Can a successor trustee to a living trust be a foreign citizen, more in details,

Asked almost 2 years ago - Santa Clara, CA

For my living trust I have designated my aunt living in India (non US citizen) and my cousin living in US (US citizen) to act as alternate successors in that order. After my death, can they administer the trust without issues. Both know each other and work well together. In the event my aunt can't come to the US, can she give permission to the second succcessor to administer and act on trust assets. They are also named as guardians to my son (minor).

Attorney answers (3)

  1. Robert Paul Bergman

    Contributor Level 13

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    Answered . There are several potential problems with naming a non-resident as a successor trustee for your living trust, and guardian for your minor child. For your minor child, it will be necessary for a non-citizen, non-resident to apply to the Probate Court in Santa Clara County (your county), and the proposed guardian will need to demonstrate that they have obtained guardianship in the home country (i.e. India) in order to be considered as the guardian for your minor child. This process could take several weeks or months, and could potentially subject your child to foster care here in the United States until it can all be resolved.

    As for using your aunt as the successor trustee of your living trust, here is an excerpt from the worksheet I use in designing living trust estate plans for my clients

    Disadvantages of Using a Non-Citizen/Non-Resident Trustee: There are special rules that govern trusts if you decide to select a successor trustee who is not a United States citizen and is not a United States taxpayer. These “foreign” trustees, if initially selected and or activated because of your death or disability, may result in your living trust and any trust created after either of your deaths to be treated as a “foreign trust” under the Internal Revenue Code.
    If your living trust or other trusts created after your death are treated as “foreign trusts,” then payments made to those trusts are generally subject to a 30% income tax withholding requirement, unless modified by a tax treaty with the country of the foreign trustee. The withholding requirement applies to any person making a payment. In general, if a person pays or conveys income derived in the United States to a foreign trust or individual foreign beneficiary, or to the foreign trust’s or foreign beneficiary’s foreign or domestic agent, the person conveying the income is liable for the income tax and must withhold.

    Your living trust and other trusts will also have additional reporting requirements, severe penalties for failure to report, the loss of the ability to hold subchapter S corporate stock, and possible forced recognition of capital gains, to name a few of the potential consequences.

    To avoid these results, it will be necessary to appoint one or more “U.S. persons” that have the authority to control all substantial decisions of your trust [Internal Revenue Code Section 7701(a)(30)(E)(ii)] This would mean that if you wish to have a non-citizen who is not a U.S. taxpayer as a trustee, they would be limited to purely administrative tasks such as bookkeeping, collection of rents, and carrying out investment decisions made the U.S. personal trustee.

    If you wish to name a non-citizen who is not a U.S. taxpayer as a trustee, then additional language will need to be added to your trust to make sure that “foreign trust” status is not triggered.

    I work with many Indian families here in the Bay Area on these very issues, and I would be happy to meet with you to discuss what your options are. You may use the provided link to visit my website and schedule a consultation.

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  2. John Noah Kitta

    Contributor Level 19

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    Answered . If your aunt is unable to perform in the capacity as a trustee then you need to look at the language contained in the trust which most certainly says if she is unable or willing to serve in that capacity then the second name alternate trustee would take control of the trust.

    This participating Attorney does not warrant any information provided, nor are we creating an Attorney-Client... more
  3. Jonathan H Levy

    Contributor Level 20

    Answered . Yes there is no rule or law against it, but in the event of complications, it would be much better to have a US resident as a trustee.

    This is not legal advice but a general comment on society.

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