Quote:
Originally Posted by PeterR
Punktlich
Thanks for looking at this.
At present the amounts are pretty insignificant - interest of just under GBP 100 on the largest one in 2008 - but I want to get this right at an early stage as new gifts are being made to the children each year at present, and interest is also being added, so the accounts will get gradually bigger - and at some point my wife and children may inherit more money and have more complicated tax affairs.
What we have done this year is reported the existence of the children's accounts on the FBAR form for my wife, and not reported anything anywhere else.
For UK purposes no tax is being deducted as the children do not have enough income to be taxed and we have submitted the relevant tax exemption forms supplied by the building society. But this indicates that the income is definitely treated as being the children's for UK tax purposes.
There do not appear to be any legal restrictions in the terms and conditions of the child accounts opened for the two older children (I haven't checked the baby's - he's with a different building society). Presumably the income is the children's in the UK because of an implied term that the capital and income will be used for their benefit. So perhaps for US purposes this may in fact be a joint account rather than a trust as it doesn't have any legal terms in black and white - so far as I can see there is nothing but honesty stopping us using the money for whatever we want to, as either of us can withdraw money at any time.
Kind regards
Peter
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For the baby at least there will be a Child's Trust Fund. From asking around, it's my impression that people aren't reporting these. Perhaps the new penalties will frighten them into doing so. But a 529 account would potentially be penalised in the UK, and a Child's Trust Fund penalised in the US, both as foreign trusts and because the accumulations in any mutual fund-unit trust-SICAV not qualified in the taxing country is taxed on current accumulations, and then in the qualifying country taxed when sold or withdrawn -- unless tax exempt. I had a case of a decedent who'd been tax-shy and had set up a Liechtenstein Stiftung and then never returned to the USA. His American offspring had a terrible time with the IRS and spent a lot of money with lawyers sorting out the tax evasion issue. Under current law it would have been worse.
I think there's a decent workaround and that is for the Stiftung to have an operating company and to distribute money as wages for actual work, preferably performed abroad. But that's beyond the subject of this thread.