Guernsey trusts and U.S. reporting requirements

Fiduciary legislation and supervision

The Guernsey Financial Services Commission administers the licensing framework for regulated fiduciary business. Its sector guidance identifies the governing statute as The Regulation of Fiduciaries, Administration Businesses and Company Directors, etc. (Bailiwick of Guernsey) Law, 2020.^[1]

The licensing rule covers regulated fiduciary activities conducted as a business in or from the Bailiwick of Guernsey. It also covers those activities when conducted by a company incorporated in the Bailiwick, with the Commission's licence providing the statutory authorization.^[1]

Schedule 1 of the fiduciary legislation contains the minimum licensing criteria. The Commission describes these as continuing requirements, so meeting them is an obligation throughout the period an entity or individual holds a licence.^[1]

Fiduciary licences and public records

The Commission describes three fiduciary licence categories, with different provisions for organizational and individual holders. Primary and secondary licences can be granted to a company, another legal person, or a partnership, while a personal licence is available only to an individual.^[1]

• A primary licence authorizes the full range of regulated fiduciary activities described by the Commission.^[1]
• A secondary licence also authorizes regulated fiduciary activities, but its holder cannot actively trade and serves the clients of its primary fiduciary licensee.^[1]
• A personal licence permits a restricted range of activities, including acting as a trustee where the individual is not the sole trustee.^[1]

The personal licence category also encompasses company directorships, estate administration, acting as executor of a will, and service as a foundation official.^[1]

The Commission directs readers to its Regulated Entities resource for licensee details. It also describes a separate power under section 3(1)(ac) to grant limited permission to entities or individuals for strictly limited regulated fiduciary activities.^[1]

CRS and FATCA reporting

Guernsey financial institutions report under the Common Reporting Standard, or CRS, and FATCA through the IGOR system. IGOR receives this information as XML reporting files.^[3]

Guernsey's FATCA intergovernmental agreement is in force and follows Model 1.^[3][4]

Treasury describes FATCA as requiring foreign financial institutions to report information about financial accounts held by U.S. taxpayers. Its description also includes accounts held by foreign entities in which U.S. taxpayers have a substantial ownership interest.^[4]

IGOR accepts submissions through its web interface or through a web service using an organization API key. For FATCA submissions, each reporting financial institution needs a valid GIIN belonging to the organization's authorized financial institutions.^[3]

For CRS submissions without a GIIN, IGOR authenticates the reporting institution by matching its name against the registered name. Both CRS and FATCA messages undergo validation against the applicable XML schema, including mandatory fields that IGOR itself may otherwise disregard.^[3]

IGOR forwards account, account holder, and organization details to the destination country without processing those details. Under the Model 1 reporting arrangement, FATCA pooled reports are not permitted.^[3]

U.S. tax and foreign trust reporting

A U.S. citizen falls within the IRS definition of a U.S. person for foreign trust reporting. The IRS explains that creating a foreign trust or transacting with one can produce both income tax consequences and information reporting requirements.^[6]

Foreign trust classification and income

A trust is a foreign trust unless it meets the domestic trust definition. The same test applies for Form 3520 reporting. Domestic status requires both primary administrative supervision by a U.S. court and authority held by one or more U.S. persons over every substantial trust decision.^[7]

Under the grantor trust rules, trust assets may be treated as belonging to a person other than the trust, including only part of its assets. The IRS generally taxes a U.S. person treated as a foreign trust's owner on the trust income attributable to that ownership.^[6][7]

Section 679 generally treats a U.S. transferor as an owner when the foreign trust has, or is presumed to have, a U.S. beneficiary. A U.S. beneficiary receiving a foreign nongrantor trust distribution generally reports the beneficiary's share of distributable net income.^[6]

Form 3520

Form 3520 reports specified foreign trust transactions and ownership under the grantor trust rules. The IRS generally identifies creation, transfers, loans, distributions, and uncompensated use of trust property among the events relevant to filing.^[6]

The instructions require a separate Form 3520 for each foreign trust involved in reportable transactions. For an owner, Part II remains required even when the trust has had no transactions during the reporting period.^[7]

A reportable distribution can include an indirect transfer, and the recipient need not be named as a beneficiary in the trust terms. Constructive distributions also count, including amounts a foreign trust pays for a person's credit card charges.^[7]

The instructions provide exceptions for most fair market value transfers, while retaining reporting for specified categories within that group. Examples include transfers involving a related foreign trust and transfers made in exchange for obligations classified as qualified obligations.^[7]

Form 3520-A and owner statements

A U.S. person treated as an owner has responsibility for ensuring that the foreign trust files a complete and accurate Form 3520-A on time. The trust also furnishes annual statements to its U.S. owners and beneficiaries.^[6]

If the trust does not file Form 3520-A, the IRS requires the U.S. owner to attach a substitute return to a timely filed Form 3520. The substitute includes the owner and beneficiary statements, with copies provided to the U.S. owners and beneficiaries.^[6][7]

The IRS specifies the foreign trust's employer identification number for Form 3520-A, in place of the owner's individual identifying number. Its Form 3520 instructions likewise distinguish individual identifiers from the EINs used for trusts and other entities.^[6][7]

Form 8938, FBAR, and reporting exceptions

Form 8938 may be required when the total value of specified foreign financial assets in which a person has an interest exceeds the applicable reporting thresholds.

FBAR reporting may apply where a person has a financial interest in, or signature authority over, a foreign financial account. The IRS account examples include bank and brokerage accounts, mutual funds, and trusts, with reporting made on FinCEN Form 114.^[6]

Specified exceptions to Forms 3520 and 3520-A cover certain qualifying retirement and other benefit trusts, subject to eligibility and trust requirements. The IRS expressly states that these exceptions leave other reporting obligations intact, including any applicable Form 8938 or FBAR requirement.^[6]

Primary sources

The Internal Revenue Service publishes a foreign trust reporting overview and the instructions for Form 3520, which together cover the U.S. filing rules for foreign trusts.^[4][6][7]

Guernsey trust law framework

Trust law framework

The Trusts (Guernsey) Law, 2007 governs Guernsey trusts.^[8]

Under a trust, legal title to property is separated from the right to benefit from that property.^[8] The settlor transfers legal title to a trustee to hold for beneficiaries or a purpose.^[8]

Proper law of foreign trusts

Section 65(1) provides that, subject to subsection (2), a foreign trust is governed by and interpreted in accordance with its proper law.^[9]

Trustee duties

Trustees must act prudently and in beneficiaries' interests, performing their duties honestly and in good faith.^[8]

More on Guernsey

Questions and answers

Related resources

Related glossary terms

• Section 6048: Section 6048 sets information reporting rules for certain foreign trusts. Its parts cover notice of events, U.S. owner duties and beneficiary distributions.
• FATCA: FATCA requires certain U.S. taxpayers to report foreign assets and financial institutions to report accounts to the IRS. Form 8938 may apply at thresholds.
• Foreign entity: Form 8938 instructions treat interests in foreign corporations and partnerships, and in trusts and estates, as specified foreign financial assets in some cases.

Related articles and guides

• Mauritius Trust Tax and Reporting Rules: Mauritius legislation on trusts and trustee residence, with the IRS guidance on foreign trust reporting by U.S. persons who own or benefit from such trusts.
• Cook Islands trust tax and reporting rules: Cook Islands trust legislation and revenue rules on tax information reporting, with the IRS reporting rules for a U.S. citizen with a Cook Islands trust.
• Bermuda reporting and U.S. foreign trust forms: Bermuda exchanges financial account information under CRS and FATCA. U.S. persons connected with foreign trusts there file the IRS forms for trust reporting.

Tools and official documents

• FinCEN Report 114 (FBAR): foreign account reporting: FinCEN Report 114 (FBAR) for U.S. citizens: account definitions, financial interests, signature authority, trust provisions and the filing requirements it sets.
• IRS form finder: Search form reference pages by keyword or number. Each result has a one-line description, and matches run across form titles and numbers, plus descriptions.