Should You Choose a Foreign Trustee?

Choosing who will serve as successor trustee for your trust is one of the biggest decisions you will make for your estate plan. Your successor trustee will take over the management of all of the assets owned by the trust (which should own most – if not all – of your assets) in the event that you become incapacitated during your lifetime or upon your passing.

I advise my clients to choose a successor trustee who is responsible, dependable, and trustworthy. Oftentimes clients choose their family members to serve in such a role. But what happens if your choice for successor trustee is based in a country other than the United States?

The choice of a foreign trustee causes the trust to be classified as a foreign trust, which results in certain adverse U.S. income tax consequences. Such adverse tax consequences may include:

• recognition of capital gains upon the transfer of certain assets to the trust (even if such assets have not been sold, and therefore there may be insufficient cash to pay such taxes);

• mandatory withholding by the IRS; and

• the imposition of additional federal tax reporting requirements.

These consequences often result in a significant amount of the trust estate being distributed to the IRS and/or financial professionals rather than going to the beneficiaries.

Many of my clients and prospective clients have never heard of these rules before, and unfortunately online-based DYI will and trust services will not guide you through these complicated tax implications.

These foreign trustee rules are just one of many niche areas of trust law that I see those DIY wills and trusts fail to catch and ultimately leads to significant attorney fees, court costs, wasted time, and worst of all – an estate plan that fails to carry out the creator’s ultimate wishes.

I take the time to learn about each of my Southern California clients and their unique family situation to create their comprehensive, custom-tailored estate plan. As a licensed California attorney with years of estate planning experience, I carefully look out for and resolve any potential issues with your desired distribution plan. After all, what good is a will or trust if it does not protect your family the way you intend?

Schedule a Free Consultation with estate planning attorney Kayla M. Brennan or complete this form to get started on your comprehensive, custom estate plan today.