Trusts & Estates: A Practical US Tax Compliance Review for US‑Connected Families

Each new US tax year offers a natural pause point for trustees, families, and advisers to take stock, particularly where a trust or estate has any US connection.

In practice, US compliance issues rarely arise because a deadline was ignored. They arise because facts have evolved quietly: a beneficiary has moved to the US for university, investment portfolios gather US-unfriendly investments, settlors consider expatriation from the US, or legacy structures are left running on assumptions made years ago.  To support this annual housekeeping exercise,  our 2025 US Tax Year Trust & Estate Tax Compliance Calendar, highlights key US federal filing deadlines and recurring obligations

US Tax “Housekeeping” Checklist: What Should Be Reviewed?

Rather than focusing solely on dates, a more useful approach is to run a practical housekeeping review across the structure. In our experience, the following areas consistently highlight exposure and risk areas.

Have Any Family Members’ US Profiles Changed?

US citizenship, green card status and US tax residence do not always change in obvious ways.

One increasingly common trigger is trust beneficiary children studying in the US on F‑1 visas. While many F‑1 students are initially treated as non‑resident aliens (NRA) for US tax purposes, they often still have US filing obligations, and their presence in the US may create wider trust planning considerations. Over time, extended US presence can also move individuals closer to US tax residence, sometimes without realising the US tax exposure associated with the change in US tax status.

Reviewing beneficiary residence and citizenship status annually is a good way for trustees to conduct their due diligence on potential US tax exposure.  It is also vital to ensure that new beneficiaries admitted to the structure have been correctly profiled to ensure there is no unexpected US nexus.

Is Anyone Considering Expatriation – Now or in the Future?

Expatriation has become a more frequent discussion point for US citizens and long‑term residents living outside the US. Where trusts are involved, this decision can have consequences that extend well beyond the individual.

Trustees and advisers should consider:

• Whether a US settlor or beneficiary could become a covered expatriate,
• How trust interests are treated and valued under the US exit tax regime,
• Ongoing withholding and reporting obligations for trustees following expatriation.

For more information on expatriation and trusts, see our article Expatriation and Foreign Trusts: Navigating US Tax Rules for Beneficiaries.

Have Trust Classifications and US Tax Positions Been Revisited?

Trust classification for US purposes, including foreign versus domestic, and grantor versus non‑grantor status, should not be treated as a one‑time exercise. Changes in trustees, governance powers, protector powers, settlor influence or beneficiary profiles can all shift the US analysis over time.

If your trust structure has not been reviewed recently, it may be worth conducting a US tax review of the current structure to ensure US tax exposure is properly understood and documented.

A refresher on the fundamentals is available in Your Guide to Foreign Trusts.

Are the Trust’s Assets Still US‑Efficient and “US‑Friendly”?

Investment portfolios are often reviewed for commercial performance, but not always through a US tax lens. A US tax exposure can often alter the net benefit of any investment.

As part of a US tax compliance refresh or ongoing planning considerations, trustees may wish to ask:

• Do current assets create adverse US tax outcomes for trustees, US beneficiaries or settlors?
• Are there exposures to Passive Foreign Investment Company (PFIC), Controlled Foreign Corporation (CFC) rules or complex information‑reporting regimes to consider?
• Are investments aligned with anticipated future events (e.g. distributions, relocations, or expatriation)?

Periodic asset‑level reviews can help ensure that trust investments remain appropriate and efficient for all relevant tax profiles, rather than storing up avoidable compliance burdens.

Does FATCA Reporting Reflect Today’s Reality?

FATCA reporting frequently lags behind actual circumstances. Changes in beneficiaries, controlling persons, trustees or US connections can easily create mismatches that persist for years if not reviewed.

Trustees are increasingly expected to demonstrate that annual FATCA due diligence procedures are in place, rather than relying on historic classifications and assumptions.

Does the Trust or Estate Hold US‑Situs Assets?

A critical, and often overlooked, area of review is whether a foreign trust or estate holds US‑situs assets, particularly where those assets are expected to be owned directly by a non‑US person in the future.  US‑situs assets can include, among other things:

• US real estate,
• Shares in US corporations,
• Certain US investment funds, or
• Tangible property located in the US.

Direct ownership of US‑situs assets by a non‑US individual can expose the structure to US estate tax, often at rates of up to 40%, with a significantly lower exemption ($60,000) than applies to US persons.

For long-term planning considerations, Trustees and advisers should consider:

• Whether US‑situs assets are held directly or through an interposed entity,
• Whether current ownership structures remain appropriate in light of potential estate tax exposure,
• Whether the use of estate tax “blocker” structures (for example, non‑US holding companies or other planning vehicles) should be reviewed or refreshed, and
• How any restructuring interacts with wider trust, income tax and reporting considerations.

This area is particularly important where assets were acquired many years ago, or where a structure predates changes in family residence or citizenship profiles.Further information can be found in our article US Estate Tax Guide for Non-residents.

Other US‑Nexus Considerations Worth Reviewing

Depending on the facts, trustees, settlors and beneficiaries may also wish to consider:

• Whether historic US reporting gaps exist and should be remediated,
• State‑level US tax exposure (often overlooked in trust planning),
• The interaction between US tax positions and UK or other local tax advice, and
• Whether trustee decision‑making processes sufficiently evidence consideration of US tax implications. 

How We Can Help

In addition to full US tax compliance services, we routinely assist trustees and families by preparing a high‑level US tax compliance and planning review file note.

This provides:

• Identification of US tax and information‑reporting markers,
• Documentation of assumptions and positions taken,
• Highlighting of emerging risks or planning points,
• Practical support for trustee governance and audit trails, and
• Confirmation that FATCA reporting reflects current circumstances.

For many trust clients, this review provides clarity and peace of mind, even where no immediate tax filing requirements arise.

A Sensible Time to Take Stock

If you are involved with a trust or estate with any US connection, whether through beneficiaries, settlors, asset exposure or potential expatriation,  now is a sensible moment to pause and reassess.

• Review the 2025 Trust & Estate compliance calendar,
• Run through the housekeeping checklist above, and
• Document your US tax position before issues arise.

If you would like to discuss a US compliance review or would find a high‑level US tax review and planning file note helpful, please feel free to get in touch.

Article written by Tas Meghani