Finding and Fixing Foreign Issues in a Domestic Trust
A trust the client and prior counsel have always treated as domestic can be a foreign trust under §7701(a)(30)(E) because of a single drafting choice or a routine succession event — a Canadian sister named as successor trustee, a removal-and-replace power held by a non-U.S. beneficiary, an automatic migration clause buried in an asset protection trust. Once the Court Test or Control Test fails and isn't cured within the 12-month window, the trust is foreign as of the day it failed, and the consequences run through throwback tax on UNI distributions, §1441 withholding exposure, and the reporting regime at §6048.
This program walks through how to spot the problem during return preparation and trust administration, the §7701 framework and its safe harbors, and the practical fixes — distribution sequencing to bleed off UNI, restructuring powers so non-U.S. persons participate without controlling, and using grantor trust status under §§671–679 to avoid foreign trust treatment while the grantor is alive. Reporting coverage includes Forms 3520 and 3520-A, the Rev. Proc. 2020-17 carve-outs for tax-favored foreign retirement and savings arrangements, the §6677 penalty regime in light of the IRS's 2024 retreat from automatic foreign-gift assessments and the ongoing §6038-series litigation, and how FBAR and Form 8938 obligations cascade to U.S. beneficiaries.
For experienced EAs, CPAs, and tax attorneys who prepare fiduciary returns or advise individuals with cross-border family, trustee, or asset exposure.
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ruth*Self-Study recording not available for NASBA CPE credit.
NASBA Field of Study: Taxes
IRS Program #: 7Q3WU-T-
CTEC Course #: 6248-CE-
Ruth A. Mattson
,
LL.M, JD
Ruth Mattson, Esq. is a partner in Nixon Peabody LLP’s International Private Clients group. They guide families and individuals through the complex world of cross-border wealth. Whether working with family offices, executives, or multigenerational families, Ruth brings clarity and creativity to plans involving global mobility, international estate planning and multinational trust and estate administration. Ruth is a frequent speaker and author on international estate planning topics for the American College of Trust and Estate Counsel (ACTEC), Massachusetts Continuing Legal Education, and other professional organizations around the world. Ruth received their J.D. from Temple University Beasley School of Law in Philadelphia, Pennsylvania, and their LL.M. from Boston University School of Law’s Graduate Tax Program. They are a lecturer at Boston University School of Law, an Academician of the International Academy of Estate & Trust Law, a Fellow of ACTEC, a former co-chair of STEP New England, and a recipient of the President’s Award from the Boston Estate Planning Council.
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