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TL; DR - Transcript:
Hey, guys, Peter Harper, managing director and CEO of the Asena Family Office. For those of you not with a business, we're a multifamily office advising foreign family offices and private clients on US direct investment in mergers and acquisitions.
This is the final video in our Grantor Trust series. And today we're going to touch on Section 679 of the Internal Revenue Code. For those of you who are not familiar with the grantor trust rules, they are a set of provisions contained in the code which attribute income, gains, or losses derived by either a US domestic trusts or a foreign trust to an individual that is classified under the code as a grantor.
So what is the grantor? Generally, the grantor is the person/the individual who directly or indirectly funded the trust through a gift or a loan. And so all of the provisions that we've touched on previously are generally referred to as the domestic grantor trust rules. There was a very specific section, section 679 specifically set up to tax foreign grantor trusts. So in order to have a foreign grantor trust, you need to have a trust - a foreign trust (so it's governed by foreign law). You need to have a US Resident grantor, and you need to have a US resident beneficiary.
This is one of the most aggressive anti-avoidance rules, in my opinion, that exists in the code. Because the way in which the mechanics of the provision work is that: to the extent any major changes to the term the trustee would've made whereby grantor is being excluded as a beneficiary or US persons are being excluded as the beneficiary, the terms of the the the code and the Treasury regulations have the effect of saying, "Hey, listen, even if no other beneficiary can receive a distribution of this trust, if at some point that could have been the case, (and in a major overhaul, the deal has been made to facilitate this) then regardless of what's going on with the trust, we will still attribute income, gains, or losses to a US resident grantor.
So for any Foreign Family Office ultra-high net worth individual that is migrating to the US and owns any assets - whether first gen, second gen, or third gen - through some form of non-US trust structure, being across this provision is absolutely critical. So if you own a foreign trust and [REDACTED] someone who your know is or is about to become a U.S. citizen taxpayer contributed to a trust, and you expect the trust is going to have a US resident beneficiary or maybe in the past prior to a variation, had a U.S. resident beneficiary, then I think you've got an issue out of 679.
If you want to learn more about this and how we can help, please reach out.
