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If a trust makes a gratuitous transfer to another trust, the

Guarantee

grantor of the transferor trust is treated as the grantor of the

A guarantee:

transferee trust, except that if a person with a general power

•

Includes any arrangement under which a person, directly

of appointment over the transferor trust exercises that power

or indirectly, assures, on a conditional or unconditional

in favor of another trust, such person is treated as the

basis, the payment of another’s obligation;

grantor of the transferee trust, even if the grantor of the

•

Encompasses any form of credit support, and includes a

transferor trust is treated as the owner of the transferor trust.

commitment to make a capital contribution to the debtor or

otherwise maintain its financial viability; or

•

Grantor Trust

Includes an arrangement reflected in a “comfort letter,”

regardless of whether the arrangement gives rise to a legally

A grantor trust is any trust to the extent that the assets of the

enforceable obligation. If an arrangement is contingent upon

trust are treated as owned by a person other than the trust.

the occurrence of an event, in determining whether the

See the grantor trust rules in sections 671 through 679. A

arrangement is a guarantee, you must assume that the

part of the trust may be treated as a grantor trust to the

event has occurred.

extent that only a portion of the trust assets are owned by a

person other than the trust.

Nongrantor Trust

A nongrantor trust is any trust to the extent that the assets of

Gratuitous Transfer

the trust are not treated as owned by a person other than

A gratuitous transfer to a foreign trust is any transfer to the

the trust. Thus, a nongrantor trust is treated as a taxable

trust other than (a) a transfer for FMV or (b) a distribution to

entity. A trust may be treated as a nongrantor trust with

the trust with respect to an interest held by the trust (i) in an

respect to only a portion of the trust assets. See Grantor

entity other than a trust (e.g., a corporation or a partnership)

Trust above.

or (ii) in an investment trust described in Regulations section

Obligation

301.7701-4(c), a liquidating trust described in Regulations

An obligation includes any bond, note, debenture, certificate,

section 301.7701-4(d), or an environmental remediation

bill receivable, account receivable, note receivable, open

trust described in Regulations section 301.7701-4(e).

account, or other evidence of indebtedness, and, to the

A transfer of property to a trust may be considered a

extent not previously described, any annuity contract.

gratuitous transfer without regard to whether the transfer is a

Owner

gift for gift tax purposes (see Chapter 12 of Subtitle B of the

Code).

An owner of a foreign trust is the person that is treated as

owning any of the assets of a foreign trust under the grantor

For purposes of this determination, if a U.S. person

trust rules.

contributes property to a trust in exchange for any type of

Property

interest in the trust, such interest in the trust will be

disregarded in determining whether FMV has been received.

Property means any property, whether tangible or intangible,

In addition, a U.S. person will not be treated as making a

including cash.

transfer for FMV merely because the transferor is deemed to

Qualified Obligation

recognize gain on the transaction.

A qualified obligation, for purposes of this form, is any

If you transfer property to a foreign trust in exchange for

obligation only if:

an obligation of the trust (or a person related to the trust), it

1. The obligation is reduced to writing by an express

will be a gratuitous transfer unless the obligation is a

written agreement;

qualified obligation. Obligation and qualified obligation are

2. The term of the obligation does not exceed 5 years

defined below.

(including options to renew and rollovers) and it is repaid

within the 5-year term;

Gross Reportable Amount

3. All payments on the obligation are denominated in

U.S. dollars;

Gross reportable amount is:

•

4. The yield to maturity of the obligation is not less than

The gross value of property involved in the creation of a

100% of the applicable federal rate under section 1274(d)

foreign trust or the transfer of property to a foreign trust

for the day on which the obligation is issued and not greater

(including a transfer by reason of death);

•

than 130% of the applicable federal rate;

The gross value of any portion of a foreign trust treated as

5. The U.S. person agrees to extend the period for

owned by a U.S. person under the grantor trust rules or any

assessment of any income or transfer tax attributable to the

part of a foreign trust that is included in the gross estate of a

transfer and any consequential income tax changes for each

U.S. citizen or resident;

year that the obligation is outstanding, to a date not earlier

•

The gross value of assets deemed transferred at the time

than 3 years after the maturity date of the obligation, unless

a domestic trust to which a U.S. citizen or resident

the maturity date of the obligation does not extend beyond

previously transferred property becomes a foreign trust,

the end of the U.S. person’s tax year and is paid within such

provided such U.S. citizen or resident is alive at the time the

period (this is done on Part I, Schedule A, and Part III, as

trust becomes a foreign trust (see section 679(a)(5)); or

applicable); and

•

The gross amount of distributions received from a foreign

6. The U.S. person reports the status of the obligation,

trust.

including principal and interest payments, on Part I,

Schedule C, and Part III, as applicable, for each year that

Gross Value

the obligation is outstanding.

Gross value is the FMV of property as determined under

Related Person

section 2031 and its regulations as if the owner had died on

the valuation date. Although formal appraisals are not

A related person generally includes any person who is

generally required, you should keep contemporaneous

related to you for purposes of section 267 and 707(b). This

records of how you arrived at your good faith estimate.

includes, but is not limited to:

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Instructions For Form 3520 - Annual Return To Report Transactions With Foreign Trusts And Receipt Of Certain Foreign Gifts - 2008 Page 3

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