How to make sure the life insurance benefits your family will receive after your death avoid the federal estate tax. This is an important issue because once the federal estate tax applies the rates are high.

Essentially, insurance on your life will be included in your taxable estate if either of two cases applies:

(1) If the estate is the beneficiary of the insurance proceeds, or

(2) If you possessed "incidents of ownership" in the policy at death (or within three years of your death).

Avoiding the first situation is easy: just make sure your estate is not designated as beneficiary of the policy. The second rule is more complex.

Clearly, if you are the owner of the policy, the proceeds are included in your estate regardless of who the beneficiary is. However, simply having someone else possess legal title to the policy will not prevent this result if you hold onto certain economic ownership rights ("incidents"). Rights which, if held by you, would cause the proceeds to be taxed in your estate include:

the right to change beneficiaries

the right to assign the policy (or revoke an assignment)

the right to pledge the policy as security for a loan

the right to borrow against the policy's cash surrender value

the right to surrender or cancel the policy

Keep in mind as well that merely having any of the above powers will cause the policy to be taxed in your estate even if you never exercise it.

Buy-sell agreements. Life insurance obtained to fund a buy-sell agreement for a business interest under a "cross-purchase" arrangement will not be taxed in your estate (unless it's named as beneficiary). For example, say Al and Bob are partners who agree that the interest of the first of them to die will be bought by the surviving partner. To fund these obligations, Al buys a life insurance policy on Bob's life. Al pays all the premiums, retains all incidents of ownership, and names himself beneficiary. Bob does the same regarding Al. When the first partner dies, the insurance proceeds are not taxed in his estate.

Life insurance trusts. A popular vehicle for life insurance which can be set up to keep the proceeds from being taxed in an insured's estate is a life insurance trust. Typically, the policy is transferred to the trust along with assets which can be used pay future premiums. Or the trust buys the insurance itself with contributed funds. As long as the trust document allows the insured none of the ownership rights described above, the proceeds will not be included in his estate.

The three-year rule. If you are considering setting up a life insurance trust with a policy you own currently or simply assigning away your ownership rights in such a policy, please contact us at Tax Tech Support  as soon as you reasonably can to effect these moves. You must live for at least three years after these steps are taken or the proceeds will be taxed in your estate. For policies in which you never held incidents of ownership, the three-year rule doesn't apply.

If you own a home and some life insurance and are entitled to retirement plan benefits from work, your gross estate may already exceed the threshold at which estate tax liability begins. (In 1998, that threshold is $625,000; it will gradually rise to $1 million by 2006.) Since estate tax rates begin at 37% and rise to 55%, planning to make the best use of your exemption is essential.

In 1998, you are entitled to a credit against estate (or gift) tax of $202,050. This credit exactly equals the federal estate (or gift) tax on $625,000, thereby exempting from tax the first $625,000 of your taxable estate (or taxable gifts made during lifetime). Your spouse is entitled to an additional credit of $202,050.

If the value of all assets owned by you and your spouse exceeds $625,000, an estate plan which results in the surviving spouse receiving all the assets will result in estate tax liability at the death of the second spouse. This, in turn, reduces the amount available for your children or other beneficiaries.

A married couple can escape estate tax on assets of up to $1,250,000 if the couple's wills are drafted to take full advantage of each spouse's own credit. The wills should provide that, when the first spouse dies, the amount protected from estate tax by the available credit passes to a trust (the "credit shelter trust") from which the surviving spouse can benefit during his or her remaining lifetime but which will not be included in the surviving spouse's estate at death. The following example (which uses the exemption amount that applies in 1998) illustrates the tax savings that result from using a credit-shelter trust in the will of the first spouse to die instead of leaving the entire estate outright to the surviving spouse.

Assume you and your spouse have assets worth $1 million and $250,000, respectively. If you leave your entire estate outright to your spouse, there will be no estate tax at your death because your $1 million qualifies for the marital deduction in your estate. However, when your spouse dies, her estate includes the $1 million inherited from you (assuming no intervening changes in wealth) plus her own $250,000, resulting in a federal estate tax of $246,250, determined as follows:

After the estate taxes are paid, $1,003,750 is left for the children.

If, instead, your will provided that an amount equal to the estate tax exemption ($625,000 in 1998) passed to a trust from which your spouse and/or children would receive income and could have principal paid to them if they needed it, and the balance of your estate ($375,000) passed outright to your spouse, the tax result would be:

Your Estate

Your Spouse's Estate

Thus, the full $1,250,000 is available for the children.

Please contact us at Tax Tech Support   if you would like to discuss pursuing estate tax credit-shelter planning.

The role of the marital deduction in your estate plan. In this connection, it's important to understand one danger this deduction poses: that of "overqualifying" for it.

There are no limits on how much of a marital deduction your estate can qualify for. Thus, if your entire estate goes to your surviving spouse, your estate will owe no federal estate tax. Many taxpayers take this simple approach. In the long run, however, it can cost your family hundreds of thousands of dollars in extra estate taxes. Here's what's involved.

Every individual is entitled to a "unified" credit entitling him to transfer $625,000 in cash or property free of federal estate or gift taxes ("transfer" taxes). (The $625,000 amount, which applies in 1998, will gradually rise to $1 million by 2006.) Property doesn't have to be transferred to the individual's spouse to qualify for this credit. A husband and wife, therefore, can transfer a total of $1,250,000 ($625,000 each) to their children (or other beneficiaries) in 1998, free of transfer taxes. If the first of them to die leaves everything to the surviving spouse, however, he will have failed to take advantage of his unified credit. At the later death of the spouse, assets with a value of from $625,000 to $1 million (depending on the year of her death) passing to the children will be "sheltered" by her credit, but the rest of the "parental" estate will be taxed.

Example (1). Harry dies in 1998 with an estate of $2 million which he leaves in its entirety to his surviving spouse, Wilma. Harry's estate has no estate tax liability due to the marital deduction. Wilma dies in 1999 with the $2 million comprising her estate. After applying her unified credit, the estate tax bill will be roughly $570,000.

Example (2). The facts are the same as above except that Harry leaves only $1,375,000 to Wilma and $625,000 to their children. In this case, Harry's estate will still owe no estate tax due to the combined effect of the marital deduction and unified credit. At Wilma's later death, her estate is $1,375,000, instead of the $2 million in the first example. Now, after applying her unified credit, the estate tax bill will be roughly only $291,000. By having Harry keep $625,000 from qualifying for the marital deduction, roughly $279,000 in estate taxes are avoided.

Property passing to the spouse. One reason an estate may overqualify for the marital deduction is there are ways for property to go the spouse automatically—that is, not via the taxpayer's will or through his probate estate. Two common examples are jointly owned property and life insurance.

If a married couple owns property jointly with survivorship rights, the surviving spouse obtains complete ownership by operation of law outside the estate. Under the estate tax rules, half the value of the property is included in the gross estate but qualifies for the marital deduction since it goes to the surviving spouse. Similarly, if the surviving spouse is the beneficiary of life insurance which is included in the estate, the marital deduction applies.

Accordingly, to avoid "overqualifying" for the marital deduction, it is important to know what property is already targeted to go to the surviving spouse. Then steps can be taken within your estate plan to make sure enough assets are set aside to take advantage of the unified credit.

If you are hesitant to remove $625,000 or more of your assets from your spousal bequest for fear of leaving your spouse with insufficient property to meet her needs after your death, special arrangements can be made to achieve your goals. One way is to place assets in trust with your spouse receiving the income interest for life and with your children receiving the assets at the spouse's death. The trust can be set up to avoid qualifying for the marital deduction at your death, thus avoiding inclusion in your surviving spouse's estate at her death.

Responding to the stories we have all heard about family businesses that had to be sold in order to pay estate taxes, Congress recently added a new provision that, beginning in 1998, will allow more businesses to be passed down to the next generation intact.

The new provision allows an estate tax exclusion for qualified family-owned business interests. The amount of the exclusion, when combined with the estate tax exemption everyone receives ($625,000 in 1998, but slated gradually to rise to $1 million by 2006), can't exceed $1.3 million. In other words, the amount of the family-owned business exclusion will start at $675,000 in 1998, and it will gradually decrease until it reaches $300,000 in 2006.

The requirements for the exclusion are detailed, of course (this is the tax code, after all), but there are several planning techniques that can be employed to ensure that this valuable tax break will not be missed. For example, one of the requirements is that the value of the decedent's qualified family-owned business interests that are passed to qualified heirs must exceed 50 percent of the decedent's adjusted gross estate. To put it in concrete terms, that means that if the business interest is valued at $600,000, an estate with an adjusted gross estate of $1,190,000 would qualify for the exclusion (since the interest would comprise more than half the estate) but one with an adjusted gross estate of $1,250,000 would not. With a little planning, though, the $1,250,000 estate could receive the exclusion, since the law allows the amount of the adjusted gross estate to be reduced by gifts made to members of the decedent's family that are otherwise excluded under the gift tax annual exclusion. Thus, gifts of $10,000 to each of three children for two years would not only be free of gift tax, but would also bring the value of the adjusted gross estate down to where it could qualify for the exclusion for family-owned business interests.

If you're charitably inclined, there are tax-advantaged ways to make a gift to a favorite charity while enjoying the income from that gift for your lifetime. Many educational and charitable organizations offer plans that combine the benefits of an immediate income tax deduction and a lifetime income from the charitable gift. In most cases, you can make the gift in cash or securities. Here's a brief overview of the major types of deferred charitable gifts.

A pooled income fund is probably the most common type of deferred giving plan. It closely resembles a mutual fund. When you make a gift to a pooled income fund, it is merged with gifts of other donors, and you receive your allocable share of the income earned by the fund. Distributions from the fund are usually made quarterly and are taxable as ordinary income. There's no guarantee as to the rate of earnings; that depends on the fund's success.

You get an immediate income tax deduction in the year you make a gift to a pooled income fund. The amount of your deduction depends on a combination of your age and the fund's highest rate of earnings in the prior three years. The deduction will be less than the full value of your contribution, because it represents the present value of the funds that the charity will withdraw from the fund after your death.

In a charitable remainder unitrust, the charity sets up a separate fund to hold your gift until your death, at which time it will become the charity's property. You decide at the outset on the annual percentage of the fair market value of the assets that you are to receive as income for life. For example, you may make a $50,000 gift to a unitrust and specify an 8% return. Your annual income will be $4,000. If the value of the trust assets drops in the next year to only $40,000, your income that year will be $3,200. If the value goes up to $60,000 in the following year, your income that year will be $4,800.

Unlike a pooled income fund, a unitrust is handled individually. Therefore, the charity may require a much larger initial contribution to a unitrust than to a pooled income fund.

Just as with a pooled income fund, your deduction for a gift to a charitable remainder unitrust will be less than the full value of your contribution.

A charitable remainder annuity trust is similar to a unitrust in that your gift to the charity is placed in an individual trust. The annuity trust provides an annual payment of a fixed dollar amount for your lifetime. This differs from a unitrust, which provides a fixed percentage of the asset value.

For example, say that you gave a charity $50,000 to set up a charitable remainder annuity trust that will pay you $4,000 a year for life, after which the trust principal passes to the charity. If the trust earns less than $4,000 a year, it will sell assets to make up the difference. If it earns more than $4,000, it will pay you $4,000 and add the excess to the trust principal.

Your income tax deduction from a gift to a charitable annuity trust is based on your age and the amount of your annual payment. As a rule of thumb, the older you are, the larger the deduction, and the greater the annual payment, the smaller the deduction.

In a charitable gift annuity, you make a gift to charity in exchange for a guaranteed income for life. This is very much like buying an annuity in the commercial marketplace, except that you get an immediate charitable deduction equal to the excess of what you paid over what the annuity is worth, based on IRS tables.

Unlike the pooled income fund and charitable remainder trusts, your income from the charitable gift annuity is an obligation of the charity that doesn't depend on investment results. The rate of return on your gift annuity isn't variable, as in a pooled income fund, or negotiable, as in a charitable remainder trust. Instead, it is most likely to come from a table based on your age at the time of the gift.

A portion of each year's payment is tax-free, because the tax law allows you to recover your original payment over your life expectancy. In the year when you buy the annuity, you get a charitable deduction for a portion of the purchase price, determined from an IRS table geared to your age.

Few people realize that, even though they may have a modest estate, their families may owe the government hundreds of thousands of dollars because they own a life insurance policy with a substantial death benefit. This is because life insurance proceeds, while not subject to federal income tax, are considered part of your taxable estate and are subject to federal estate tax at rates from 37% to 55%.

The solution to this problem is to create an irrevocable life insurance trust to own the policy and receive the policy proceeds on your death. A properly drafted life insurance trust keeps the insurance proceeds from being taxed in your estate as well as in the estate of your surviving spouse. It also protects the trust beneficiaries from their own "excesses," against their creditors and in the event of divorce. Moreover, the trust also provides reliable management for the trust assets. Here's how the irrevocable life insurance trust works.

You create an irrevocable life insurance trust to be the owner and beneficiary of one or more life insurance policies on your life. You contribute cash to the trust to be used by the trustee to make premium payments on the life insurance policies. The contributions you make to the trust for premium payments generally will qualify for the annual gift tax exclusion. The life insurance trust typically provides that, during your lifetime, principal and income, in the trustee's discretion, may be paid or applied to or for the benefit of your spouse and descendants. This allows indirect access to the cash surrender value of the life insurance policies owned by the trust, and permits the trust to be terminated if desired despite its being irrevocable. On your death, the trust continues for the benefit of your spouse during his or her lifetime. Your spouse is given certain beneficial interests in the trust, such as entitlement to income, limited invasion rights, and eligibility to receive principal. On the death of your spouse, the trust assets are paid outright to, or held in further trust for the benefit of, your descendants.

A special kind of irrevocable trust can be used to transfer your home to your children at a significantly reduced gift tax cost and with no estate tax, yet allow you to continue to live in the home for as long as you wish. This special type of trust is known as a qualified personal residence trust (QPRT). Here's how it works.

During your lifetime, you transfer your home to the trustee, who can be yourself. The trustee must allow you to continue to use the home rent-free for a fixed number of years specified in the trust instrument (the "fixed" term), which should be a term you are likely to survive. During the fixed term, you will continue to pay mortgage expenses, real estate taxes, insurance, and expenses for maintenance and repairs, and will continue to deduct mortgage interest and real estate taxes on your individual income tax return. When the fixed term ends, the home is distributed to your children, or remains in further trust for them.

Even after the fixed term ends, you can continue to use the home in one of two ways. First, rather than immediately distributing the home to your children, the home can be retained in trust for your spouse's lifetime, thus assuring that the home is available indirectly to you. Second, you can enter into a lease with your children which will allow you to live in the house for as long as you wish.

Although your transfer of the home to the trust is a taxable gift, you are allowed to subtract from the value of the home the deemed rental value for the term you have retained. Generally, no gift tax will be due as a result of your gift to the trust since the gift (after subtracting the rental value of the home for the term you have retained) would be unlikely to exceed your available exemption from the gift and estate tax. (The exemption is $625,000 in 1998, and it will gradually rise to $1 million by 2006.) If you survive the fixed term of the QPRT, the value of the home will not be included in your estate for estate tax purposes.

A QPRT is an extremely effective way to remove a home's value from your estate at a greatly reduced gift tax cost.

There is a very powerful estate planning tool that may enable you to reduce your liability for income and estate taxes and diversify your assets in a tax-advantaged manner. It's called a charitable remainder trust (CRT). Here's how it works.

A CRT is an irrevocable trust that makes annual or more frequent payment to you, typically until you die. What remains in the trust then passes to a qualified charity of your choice. A number of advantages may flow from the CRT.

First, you will obtain a current income tax charitable contribution deduction for the value of the charity's interest in the trust. The deduction is permitted when the trust is created even though the charity has to wait to receive anything.

Second, the CRT is a vehicle that can enhance your investment return. Because the CRT pays no income taxes, the CRT can generally sell an appreciated asset without recognizing any gain. This enables the trustee to reinvest the full amount of the proceeds and thus generate larger payments to you for your life.

The trust will be eligible for the estate tax charitable deduction if it passes to one or more qualified charities at your death. If you wish to replace the value of the contributed property for heirs who might otherwise have received it, you could use some of your cash savings from the charitable income tax deduction to purchase a life insurance policy on your life for the benefit of your heirs. Often, through the leveraging effect of life insurance, it is possible to pass on assets of greater value than those contributed to the trust. In this way, your heirs are not deprived of property they had expected to inherit.

CRTs are very complex arrangements, but in the right circumstances are an invaluable planning tool. If you would like to discuss whether a CRT might be appropriate for you, please contact us at Tax Tech Support .

If you're like many people, you have substantial sums invested in individual retirement accounts (IRAs). In fact, it's not unusual for a rollover IRA—one holding distributions from a qualified retirement plan—to be a family's most important asset.

While owning these assets may make you rich on paper, this wealth could go up in smoke if the IRA isn't handled correctly. If you take the money out of the IRA, you must pay income tax on it. Even worse, if you leave it in the IRA until death, the date-of-death account balance will be subject to estate tax, and possibly an add-on accumulation tax. Plus, your beneficiaries will still have to pay income tax on what's left. Total federal and state taxes can even exceed 100%!

By making the IRA payable to a qualified terminable interest property (QTIP) trust, you can postpone paying estate taxes on the property and provide for your spouse during his or her lifetime. And you can do this while protecting the property for ultimate distribution to your children.

An IRA-to-QTIP arrangement can minimize your taxes and meet your non-tax objectives. But the arrangement must be carefully structured, or your spouse and children may lose the benefit of income tax and estate tax deferral. Payout of an IRA must comply with technical provisions of the income tax law. QTIP trusts must satisfy estate tax requirements. Meshing the two sets of rules is difficult.

Please contact us at Tax Tech Support if you wish to discuss the status of your IRA or any other aspect of your retirement planning. We look forward to hearing from you.

As a result of a change made by the Taxpayer Relief Act of 1997, it may be necessary to revise your will. Your estate will include what the tax code refers to as "qualified terminable interest property" (QTIP). The law change concerns a technical provision regarding your estate's right to recover, from the person receiving the QTIP property, the portion of the estate tax attributable to the inclusion of the property in your gross estate. Your current will includes a provision specifying that all taxes shall be paid by your estate. It is my understanding that you intended to waive the right of recovery with respect to the QTIP property. Under prior law, a will provision such as the one you currently have was sufficient to waive the right of recovery. Under the new law, a provision specifically stating your intent to waive the right of recovery is necessary.

As we illustrate below, taxpayers can transfer substantial amounts free of gift taxes to their children or other donees through the proper use of this exclusion.

The exclusion covers $10,000 of gifts an individual makes to each donee each year. Thus, a taxpayer with three children can transfer a total of $30,000 to them every year free of federal gift taxes. If the only gifts made during a year are excluded in this fashion, there is no need to file a federal gift tax return. If annual gifts exceed $10,000, the exclusion covers the first $10,000 and only the excess is "taxable." Further, even "taxable" gifts may result in no gift tax liability thanks to the unified credit (discussed below). (Note, this discussion is not relevant to gifts made by a donor to his spouse because these are gift tax-free under separate marital deduction rules.)

Gift-splitting by married taxpayers. If the donor of the gift is married, gifts to donees made during a year can be treated as "split" between the husband and wife, even if the cash or gift property is actually given to a donee by only one of them. By gift-splitting, therefore, up to $20,000 a year can be transferred to each donee by a married couple because their two annual exclusions are available. Thus, for example, a married couple with three married children can transfer a total of $120,000 each year to their children and children-in-law ($20,000 for each of six donees).

Where gift-splitting is involved, both donor spouses must "consent" to it. Consent should be indicated on the gift tax return (or returns) the spouses file. IRS prefers that both spouses indicate their consent on each return filed. (Since more than $10,000 is being transferred by a spouse, a gift tax return (or returns) will have to be filed, even if the $20,000 exclusion covers total gifts. Please  contact us at Tax Tech Support  regarding the preparation of a gift tax return (or returns), if more than $10,000 is being given to a single donee in any year.)

The "present interest" requirement. For a gift to qualify for the annual exclusion, it must be of a "present interest." That is, the enjoyment of the gift by the donee cannot be postponed into the future. For example, if you put cash into a trust and provide that donee A is to receive the income from it while he's alive and donee B is to receive the principal at A's death, B's interest is a "future" interest. Special valuation tables are consulted to determine the value of the separate interests you set up for each donee. The gift of the income interest qualifies for the annual exclusion because enjoyment of it is not deferred, so the first $10,000 of its total value will not be taxed. However, the gift of the other interest (called a "remainder" interest) is a "taxable" gift in its entirety.

Exception to present interest rule. If the donee of a gift is a minor and the terms of the trust provide that the income and property may be spent by or for the minor before he reaches age 21 and that any amount left is to go to the minor at age 21, then the annual exclusion is available (that is, the present interest rule will not apply). These arrangements (called Section 2503(c) gifts because of the Section in the tax code that permits them), allow parents to set assets aside for future distribution to their children while taking advantage of the annual exclusion in the year the trust is set up.

"Unified" credit for taxable gifts. Even gifts which are not covered by the exclusion and which are thus "taxable," may not result in a tax liability. This is because a tax credit wipes out the federal gift tax liability on the first $625,000 of taxable gifts you make in your lifetime. (The $625,000 amount, which applies in 1998, will gradually rise to $1 million by 2006.) This credit, however, applies both for gift and estate tax purposes (that's why it's called "unified"). Thus, to the extent you use it against a gift tax liability, it is reduced (or eliminated) for use against the federal estate tax at your death.

As I'm sure you know, everyone can give away up to $10,000 each year to each of an unlimited number of donees, free of gift and generation-skipping transfer tax. Where the donee is a minor, many parents and grandparents make their annual gifts to a custodial account under either the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA). An UGMA or UTMA account works well and is easy to create and maintain. However, it has one major defect: when the child (or grandchild) reaches age 18 or 21, depending on the state in which the beneficiary resides, the beneficiary can do whatever he or she wants with the money in his or her custodial account. If, for example, the beneficiary wants to buy a sports car instead of going to college, there is nothing that you can do about it.

Few parents wish their children (or grandchildren) to receive significant amounts of cash at age 18 or 21. Fortunately, there is a special kind of trust which avoids this problem. It's called a "Crummey" trust, after a court case that paved the way for the use of this kind of trust. With a Crummey trust, the property can remain in trust for as long as you wish. Thus, you can transfer property to remain in trust for the beneficiary's entire lifetime or until an appropriate age (e.g., age 30) or event (e.g., graduation from college) without forfeiting the $10,000 gift tax exclusion. You decide how the money is to be used and how much the beneficiary can receive.

There's one catch to a Crummey trust: annual contributions you make to the trust won't qualify for the $10,000 gift tax exclusion unless you notify the beneficiary that you've made the contributions, and give him a limited period of time (usually 30 days) in which he can withdraw the contributions from the trust. It's usually understood that the beneficiary won't exercise his right to withdraw the contributions, but will let them remain in the trust. However, that expectation should always remain unwritten because, if there's any evidence of it, IRS will use that evidence to say that the beneficiary didn't really have a power of withdrawal. If the beneficiary violates the unwritten understanding by withdrawing property from the trust, there's nothing you can do about it, except to show your displeasure by not making any further contributions to that beneficiary's trust.

There are new expanded reporting requirements in connection with foreign trusts. Since penalties may be incurred for failing to comply with the requirements, please contact us at Tax Tech Support so that we can determine if the reporting requirements apply to you, and if they do, assist you to comply.

As discussed below, in some cases, the penalties can be substantial. The new requirements apply to "reportable events" taking place after August 20, 1996. They were instituted by the Small Business Job Protection Act of 1996.

Under the expanded reporting requirements, a "responsible party" must file a written notice on or before the 90th day (or a later day if established by IRS) after a "reportable event." A reportable event means the creation of the trust, the transfer of money or property to it (including a transfer due to death), and the death of a US citizen or resident who was treated as owner of part of the trust or whose gross estate includes any part of it. A transfer of property to the trust in exchange for consideration at least equal to its fair market value is not a reportable event.

Depending on the event, the "responsible party" for reporting purposes is the grantor of an inter vivos trust, the transferor (except by reason of death), or the executor of a decedent's estate.

The notice must include the amount of money or other property transferred to the trust, and the identity of the trust and each trustee and beneficiary (or class of beneficiaries) of the trust.

If you are treated as the owner of part of the trust (under the grantor trust rules), you must also make sure the trust files an annual report providing a full accounting of trust activities for the year, the name of the US agent for the trust, and other information required by the IRS.

Reporting is also required by any US person who receives a distribution from a foreign trust. If you receive a distribution, you must report the name of the trust, the aggregate amount of distributions received during the year, and other information required by the IRS.

What is a foreign trust? A "foreign trust" is any trust other than one over the administration of which a US court is able to exercise primary supervision, and for which one or more US fiduciaries have the authority to control all substantial trust decisions. Note as well, however, that a US trust may be treated as a foreign trust for purposes of the reporting requirements if it has substantial activities or holds substantial property outside the US.