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Tax intrigue over a foreign trust

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in Small Business Tax

Q. I have a trust set up in another country. My only child is the beneficiary. If I transfer funds to the trust, will I have to pay U.S. tax on the income? S.S. via e-mail

A. Yes. With a foreign trust, generally you’re treated as the owner of the portion of the trust attributable to property you’ve transferred to the trust. Thus, the resulting income is taxable to you under the “grantor trust” rules. Certain exceptions exist for transfers by will or by reason of death.

Tip: This is a complex area of the law, so seek guidance from an experienced tax pro. 

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