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Note: If a partnership or corporation makes a gratuitous

Gross Value

transfer to a trust, the partners or shareholders are

Gross value is the FMV of property as determined under

generally treated as the grantors of the trust, unless the

section 2031 and its regulations as if the owner had died

partnership or corporation made the transfer for a

on the valuation date. Although formal appraisals are not

business purpose of the partnership or corporation.

generally required, you should keep contemporaneous

records of how you arrived at your good faith estimate.

If a trust makes a gratuitous transfer to another trust,

the grantor of the transferor trust is treated as the grantor

Guarantee

of the transferee trust, except that if a person with a

A guarantee:

general power of appointment over the transferor trust

•

Includes any arrangement under which a person,

exercises that power in favor of another trust, such

directly or indirectly, assures, on a conditional or

person is treated as the grantor of the transferee trust,

unconditional basis, the payment of another’s obligation;

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

•

Encompasses any form of credit support, and includes

owner of the transferor trust.

a commitment to make a capital contribution to the debtor

Grantor Trust

or otherwise maintain its financial viability; or

•

Includes an arrangement reflected in a “comfort letter,”

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

regardless of whether the arrangement gives rise to a

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

legally enforceable obligation. If an arrangement is

the trust. See the grantor trust rules in sections 671

contingent upon the occurrence of an event, in

through 679. A part of the trust may be treated as a

determining whether the arrangement is a guarantee, you

grantor trust to the extent that only a portion of the trust

must assume that the event has occurred.

assets are owned by a person other than the trust.

Nongrantor Trust

Gratuitous Transfer

A nongrantor trust is any trust to the extent that the

A gratuitous transfer to a foreign trust is any transfer to

assets of the trust are not treated as owned by a person

the trust other than (a) a transfer for FMV or (b) a

other than the trust. Thus, a nongrantor trust is treated as

distribution to the trust with respect to an interest held by

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

the trust (i) in an entity other than a trust (e.g., a

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

corporation or a partnership) or (ii) in an investment trust

Grantor Trust above.

described in Regulations section 301.7701-4(c), a

Obligation

liquidating trust described in Regulations section

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

An obligation includes any bond, note, debenture,

described in Regulations section 301.7701-4(e).

certificate, bill receivable, account receivable, note

receivable, open account, or other evidence of

A transfer of property to a trust may be considered a

indebtedness, and, to the extent not previously

gratuitous transfer without regard to whether the transfer

described, any annuity contract.

is a gift for gift tax purposes (see Chapter 12 of Subtitle B

of the Code).

Owner

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

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

contributed property to a trust in exchange for any type of

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

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

grantor trust rules.

disregarded in determining whether FMV has been

Property

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

Property means any property, whether tangible or

making a transfer for FMV merely because the transferor

intangible, including cash.

is deemed to recognize gain on the transaction.

Qualified Obligation

If you transfer property to a foreign trust in exchange

for an obligation of the trust (or a person related to the

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

trust), it will be a gratuitous transfer unless the obligation

obligation only if:

is a qualified obligation. Obligation and qualified

1. The obligation is reduced to writing by an express

obligation are defined below.

written agreement;

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

Gross Reportable Amount

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

Gross reportable amount is:

within the 5-year term;

•

The gross value of property involved in the creation of

3. All payments on the obligation are denominated in

a foreign trust or the transfer of property to a foreign trust

U.S. dollars;

(including a transfer by reason of death);

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

•

The gross value of any portion of a foreign trust treated

than 100% of the applicable Federal rate under section

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

1274(d) for the day on which the obligation is issued and

or any part of a foreign trust that is included in the gross

not greater than 130% of the applicable Federal rate;

estate of a U.S. citizen or resident;

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

•

The gross value of assets deemed transferred at the

assessment of any income or transfer tax attributable to

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

the transfer and any consequential income tax changes

previously transferred property becomes a foreign trust,

for each year that the obligation is outstanding, to a date

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

not earlier than 3 years after the maturity date of the

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

obligation, unless the maturity date of the obligation does

not extend beyond the end of the U.S. person’s tax year

•

The gross amount of distributions received from a

and is paid within such period (this is done on Part I,

foreign trust.

Schedule A, and Part III, as applicable); and

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Instructions For Form 3520 - Annual Return To Report Transactions With Foreign Trusts And Receipt Of Certain Foreign Gifts - 2001 Page 3

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