Call Now (800) 681-1295

Foreign non-grantor trust with US beneficiary

Table of Contents

    Basically, any trust not considered a grantor trust is by default a non-grantor trust and treated as its own taxpayer. For example, the result of a grantor dying is a non-grantor trust because no one other than the grantor may be substituted as the “owner” of the trust. In this case the foreign trust is not taxed on income and may deduct any amount of distribution up to distributable net income. In determining the taxable income of a non-grantor trust, it is important to understand the concept of distributable net income (DNI).

    DNI is the income of the trust for the year from all sources figured under U.S. income taxing principles but the DNI concept also characterizes distributions. Beneficiaries are taxed on trust distributions made out of DNI. Distributions are treated first as DNI of the current year, which is taxable to the U.S. beneficiary. Then, if distributions exceed the DNI in the current year, they are treated as coming from the earliest year from which there remains DNI and taxed to the U.S. beneficiary with an interest charge. Finally, distributions are last made from the corpus and are thus nontaxable.

    In the event that such distributions exceed the DNI for the current year, this “accumulation distribution” triggers the “throw back rule.” In other words, a distribution of prior year’s undistributed net income that the trust has accumulated triggers an income tax (including an interest charge) for previous years even though the beneficiary may never have received anything from the trust in those years. Thus, the throwback rule is designed to cause the beneficiary to pay approximately the same income tax that would have been imposed if the trustees had distributed income to the beneficiaries on an annual basis rather than accumulating income in the trust. However, credit is given for foreign taxes paid as well as any U.S. withholding.

    Despite the above, if a trust only distributes a percentage of the DNI for a particular year, the tax attributes are divided proportionately according to the percentage. Similarly, if distributions are made to several beneficiaries, the tax attributes are also divided up proportionately.

    BBB Rating

    Tax Help Videos

    Representing Clients from U.S. and International Locations Regarding Federal and California Tax Issues

    Main Office

    Orange County
    2601 Main St. Penthouse Suite
    Irvine, CA 92614
    (949) 681-3502

    Our headquarters is located in Irvine, CA. Our beautiful 19,700 office space is staffed full-time and always available for our clients to meet with our highly qualified and experienced staff of Attorneys, Certified Public Accountants and Enrolled Agents. We also offer virtual consultations and can travel to meet with clients in one of our satellite offices.

    Outside of our 4 hour initial consultation option, we do not charge travel time or travel expenses when traveling to one of our Satellite offices, or surrounding business districts, where it is necessary to meet personally with taxing authority personnel, make court appearances, or any in person meeting deemed necessary for the effective representation of a client. To make this as flexible, efficient, and convenient as possible, David W. Klasing is an Instrument Rated Private Pilot and Utilizes the Firms Cirrus SR22 to service client’s in California and in the Southwest by air. Offices outside these areas are serviced via commercial jet airlines. None of these costs are charged to our clients.

    Satellite Offices

    (310) 492-5583
    (760) 338-7035
    (916) 290-6625
    (415) 287-6568
    (909) 991-7557
    (619) 780-2538
    (661) 432-1480
    (818) 935-6098
    (805) 200-4053
    (510) 764-1020
    (408) 643-0573
    (760) 338-7035
    (602) 975-0296
    New Mexico
    (505) 206-5308
    New York
    (332) 224-8515
    (512) 828-6646
    Washington, DC
    (202) 918-9329
    (702) 997-6465
    (786) 999-8406
    (385) 501-5934