and other countries. It is no longer uncommon to find close families with relatives living in the United States and abroad. Fiduciaries faced with Trust administration responsibilities to foreign beneficiaries must be aware of many complications that would make a simple trust become truly complex. This blog briefly summarizes some of the issues a Trustee with foreign beneficiaries should become familiar.
>> Federal Tax Withholding. If a Trustee makes a distribution to a foreign person, (but not a resident alien), they may be required to withhold tax, depending on the amount of distribution and the type of asset.
>> Currency Exchange. Foreign beneficiaries may request distributions in their native country’s currency. If paid this way, the Trustee should be knowledgeable of not only the future expected foreign currency conversion amounts, but alos how that conversion will affect the applicable federal tax withholding.
>> Tax treaties and foreign tax credits. The U.S. has tax treaties with a number of countries. Those treaties determine the tax consequences of the transfer of assets across borders. Most types of U.S. source income received by a foreign person are subject to a U.S. tax of 30%. These treaties may eliminate the double taxation from the U.S. and their home country. Treaties may only permit the taxation of certain property or provide tax credits. When no treaty exists, tax credits may still be available.
Takeaway
If you are a Trustee responsible for distributions to foreign beneficiaries, having an international tax attorney, and an attorney in both countries to assist you in complying with applicable laws is essential. If you are interested in creating a Trust that will have foreign beneficiaries, Contact CASHMAN LAW today for a free consultation to see how we might you understanding the best paths in Trust administation.
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