A U.S. trust with non-U.S. beneficiaries is a "withholding
agent" for taxes under Code section 1441 and will be forced
to withhold income tax on some types of income, unless there
is a tax treaty or a statutory provision that eliminates the
witholding requirement. You'll report the income paid them
using Form 1042-S. Use a separate 1042-S for each different
type of income (interest, dividends, capital gains, etc.).

You are required to withhold at a statutory rate unless the
beneficiary claims the benefit of an income tax treaty. In
order to do so, the beneficiary must give you a signed
W-8BEN.

You'll have to give the recipient a 1042-S (and send a copy
to the IRS) even if the the income is exempt from
withholding because of a treaty. The 1042-S has a space to
fill in that the withholding rate is zero and that the
income is exempt from withholding because of a treaty
benefit.

You might want to consider hiring a professional who has
some experience with international tax issues to assist you,
at least with the first year, so you can see what's
involved. You're getting into areas of tax that can be
extremely complex.

--Chris Ballard

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I am the succesor trustee for my aunt's living trust which
has about $500,000 in bonds and mutual funds. There is
already an EIN number for the trust. She died last month.
The only 2 beneficiaries are her adult grandsons who are
Irish citizens who have never set foot in the US and
obviously do not have social security numbers. The terms of
the trust are that the income goes equally to the 2
grandsons until my death, at which time the corpus goes to
them in its entirety.

I have 2 questions-

1. When I fill out the 1041 next year and report that the
income has been payed to two Irish men with "n/a" social
security numbers will the IRS come after the trust or me
personally for taxes or will the income be tax free because
the beneficiaries are out of the IRS's reach?

2. How do I compute a reasonable trustee fee?

Thanks

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