A Trust is a legal arrangement where a designated individual holds assets for the benefit of another person. Every trust has three key parties:

Grantor (or Settlor/Creator of the Trust) – The person who transferred the funds or assets.

Trustee – The person who actually holds and manages the assets until they are to be transferred to the beneficiary.

Beneficiary – The person for whom the trust was created, and who is ultimately intended to benefit from the resources held within it.

Typically, a trust is managed according to a “trust deed” (or “trust agreement”), in which the grantor instructs the trustee on how to manage the trust, how to invest the funds or assets, and under what circumstances funds can or should be released to the beneficiaries, and so on. There is no single format for these documents, although most countries worldwide have laws regulating some of the basic rules and responsibilities.

Trusts are a particularly popular and effective way to manage intergenerational wealth, and they also serve as an excellent option for ensuring the financial future of individuals with functional, physical, or mental disabilities. However, when they involve a connection to the US—whether through trustees, beneficiaries, or assets—they require compliance with complex reporting requirements to the US Internal Revenue Service (IRS). The reporting obligation includes filing Form 1041 and sometimes also Forms 3520 and 3520-A. In cases of error or delay, financial penalties may apply. It’s crucial to distinguish between foreign and US trusts and to understand the tax implications for each party to the Trust.

Trust taxation is a unique area of expertise in our firm. The extensive experience we’ve gained in advising and filing reports over the years demonstrates that good intentions can easily turn into potential “tax accidents”—which could effectively diminish the resources the beneficiary receives from the arrangement set up for them.