The naming of beneficiaries and trustees is a critical component of Wheaton estate planning. Many people assume it is best to name a close relative to serve as trustee, but sometimes, it makes more sense to have an entity manage trustee duties or to share the duties among more than one trustee.

The citizenship of beneficiaries and trustees in Wheaton estate planning deserves serious consideration because of tax implications and other issues. It is important to ensure that your estate planner is aware of the citizenship of your proposed trustees and beneficiaries, because that could have an impact on the operation of the trust and recommended measures for structuring and managing the trust.

Trustees and Beneficiaries

A trustee is a person or an entity who manages the assets held in a trust and ensures that the beneficiaries receive income or other benefits in accordance with the specific terms of the trust. Wheaton trustees hold a great deal of responsibility. They are required to make prudent investment decisions and respect their fiduciary duties to the beneficiaries.

As the name implies, beneficiaries are the ones intended to benefit from a trust. They may receive distributions from the trust on a regular basis or the assets and income may be invested for distribution at a future time or when specific needs arise. The terms of the trust agreement dictate who receives distributions and under what circumstances. Citizenship of beneficiaries and trustees in Wheaton estate planning matters because the trust exists for the advancement of the beneficiaries and it is controlled entirely by one or more trustees.

Citizenship of Trustees

When an individual that is not a U.S. citizen is named as a trustee, the trust involved could be considered a foreign trust under U.S. tax law. While this standing does not affect the creation of the trust, it could have a significant impact on the tax liability and operational costs of the trust.

A foreign trust may be subject to additional reporting requirements and increased income tax exposure. Wheaton estate planning should include consideration of the citizenship of trustees to anticipate and prepare for potential difficulties and added expenses. Naming additional trustees or using a private fiduciary as trustee may provide a means to avoid a foreign trust designation.

Citizenship of Beneficiaries

If the beneficiaries of a trust are not U.S. citizens, taxation issues could become exceptionally complex because trustees may need to consider taxation in two different countries. This tax burden could significantly reduce the value of assets received by those beneficiaries. In addition, the cost to administer the trust also increases.

An experienced estate planning attorney may be able to establish a scheme to increase predictability and reduce tax liability. Citizenship of beneficiaries should therefore be one of the first issues addressed in Wheaton estate planning.

More Information About Citizenship of Beneficiaries and Trustees in Wheaton Estate Planning

Tax laws and immigration laws change frequently. To ensure that an estate plan takes advantage of the opportunities in the current legal environment, it is wise to review plans periodically with a professional.

Because the citizenship of beneficiaries and trustees in Wheaton estate planning could affect the bottom line with respect to administrative costs and tax liability of both the trust and the beneficiaries, it is important to make your Wheaton estate planning attorney aware of any potential trustees or beneficiaries who are not U.S. citizens or who reside abroad.