Your advisor can help you determine if the legal arrangement in question should be treated as a trust for US tax purposes, which isn’t always straightforward considering how different countries may interpret the definition of a trust. These foreign legal arrangements must be evaluated under the parameters of the US definition of a trust. Classifying the trust as either a US or foreign trust is essential for determining the proper reporting required.
Once you’ve determined that the legal arrangement is a trust for US tax purposes, the next step is to consider whether the trust should be considered a domestic or foreign trust.
If a trust fails one of two tests—the court test and the control test—it’s considered a foreign trust. These tests are solely a construction of US law and are independent of any foreign classification of a trust.
Court Test
The court test looks to whether the trust is legally established or registered in the United States.
Control Test
The control test looks to the residency of the individuals who control the trust.
If it fails either the court test or the control test, then it should be considered a foreign trust. Whether the trust is considered a foreign or domestic trust for any other purpose, such as under foreign law, is irrelevant.