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Citizenship of Beneficiaries and Trustees in Raleigh Estate Planning

Creating a Trust can be an effective way to transfer property while avoiding probate and the payment of taxes. For most people, this process involves the transfer of property within the United States to U.S. citizens. However, situations may arise where a Trust maker wishes to send property to people across international borders. This could subject the Trust to increased tax liability.

Choosing a non-local trustee to oversee the Trust may also complicate things, although it is possible. However, to effectively manage a Trust, the trustee often needs to be able to freely enter the country and interact with financial institutions.

It is important to understand the laws regarding the citizenship of beneficiaries and trustees in Raleigh estate planning. A knowledgeable attorney can explain the relevant information and help you create a strategy that suits your needs.

Does a Trust Beneficiary Have to be a U.S. Citizen?

A Trust functions by allowing a person to place their property in the custody of a trustee. That trustee has strict instructions to transfer that property to another party, called a beneficiary. According to North Carolina Revised Statutes § 36C-4-401, a person must do the following steps to legally create a Trust:

  • Nominate a trustee
  • Specify property
  • Name a beneficiary

The law does not say that a beneficiary needs to be a United States citizen, nor do they have to live in the country. However, a person’s citizenship status could have a dramatic impact on the tax implications of property distribution through a Trust.

Taxes on Trusts for Foreign Beneficiaries

In the United States, property that moves through a Trust can typically avoid taxation and probate court procedures. Unfortunately, this is not always the case in other countries. Other nations may take a percentage of the value of Trust property when it moves to a beneficiary. A skilled attorney could help to research a specific country’s laws to determine if this may be an issue for a Raleigh Trust.

Citizenship of Trustees in Raleigh

Similar to with beneficiaries, nothing under the law states that a foreign national cannot serve as a trustee. However, anyone nominating a trustee must be sure that this person can serve their role properly.

A trustee has a duty towards both the Trust maker and the beneficiaries. This duty requires the trustee to act in the best interests of those parties and to properly control and distribute the property in the Trust. It may be necessary to take physical control of property, create bank accounts, or even conduct financial transactions to fulfill this duty.

A person’s status as a foreign national may create complications in achieving these goals. It may also expose the Trust to tax liability in the United States and other countries. Accordingly, it is essential to consult an experienced local attorney on whether a person’s citizenship will affect their ability to fulfill the role of trustee.

Discuss Citizenship of Beneficiaries and Trustees with a Raleigh Estate Planning Attorney

There are at least two main participants in a Trust. The first is the trustee, who oversees the collection and distribution of Trust assets. The second is the beneficiary who receives those assets. As a general rule, the citizenship status of these people has no bearing on the legality of the Trust. However, it may impact the process of managing and distributing it.

A knowledgeable attorney at our firm can provide more information about the citizenship of beneficiaries and trustees in Raleigh estate planning. Our lawyers can explain your Trust options and craft documents that could help you avoid potential complications. Call us today to speak with a dedicated member of our team.