Drafting with Consideration of Foreign Trust Registration

Oct 10, 2023 | International T&E, Podcasts, T&E Administration, Uniform Law, Multi-State Issues & Laws

“Drafting Considerations of Foreign Trust Registration,” That’s the subject of today’s ACTEC Trust and Estate Talk.

Transcript/Show Notes

This is Jim Milton, ACTEC Fellow from Tulsa, Oklahoma. US trustees of US trusts may be called upon to comply with foreign laws requiring registration and disclosure of information regarding the trust or its beneficiaries. Estate planners advising US trustees or drafting US trusts may be called upon to advise regarding how the trustee should respond to those requirements. ACTEC Fellow Caitlin Orr of Washington, D.C. joins us today to explain this topic and highlight issues that the drafter or fiduciary may want to consider. Welcome, Caitlin.

US Trustee’s Responsibilities and Legal Framework

Caitlin Orr: Thank you, Jim. And thank you very much for that introduction. I’m very grateful and excited to be here today. So, as Jim mentioned, my presentation today concerns trust registration and beneficiary disclosure requirements that may be imposed by foreign jurisdictions on US trusts from the perspective of a US trustee and, more specifically, how a US trustee should respond to those.

As we know, in the US, the duties of trustees and the rights of beneficiaries are controlled by the governing trust instrument and by applicable law. Each state has its own laws. Most, but not all states, have adopted the Uniform Trust Code, or what we as practitioners sometimes refer to as the UTC.

Foreign Laws and Trust Registration

There are some common principles common to all state laws. For example, in general, in the US, trusts are not required to register or disclose beneficial owners to US government authorities other than, of course, for tax reporting purposes. Note that this will change to at least some extent beginning on January 1st, 2024, under the Corporate Transparency Act, at least with respect to trust and owned interest and reportable entities under that act.

The second common principle is that, in the US, the principal place of trust administration generally governs the duties of the trustee and ordinarily determines which court has primary, if not exclusive jurisdiction over the trust.

Challenges Faced by US Trustees

In the US, a trustee’s duties include keeping beneficiaries reasonably informed of the administration of the trust and complying with the beneficiary’s request for information that is reasonably related to trust administration, administering trust assets solely in the interest of the beneficiaries, and, if a trust has two or more beneficiaries, dealing impartially with all beneficiaries.

Finally, most state laws consist of default rules that apply only if the terms of trust fail to address a particular issue. So, in general, the drafter of a trust is free to override a majority of state trust law. It’s unlikely that foreign laws requiring trust registration or beneficiary disclosure would apply to a purely US trust or that a foreign country would even have jurisdiction over the administration of a US trust. Nevertheless, a US trustee who knowingly ignores a foreign law registration requirement may be required to defend its position in court and/or may incur reputational risk.

Beneficiaries may object to the trustee’s decision to comply with foreign law registration requirements. For example, if compliance would make sensitive, identifying information about the trust or its beneficiaries public or if the cost of compliance by the trustee would be ongoing and significant and a burden– a financial burden to the trust- or if the beneficiaries as between themselves are at odds as to whether the trustee should comply with these foreign requirements. You can imagine, for example, a scenario where there are 100 current beneficiaries of a trust, the registration obligation arises because only one beneficiary resides in a foreign jurisdiction.

And the cost of compliance would be substantial and ongoing but the foreign jurisdiction could penalize the resident beneficiary for the trustee’s failure to comply. Under those circumstances, what is a trustee to do? The trustee’s duty of impartiality to not pick sides among the beneficiaries may prevent him or her from picking sides in this fight. By the way, to the extent that a foreign reporting obligation falls on the beneficiaries of the trust and not the trustee, the trustee’s duty to keep the beneficiary informed probably will require him or her to provide enough information for the beneficiary to comply.

So, in light of the push in recent years for transparency in beneficial ownership and the possibility at least that other countries will attempt to require US trustees to report trust or beneficiary information, I think we, as drafters and planners, could be drafting trust instruments in a way that makes it easier for the trustee to manage these decisions and in a way that limits the trustee’s liability for reporting or for not reporting.

Strategies for Drafting Trust Instruments

For example, we might expressly authorize but not obligate the trustee to comply with any known foreign registration or disclosure requirement, notwithstanding that compliance may not be legally required if the foreign country does not have jurisdiction over the trustee and notwithstanding that, the cost of compliance may be prejudicial to one or more beneficiaries or others who may become beneficially interested in the trust.

We might expressly allow the trustee to rely without further investigation on an opinion of foreign counsel as to the interpretation of the relevant laws purporting to impose reporting requirements and whether a disclosure is, in fact, legally required. In connection with that, we could relieve the trustee from liability for any action taken or not taken in reasonable reliance on the counsel’s advice. We might give the trustee discretion to charge the cost of compliance with foreign reporting obligations to a particular trust benefitting only beneficiaries whose connections to that foreign jurisdiction triggered the reporting obligation. We might consider clarifying the trustee’s duty to investigate the scope and application of foreign law reporting requirements.

I think everyone would agree that it’s unreasonable to expect a trustee to learn the laws and disclosure requirements imposed by every country in the world. On the other hand, the trustee is expected to consider the circumstances and needs of the beneficiaries in administering a trust and deciding whether to make distributions to him or her. So, under that theory, maybe the trustee should be asking whether any beneficiary is resident in a jurisdiction that imposes reporting obligations.

Another idea, then, is to expressly authorize but not obligate the trustee to periodically request information regarding a beneficiary’s domicile or tax residence and provide that the trustee may rely upon such information provided by the beneficiary or on the beneficiary’s behalf as the trustee determines appropriate in the trustee’s sole discretion. We could relieve the trustee from liability for any act or failure to act taken in good faith reliance on any information so provided. Or, on a beneficiary’s failure to respond to a request for such information.

Trustee’s Discretion and Potential Liabilities

We should be careful not to obligate the trustee to conduct unlimited research to determine what reporting obligations may exist or what every law in the world may– every country’s law in the world may say. Ideally, we want to preserve the trustee’s flexibility to consider and respond to unique circumstances. I think this is really important. So, for example, we could relieve the trustee from liability for refusing to comply with a foreign reporting obligation if the trustee, after consulting with counsel, concludes that the foreign reporting obligation is unreasonable or would not be upheld by a court of competent jurisdiction.

A good example– it’s possible to imagine a scenario, perhaps an extreme example, where disclosure of information about a trust or specifically about a beneficiary could put a beneficiary’s security at risk. In that case, it really may be critically important to leave room for the trustee to ignore and refuse to comply with any reporting obligation that the trustee- perhaps in conjunction with an opinion of counsel- concludes is contrary to the best interest of the beneficiaries.

Could we include in a trust a provision instructing the trustee never to comply with any foreign disclosure requirements? I think not. A court would probably find such a provision to be invalid and illegal as contrary to the public policy of the law governing trusts. To provide an example, there’s a provision of the Uniform Trust Code, Section 404, that says a trustee is not required to perform a duty or adhere to instructions prescribed by the terms of a trust if performance would be illegal or contrary to public policy. So, we probably can’t solve the issue that way, but we can– I think we all could be doing more to provide some provisions to guide the trustee under these circumstances.

We usually give trustees discretion to modify or restructure a revocable trust to some extent to accomplish other objectives. Such discretion to modify or restructure could be useful in avoiding foreign reporting requirements. Examples include the trustee’s power to sell problem assets that would trigger the reporting obligations or the power to distribute problem assets or isolate them in separate trusts by decanting or division to limit asset information required to be disclosed. The trustee could be empowered to decant or trigger the– to decant or divide trusts to create new trusts that exclude beneficiaries whose beneficial interests trigger the reporting obligation in the foreign country.

It’s actually common in the context of foreign trusts but sort of anathema for a US trust to allow a trustee to temporarily or permanently remove a beneficiary. But in reality, the power to temporarily eliminate a beneficiary’s interest is not appreciably different from a trustee’s sole and absolute discretion to refuse or make distributions to a beneficiary for a period of time. So, expressly empowering a trustee to temporarily eliminate a beneficiary’s beneficial interest might actually allow a trustee to avoid a foreign reporting obligation or achieve creditor protection.

Even if a trust does not contain any of these saving provisions that I’m proposing and describing, a trustee subject to reporting requirements under foreign law may be able to limit liability by asking for consent or releases from beneficiaries or petitioning a court for instruction. Of course, if the beneficiaries don’t agree on whether the trustee should or should not comply with the foreign reporting obligation, it may be difficult to obtain releases from everyone, so this might not be a perfect solution. Petitioning a court for instructions could be costly and time-consuming and, ultimately, may require public disclosure of the interested party’s identifying information if the proceeding can’t be sealed. At the end of the day, the trust’s best option may be to resign. To that end, we should be sure that the trustee has the power to resign to avoid disputes about reporting.


In summary, even though it’s difficult to articulate in the abstract what the rules should be and what the trustee should be required to do. We may be able to draft in a way that makes it easier for the trustee to manage these decisions when faced with foreign reporting obligations or beneficiary disclosure requirements and in a way that limits the trustee’s liability for reporting or for not reporting. Thank you very much, Jim, for the opportunity. And that’s it for me.

Jim Milton: Thank you so much, Caitlin, for helping us navigate this, obviously, very complex topic. We really appreciate it. Thank you.

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