Glossary of trust and U.S. reporting terms
83 terms from trust law, U.S. information reporting and international tax cooperation, each defined from the official documents that use them, with professional commentary where noted.
A
- Accumulation distribution: The Form 3520 instructions use accumulation distribution for certain distributions from foreign trusts and explain how U.S. beneficiaries report them.
- Administrative powers (grantor trust): Section 675 of the Internal Revenue Code describes administrative powers that can cause a grantor to be treated as owner of a trust portion, with limits.
- Adverse party: Section 672(a) defines an adverse party as a person with a substantial beneficial interest in the trust that would be adversely affected by the exercise or nonexercise of the power the person holds.
B
- Beneficiary: The Jersey trust law describes a beneficiary by entitlement or by a discretionary possibility of receiving trust property. The definition covers both forms.
- Beneficiary other than the grantor treated as owner: Section 678 describes when a person other than the grantor is treated as owner of part of a trust, based on a power over trust corpus or income and exceptions.
C
- Charitable trust: A charitable trust holds property for charitable purposes, and trust laws relate it to purpose trusts and to the other categories of trust used in planning.
- Common Reporting Standard: The Common Reporting Standard sets rules for exchanging financial account information, covering reporting institutions, covered accounts and due diligence.
- Control test: The control test is part of the IRS rules for classifying trusts as domestic or foreign. It describes whose authority over substantial decisions counts.
- Controlling person: The CRS defines controlling persons and explains their role in due diligence and tax residence reporting for trusts, account holders, and reportable accounts.
- Corporate trustee: A corporate trustee is a company that acts as trustee of a trust, as opposed to an individual trustee. Jersey law addresses how a corporate trustee acts and how it relates to a trust corporation.
- Court test: The IRS court test asks whether a U.S. court can supervise trust administration. It works with the control test to determine whether a trust is domestic.
D
- Discretionary trust: A discretionary trust leaves distribution decisions to the trustee. It differs from a fixed interest trust and from a protective trust in who controls payments.
- Distribution from a foreign trust: A foreign trust distribution triggers section 6048(c) reporting for the U.S. person who receives it, made on Form 3520, Part III.
- Domestic trust: The IRS defines a domestic trust through its court test and control test, and the term appears in U.S. foreign trust reporting rules for U.S. citizens.
E
- Enforcer: An enforcer is a person given a role in relation to certain trusts. Jersey and Cayman law describe how enforcers are appointed, with their duties and rights.
F
- FATCA: FATCA requires certain U.S. taxpayers to report foreign assets and financial institutions to report accounts to the IRS. Form 8938 may apply at thresholds.
- FBAR: FinCEN describes the FBAR filing rule for U.S. persons with foreign accounts. It covers the $10,000 aggregate threshold, account interests and exceptions.
- Financial account (CRS): The Common Reporting Standard defines accounts at financial institutions, including deposit and custody accounts, plus equity and debt interests and insurance.
- Financial interest in an account: FBAR rules define financial interest through account ownership or relationships to the legal title holder. A U.S. person who is the owner of record or holder of legal title has a financial interest, whether the account is held for that person's benefit or for someone else.
- Foreign entity: Form 8938 instructions treat interests in foreign corporations and partnerships, and in trusts and estates, as specified foreign financial assets in some cases.
- Foreign financial account: Form 8938 treats an account outside the United States as a specified foreign financial asset. FBAR rules identify reportable accounts by type and location.
- Foreign gift: A foreign gift is a gift or bequest received from a foreign person or estate. Certain receipts may require a U.S. person to report them on Form 3520, Part IV.
- Foreign grantor trust: A foreign grantor trust is a foreign trust treated as owned by a grantor under the grantor trust rules. When the owner is a U.S. person, Form 3520 and Form 3520-A reporting duties apply.
- Foreign grantor trust beneficiary statement: A foreign grantor trust beneficiary statement appears on page 5 of Form 3520-A. It reports distributions to U.S. beneficiaries and identifies the trust's owner.
- Foreign grantor trust owner statement: The Instructions for Form 3520-A identify the Foreign Grantor Trust Owner Statement as pages 3 and 4 of the foreign trust's annual information return.
- Foreign trust: For federal tax purposes, a trust is foreign if it fails either the court test or the control test. The tests concern U.S. court oversight and decision control.
- Foreign trust classification: A trust is foreign under Form 3520 when it fails either domestic trust test. The tests ask about U.S. court supervision and control of substantial decisions.
- Foreign trust loan: Form 3520 filing rules address a loan received by an owner or beneficiary, or a related U.S. person, and outstanding qualified obligations from the trust.
G
- Golden visa: Golden visa is a common label for residence permits connected to investment, though official programs use different names and conditions for each route.
- Grantor: Form 3520 describes a grantor as a person who creates a trust, transfers property to it without full value, or is treated as an owner under specified rules.
- Grantor trust rules: These federal tax code rules explain when a grantor is treated as owning part of a trust, based on the grantor's powers and interests and on income provisions.
I
- Income for the benefit of the grantor: Section 677 treats a grantor as owner of a trust portion when income can benefit the grantor or spouse, including through certain life insurance premiums.
- Income tax treaty: An income tax treaty may provide reduced U.S. tax rates or exemptions for specified U.S.-source income. Rules vary by country and income type under each treaty.
- Intergovernmental agreement: An intergovernmental agreement appears in FATCA rules for foreign financial institutions. Form 8938 instructions also use the term for certain foreign accounts.
L
- Limitation on benefits: A limitation on benefits article sets conditions for entities in a treaty country to qualify for certain treaty benefits under the applicable U.S. tax treaty.
M
- Maximum account value: The Form 8938 instructions define maximum account value as a financial account's highest value during the tax year, based generally on fair market value.
N
- Nonadverse party: The Internal Revenue Code defines a nonadverse party by reference to the term adverse party. Sections 672 through 678 use the distinction in trust rules.
- Nongrantor trust: A nongrantor trust is a trust, or a portion of a trust, that the grantor trust rules do not treat as owned by the grantor or another person, so the trust itself is the taxpayer for that portion. Beneficiaries generally pay tax on distributions to the extent of the trust's distributable net income.
P
- Participating foreign financial institution: The IRS describes a participating foreign financial institution as an FFI that reports U.S. account holders who are specified U.S. persons under FATCA.
- Permanent establishment: The IRS describes a permanent establishment as a fixed place through which an enterprise conducts its business. The exact meaning depends on each treaty.
- Permanent residence: Permanent residence means a status or residence right that each destination defines by its own rules. Four jurisdictions covered on this site use the term.
- Power to control beneficial enjoyment: Section 674 describes when control over trust benefits causes a grantor to be treated as owner of a trust portion. The rule concerns beneficial enjoyment.
- Power to revoke: Section 676 defines a power to revest trust property in the grantor. When the power applies, the grantor is treated as owner of the covered trust portion.
- Proper law of a trust: The Jersey Trusts Law defines proper law as the jurisdiction's law expressed or implied in trust terms, or most closely connected to the trust when created.
- Purpose trust: A purpose trust holds property for purposes, not for beneficiaries, and relies on an enforcer. Bermuda and Jersey define it differently, as does Cayman.
Q
- Qualified obligation: The Form 3520 instructions define a qualified obligation through written terms, a maximum term, U.S. dollar payments, an interest yield, and ongoing reporting.
R
- Recognition of a trust: The Hague Convention describes recognition of a trust, its minimum legal effects, and limits tied to applicable law. Jersey law also addresses recognition.
- Related or subordinate party: Section 672 defines a related or subordinate party as a nonadverse party in specified relationships to the grantor. It covers family members and employees.
- Related person: Related persons are defined through sections 267 and 707(b) in the Form 3520 instructions. Examples include family members and majority-owned corporations.
- Reportable account: The OECD standard defines a reportable account as held by a reportable person or certain passive entities, and identified through due diligence procedures.
- Reporting financial institution: The Common Reporting Standard classifies a financial institution as reporting when it falls within the relevant jurisdiction's rules and is not non-reporting.
- Reporting threshold for Form 8938: The Form 8938 instructions set asset value thresholds for specified individuals based on marital status, filing status, and qualifying residence abroad.
- Reserved powers: Reserved powers are rights a settlor keeps, or gives to another person, under a trust. Trust laws address their validity and timing, and administration.
- Residence by investment: Residence by investment links an investment to residence status or a permit. Each country sets its own investment rules, as well as income and family rules.
- Residence permit: A residence permit is an authorization or document connected with residence in a country. Its duration and conditions depend on the type of permit issued.
- Responsible party: The Instructions for Form 3520 define the responsible party for specified events involving a foreign trust. The role differs from an owner or U.S. agent.
S
- Section 6048: Section 6048 sets information reporting rules for certain foreign trusts. Its parts cover notice of events, U.S. owner duties and beneficiary distributions.
- Section 679: Section 679 addresses certain transfers by U.S. persons to foreign trusts. A U.S. person who transfers property to a foreign trust with a U.S. beneficiary is generally treated as the owner of the portion of the trust attributable to that property.
- Settlor: A settlor is the person who creates a trust or transfers property into it.
- Signature authority over an account: The FBAR rules define signature authority by the power to direct disposition of account funds through direct communication with the financial institution.
- Specified foreign financial asset: The Form 8938 instructions use specified foreign financial asset for certain foreign accounts and investment holdings. The term identifies assets for reporting.
- Specified individual: The Form 8938 instructions use specified individual for several categories of people. U.S. citizens and resident aliens count, as do some nonresident aliens.
- Substantial decisions: Substantial decisions under a trust include nonministerial choices about distributions, beneficiaries, income, principal, trustee changes, and investments.
- Substitute Form 3520-A: A substitute Form 3520-A is filed by a U.S. owner when a foreign trust fails to file its annual return, and it carries its own timing and statement rules.
T
- Tax residence: Tax residence describes a person's status in a country for tax purposes. Treaty texts address how it affects income items and applicable treaty requirements.
- Transfer to a foreign trust: Form 3520 covers direct and indirect transfers of money or property to a foreign trust, including gratuitous transfers, alongside the U.S. ownership rules.
- Treaty rate table: A treaty rate table summarizes income categories and tax rates or exemptions under U.S. income tax treaties. The IRS explains the tables' scope and limits.
- Treaty-based return position: A treaty-based position claims that a U.S. treaty overrides or reduces U.S. tax. The IRS discusses the term in Publication 901 and in the title of Form 8833.
- Trust: The Hague Convention describes a trust as a relationship in which a settlor places assets under a trustee's control for beneficiaries or a specified purpose.
- Trust duration: Trust duration is the period a trust may continue. The Hague Convention says applicable law governs duration limits and other trust terms for a trust.
- Trust instrument: The Hague Trusts Convention describes a trust instrument as a document that creates a trust or writing that evidences it. It also describes trust terms.
- Trust property: The IRS defines property broadly, including cash, and uses trust property in rules on foreign trust assets and transfers, plus distributions to U.S. persons.
- Trust register: A trust register is an official record of trusts, their parties or trustees, such as the UK Trust Registration Service and EU beneficial-ownership registers.
- Trust variation: Trust variation means a change to a trust's terms or powers. Jersey, Cayman Islands and Bermuda laws and the Hague Convention address related terms and rules.
- Trustee: A trustee controls trust assets and manages, uses, or disposes of them for beneficiaries or a stated purpose under the trust terms and applicable law.
U
- U.S. agent of a foreign trust: A U.S. agent is a U.S. person who contracts with a foreign trust to accept specified IRS requests for records and testimony, as the reporting rules describe.
- U.S. beneficiary of a foreign trust: The Form 3520 instructions explain who is a U.S. beneficiary of a foreign trust and how that status relates to distributions and ownership, plus reporting.
- U.S. owner of a foreign trust: The Form 3520 instructions define a U.S. owner as a person treated as owning trust assets under grantor trust rules. Ownership can apply to part of a trust.
- U.S. person: A U.S. person includes a U.S. citizen or resident alien, a domestic partnership or corporation, a domestic trust, or an estate other than a foreign estate.
- Uncompensated use of trust property: Uncompensated use of foreign trust property by a U.S. grantor, a U.S. beneficiary or a related U.S. person is treated as a distribution equal to the fair market value of that use, and it is reportable.
- Unit trust: The Jersey Trusts Law defines a unit trust by its purpose or effect of giving investors participation as beneficiaries in profits or income from property.
W
- Withholdable payment: A withholdable payment is a payment covered by the chapter 4 (FATCA) rules. A withholding agent generally must withhold 30% of the payment when a foreign entity does not provide the required documentation or certification.
- Withholding tax: The IRS tax treaty tables describe withholding tax on chapter 3 income payments. Such payments may be exempt under a treaty or taxed at a reduced rate.