Question about foreign estates, trusts, and 3520

Mar 23, 2011
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Hi guys,
I have a slightly complicated question for you all that I would appreciate your help on!

Let's say a Canadian dies and leaves an estate. The terms of the will indicate that her heir will receive a specific fraction of the estate funds at a number of specific ages (e.g., one quarter disbursed at age 20, one quarter at age 25, etc.). Until all of the payments have been made, these funds are held by the estate in a Canadian bank account. Each of these payments is less than $100,000, although the total amount of payments is greater than $100,000. In addition, each year, the estate distributes to the heir the amount of interest earned that year by the estate. The heir is a US citizen and resident.


Does the annual receipt of interest payments trigger a form 3520 reporting obligation? (This is the part that I am most unsure about--the situation is certainly structured in a trust-like manner, but I don't know if it is legally a trust since, after all, the checks are written from the estate. How would the heir know whether this is a "trust" situation or not? Can the estate also be a trust for the purposes of the IRS? Does it depend on the wording of the will?) And are they taxable?

What about the receipt of the "principal" payments? Do they trigger a form 3520 obligation? Are they taxable?

Does any of this trigger an FBAR reporting obligation on the part of the heir?



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