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Question:

Can a foreign family trust be switched to a domestic trust at a later date the trustee or co-trustees became US citizens?

Response:

This is outside my area of expertise, so I consulted Rita Ryan of Wolf and Company. Here’s her response:

Yes, you can change from a foreign trust to a domestic trust and visa versa. Whether a trust is foreign or U.S. depends on the “Control Test” and “Court Test.” Under the Court Test, a trust is a U.S. person (“Domestic Trust”) if a “court within the United States is able to exercise primary supervision over [its] administration.”

Rita Ryan

The Control Test requires that U.S. persons have “authority to control all substantial decisions of the trust.” “Substantial decisions” of a trust are those non-ministerial decisions that persons are authorized or required to make under the terms of the trust instrument and applicable law.

If both of these requirements are not met, a trust is a Foreign Trust. In other words, for the trust to become a Domestic Trust it must be subject to the jurisdiction of U.S. courts and controlled by U.S. trustees. If either requirement is not met, it’s a Foreign Trust.

Note of advice – there are vastly different income and information reporting requirements in the U.S. for Domestic Trusts and Foreign Trusts – so before changing status a conversation with a tax advisor is highly encouraged.

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When Does a Trust Become a Foreign Trust for Tax Purposes? Can Non-Citizen Spouse Withdraw IRA Over Her Lifetime? What are Tax Implications of Long-Term Trust for Non-U.S. Beneficiaries?