Cayman Islands

Every employer in the Islands must provide a pension plan, or pay into one, for each person it employs there,¹ and every employee from 18 to the normal age of pension entitlement must be a member.² An employer need not do so for an employee without Caymanian status or permanent residence who has worked in the Islands for nine months or less or is employed as a household domestic.³ A plan must be registered with the Director of Labour and Pensions;⁴ it is the employer's own or a multi-employer plan, which can also take the self-employed.⁵ It may be administered by the employer, a pension committee, an approved provider (an insurance company or other company licensed for pension plans) that provides all of its benefits, a board of trustees or a licensed trust company,^6,7 and where it is set up under a trust agreement, its documents set out the trustees' powers and duties.⁸

In a defined contribution plan your employer pays at least 5% of your earnings, and you cannot be required, without your express consent, to pay more than 5%; where your employer pays more than 5%, you are required to pay only enough to make 10%.⁹ Contributions are on earnings up to the year's maximum pensionable earnings, CI$87,000 in the Act (US$106,098 at the Treasury's year-end 2025 rate).^10,11 Your employer deducts your share from your pay and pays it in with its own,¹² and the Department of Labour and Pensions says an employer has a legal right to deduct up to 5% of an employee's earnings and a legal requirement to pay 10%.¹³ In a defined benefit plan your share is set by the actuarial report, up to 5%, and your employer pays the same and makes up any shortfall.¹⁴ You may also pay additional voluntary contributions (AVCs), money above what the plan or the Act requires, at any time before the normal age; the Act's definition also covers money paid on your behalf, and the Department of Labour and Pensions treats an employer's payments above 5%, or on earnings above CI$87,000, as AVCs too.^15,16,17

The normal age of pension entitlement is 65, or 60 for a person who opts for it within the time a Cabinet Order prescribes.¹⁸ A member who has left a job may elect an early pension once they are within ten years of the normal age,¹⁹ and a pension to a member with a spouse or civil partner is a joint and survivor pension.²⁰ The administrator may pay out a benefit worth less than CI$5,000 in one sum when you leave,²¹ a defined benefit member who leaves is entitled to a lump sum of their own contributions and interest above half the value of the benefit,²² the plan may let you draw on your AVCs before the normal age for medical care, temporary unemployment, housing and education,²³ and a Caymanian who does not own a home may withdraw up to CI$50,000 as a deposit on one.²⁴ A Caymanian may also withdraw up to CI$50,000 to reduce, or up to CI$100,000 to pay off, a mortgage on a home in the Islands,²⁵ and after any of these housing withdrawals pays an extra 3% of earnings until it is repaid or the normal age, whichever is earlier.²⁶ Otherwise no member is entitled to a refund or payment from the plan.²⁷ The administrator sends each member a statement at least every six months.²⁸

A foreign trust on our reading where set up under a trust agreement; for other plans not settled, read the same way.

A foreign trust, on our reading, where the plan is set up under a trust agreement whose documents set out the trustees' powers and duties,⁸ or is run by a board of trustees or a licensed trust company.⁶ Every plan's assets are kept apart from its administrator's own and from other plans',²⁹ the administrator must deal with them with the care a prudent person uses with the property of another,³⁰ contributions an employer owes are held in trust for the plan's beneficiaries,³¹ a member's rights cannot be assigned or seized,³² and the money is locked in.²⁷ Trustees who take title to protect or conserve property for beneficiaries are what make an arrangement a trust for U.S. purposes,³³ and the IRS has ruled privately that foreign pension funds with locked, personal accounts are trusts.^34,35 Governed by Cayman law and run in the Islands, a plan meets neither test for a domestic trust.^36,37

For a plan run by the employer, a pension committee or an insurer without a trust agreement, whether it is a trust is not settled, and no IRS guidance addresses Cayman plans. The strongest point against: an insurer that provides all of a plan's benefits⁶ may hold the money as its own and owe you only a contract, and the Code treats insurance companies as corporations.³⁸ But the Act still keeps each plan's assets apart, shows the money standing in each member's account and lets units be allocated to it,^29,28,39 so the cautious course reads every registered plan as a foreign trust. If your plan's documents show a policy with an insurer and nothing kept apart for you, these answers may not apply, and the cautious course still follows this block.

A §402(b) employees' trust: your required 5% counts as your employer's; AVCs you choose to pay are your own money.

No IRS ruling addresses Cayman plans, though the IRS has ruled privately that a similar foreign fund, with mandatory employer contributions and personal accounts, is a §402(b) trust.⁴⁰ We read a registered plan as a §402(b) employees' trust: the employer must pay in for each employee,⁹ and a trust created outside the United States cannot be exempt under U.S. §501(a).⁴¹ §402(d) treats a foreign trust as exempt only if it would otherwise qualify,⁴² and on our reading nothing suggests a Cayman plan meets §401(a).

On that reading, employer contributions are U.S. income to you in the year they are paid, to the extent they are vested,^43,44 and the foreign earned income exclusion cannot cover them.⁴⁵ On our reading a defined contribution plan's employer money is vested as paid: a member of a plan set up after 1 June 1998 who leaves before the normal age is entitled to a deferred pension, with no length of service required.⁴⁶ In a defined benefit plan the employer's contribution for you may not be known; where it is not, the regulations work it out by actuarial methods.⁴⁷

Your required 5% counts as your employer's, on the IRS Chief Counsel's reasoning on Singapore's fund, which is not precedent: a share withheld because the law requires it is not withheld at your election and not constructively received.⁴⁸ The Act puts the duty to contribute on you and your employer, and every employee in its range must be a member;^49,2 the Department of Labour and Pensions says an employee does not have the right to refuse to take part, and the employer should deduct and pay in 10%.⁵⁰ The strongest points against: the Act calls your share the member's contribution, your statements show it apart from the employer's, and money withheld from your pay is deemed received from you;^12,51,31 and unlike Singapore's fund, where the employer owes the whole contribution and recovers part from pay, the Act puts a duty on each side.⁴⁹ The deeming rule protects money withheld but not yet paid in, with a trust and a charge, and gives you no choice and no right to the cash.³¹ §414(h)(1) treats a contribution designated as the employee's as not made by the employer, but only for a §401(a) trust or a §403(a) plan,⁵² and the Chief Counsel memorandum, written after it, read the rulings from before the 1974 U.S. pension law (ERISA) the other way as superseded by it and still counted withheld amounts the employee did not elect as the employer's.⁵³ This site's guides read the compulsory shares of Hong Kong's, India's and Israel's funds the same way. On that reading your 5% is §402(b)(1) income to you when paid, as your employer's money is, which the foreign earned income exclusion cannot cover.^43,45

Your own money, for the count below: AVCs you choose to pay,^15,54 and contributions above 5% that you agree to and can stop while you stay in the job. AVCs your employer pays for you are your employer's money, income to you when they vest.^43,17 A contribution above 5% made by a one-time irrevocable choice when you join counts as your employer's,⁵⁵ and where the plan's documents don't show which it is, this guide counts it as your own for the forms, the cautious course; on the employer's reading it is §402(b) income, which the foreign earned income exclusion cannot cover.⁴⁵ The extra 3% of earnings a member pays after a housing withdrawal is required by law but follows the member's own choice to withdraw;²⁶ whose it is is not settled, and the cautious course counts it as your own. If you are outside the duty, for example in your first nine months in the Islands without Caymanian status or permanent residence, and your employer enrolls you anyway, nothing is withheld because the law requires it, so on the cautious course your share counts as your own.^3,48 Where you control the company that employs you, you decide what it pays in; no IRS guidance says whether that makes its contributions your own, and that is not settled, so the cautious course counts them as your own for the forms, which brings Part II and Form 3520-A for your whole interest from the start; on the employer's reading they are §402(b) income, which the foreign earned income exclusion cannot cover.^56,57,45

Once your own contributions have come to exceed everything counted as your employer's, all it pays in for you and your required 5% together, counted from the first payment, you are treated as owner of the part your own money funds, if the grantor trust rules are otherwise met.⁵⁶ No contribution to a §402(b) trust is a Part I event, your own included.⁵⁸ Payouts from the employer's part are taxed under §72 when they are paid or made available to you, with what was already taxed to you as basis,^59,60,61 and they stay off Part III if you report them as compensation income,^62,63 unlike payouts from a part you own.⁶⁴

Made available. An amount is made available, on the IRS Chief Counsel's reading of a similar fund, whenever you could receive it just by giving notice that you want it.⁶⁵ Leaving the Islands does not do that, on our reading. On its words, a member whose job has ended, who has stopped living in the Islands and for whom no mandatory contributions have been paid for two years may elect a lump sum two years after leaving the job,³⁹ but a person may apply for it only within a time a Cabinet Order prescribes,⁶⁶ no such Order is among the National Pensions instruments in force,⁶⁷ and the Department of Labour and Pensions says the lump sum refund is no longer available unless the account is worth less than CI$5,000.⁶⁸ So the balance is not made available when you leave; the route out is a transfer to a locked plan abroad, which the notes on moves at the end of this guide cover.⁶⁹ If Cabinet makes an Order under that section, the balance would be made available once its conditions are met. At retirement, a lump sum the plan lets you take on request is made available on the cautious course,^70,65 counting only what is first made available in a year, not the whole balance again each year.⁵⁹ An annuity bought in your name is a payout of its whole value,⁷¹ while a pension the plan pays is taxed as each payment is made.⁵⁹

If you are a highly compensated employee and one reason the plan is not exempt is that it fails the U.S. coverage tests, you include your vested balance, less what has already been taxed to you, in income each year instead;⁷² those tests leave out nonresident aliens with no U.S.-source earned income from the employer,⁷³ so a single-employer plan with a U.S. executive is the case to watch. Whether it applies to you is not settled; ask an adviser.

Rev. Proc. 2020-17 is unlikely: there is no income tax to exempt a plan from, and plans report to no tax authority.

Rev. Proc. 2020-17 exempts an eligible individual (one who has filed U.S. returns and reported the plan's income as U.S. law requires)⁷⁴ from Forms 3520 and 3520-A for a retirement trust that meets its conditions,⁷⁵ each a requirement established by the laws of the trust's jurisdiction.⁷⁶ Two conditions are the problem here. The first asks that the trust be generally exempt from income tax or otherwise tax-favored under those laws.⁷⁷ No income tax applies to a plan, but the Islands have no income tax at all,⁷⁸ so the law gives a plan no deduction, credit, deferral or reduced rate as a plan; the FATCA agreement (under the U.S. Foreign Account Tax Compliance Act) has its own test for a Cayman fund, which ties the point to its status as a retirement or pension plan.⁷⁹ Whether a plan meets the condition is not settled. The second asks for annual information reporting to the relevant tax authorities.⁸⁰ A plan files an annual information return and audited accounts with the Director of Labour and Pensions,⁸¹ who is not a tax authority. The Islands do have a Tax Information Authority, the competent authority that exchanges information with the United States,⁸² and the strongest argument that the condition is met is that plan information is otherwise available to it on request; but it receives no annual reporting on a plan, and the FATCA agreement's own test asks for reporting to the relevant authorities in the Islands, without the word tax.⁷⁹ On our reading the condition is not met.

The others. Contributions come from employees' and the self-employed's earnings, which on our reading meets the earned income condition.^49,83,84 Required contributions are a percentage of earnings up to CI$87,000, but AVCs have no stated limit,^10,16,85 so the limit condition is not settled. Payouts must wait for retirement, disability or death, or carry a penalty, though access for hardship, education or a primary residence is allowed:^86,87 AVC access for medical care, housing and education, and Caymanians' housing withdrawals, fit those examples,^23,24 but a benefit under CI$5,000 can be paid on leaving with no penalty.²¹ Every employee from 18 to the normal age must be a member, bar the nine-month and household-domestic exceptions,^2,3 which on our reading meets the employer condition.⁸⁸ With no IRS guidance on Cayman plans, Rev. Proc. 2020-17 is unlikely to cover one.

The proposed regulations, which you may rely on now if you apply them in full and consistently with related persons,⁸⁹ keep the reporting condition, and their tax-favored condition adds that investment income taxed at a reduced rate includes income exempt from tax,⁹⁰ which is the best argument that a plan's untaxed income meets it. But reduced and exempt assume a tax that would otherwise apply, and none does, so that condition stays not settled too. Their value test, US$600,000 (adjusted for inflation from 2026), can stand in only for the contribution limit,⁹¹ so the proposed regulations are unlikely as well.

No treaty, and the information agreements with the Islands change neither U.S. tax nor these forms.

No treaty: the United States has no income tax treaty with the Cayman Islands,⁹² and its treaty with the United Kingdom covers only Great Britain and Northern Ireland.⁹³ The tax information exchange agreement and the FATCA agreement (under the U.S. Foreign Account Tax Compliance Act) between the United States and the Cayman Islands change neither U.S. tax nor these forms: they provide for the two governments to exchange information.^94,95 The Islands tax neither contributions nor payouts, so there is no Cayman tax on a payout to credit.⁷⁸

Part II and 3520-A once your own money passes your employer's share; Part III for payouts, moves and money made available.

Read as a §402(b) trust: no Part I for any contribution.⁵⁸ No Part II or Form 3520-A for the part funded by your employer's money and your required 5%; Part II and Form 3520-A can apply if your own money, AVCs you choose included, comes to exceed everything counted as your employer's, or, on the cautious course, from the start if you control the company that pays in, and are then due each year for the part it funds.^96,56,97 No Part III for payouts from the employer-funded part that you report as compensation income.⁶² Part III can apply if you receive a payout from a part you own, which goes on lines 24 and 27,⁶⁴ or, on the cautious course, if money is made available to you at retirement or moves out of the plan, unless you report it as compensation income: an amount made available is received constructively, and line 24 covers what you receive actually or constructively.^98,65 On that course the amount for a year is what is first made available in that year, not the whole balance again each year.⁵⁹ Money counted as made available in an earlier year and paid out later goes on Part III when it is paid, with a statement naming the year it was counted, whether or not it went on Part III that year: the count was a constructive receipt and the payout is the actual one, and line 24 covers what you receive actually or constructively, whether or not it is taxable; what was taxed when it was made available is basis by then, not compensation income you report, so the compensation exception does not take it off.^98,99,62 On the cautious course, a payout that mixes that money with growth or other money taxed only when it is paid goes on Part III in full, the part you report as compensation income included, since the exception covers a distribution you report as compensation income and part of this one is not.^98,62 No Form 4970: payouts from a §402(b) trust are taxed under §72, not under the trust distribution rules, and the income of a part you own is taxed to you each year.^59,100,101 If the plan does not file Form 3520-A, you attach a substitute to your Form 3520.¹⁰²

Money leaving the plan. A benefit under CI$5,000 paid out when you leave, the lump sum a defined benefit member receives where their own contributions and interest exceed half the benefit's value, a housing withdrawal and a pension or lump sum at retirement are payouts that go on Part III, unless you report them as compensation income, except money counted as made available in an earlier year, which goes on Part III as above.^{21,22,24,25,103,62} From 1 May to 31 October 2020 a temporary law let a member in the Islands, or one who had left since 1 February 2020, withdraw the balance up to CI$10,000 and up to 25% of the rest in one sum on application.¹⁰⁴ A withdrawal taken then is a 2020 payout on Part III, unless reported as compensation income.^103,62 Whether the amount you could have taken was made available in 2020 even if you took nothing is not settled; the cautious course treats it as made available and reports it on Part III for 2020.^65,98 A share of the plan paid to a U.S. former spouse under a court order goes on that spouse's Part III when paid, on the cautious course.^105,103 A transfer abroad goes only to a plan the Department of Labour and Pensions accepts, and the notes on moves at the end of this guide say how it reads.^106,107

On a death before the pension starts, a spouse or civil partner is entitled to an immediate or a deferred pension;¹⁰⁸ its payments to a U.S. spouse go on Part III on the cautious course, as paid, and a deferred pension left in the plan is not made available before the earliest date the spouse could start it, ten years before the spouse turns 65.^109,103 With no spouse or dependent child, a beneficiary the member designated is paid the value, which on the cautious course goes on that beneficiary's Part III.^110,103 With neither a spouse nor a designated beneficiary, the personal representative receives it as the member's property,¹¹¹ so it is part of the estate. Whether a U.S. heir of a member who was not a U.S. person then receives a bequest from a foreign estate, on Part IV, or a distribution from the plan, on Part III, is not settled: the regulation on intermediaries presumes a distribution from the trust where you are related to a grantor and receive the money within two years before or after the estate's receipt, unless you show otherwise.¹¹² The member is a grantor of the plan for what they paid in, the required 5% withheld from their pay included, even where it counts as the employer's for who owns a part under section 402(b).^113,56 Whether the member is also a grantor of what an employer paid in for them is not settled: a company that pays into a trust for its business is generally treated as the grantor, but a person who funds a trust on behalf of another makes both of them grantors.^114,113 The regulation looks to a grantor of the trust, not to the grantor of the part paid out, and you, as the member's heir, are close to the member.¹¹² So the cautious course reports the whole payment on Part III, as a distribution from a foreign trust, however it was funded, which is not settled. If the member was a U.S. person, the estate reports the payment as the gifts section says.

If a plan is not a §402(b) trust, each contribution you make is a Part I transfer and you are treated as owner of the part it funds, so Part I, Part II, Form 3520-A and Part III all apply;^{115,116,97,103} if it is not a trust at all, none of them apply. Part I also applies at your death as a U.S. citizen or resident, if any part of the plan is then treated as owned by you or is in your gross estate: your executor reports it, whether or not the executor is a U.S. person.¹¹⁷ An eligible individual whose plan qualifies under Rev. Proc. 2020-17 or the proposed regulations files none of them, which is unlikely here.^75,89 On our reading the exemption also spares your executor the report of your death, if you were an eligible individual and the plan qualified: it covers an eligible individual's transactions with, or ownership of, the trust, and an eligible individual can be someone who at any time was a U.S. citizen or resident.^118,119,120 No IRS guidance names executors, and the revenue procedure's scope speaks of the eligible individual who would otherwise report.¹²¹ PFIC rules may apply to what the plan invests in; this guide does not decide that. FBAR (FinCEN Form 114) and Form 8938 are separate, and an exemption from Forms 3520 and 3520-A does not remove them.^122,123

The Public Service Pensions Plan is run by the Public Service Pensions Board, in which the Fund is vested,¹²⁴ and its assets are held in custody accounts.¹²⁵ Members pay 6% of pensionable earnings unless regulations prescribe another rate, deducted each pay period,^126,127 and the Government's contribution is a charge on the revenue of the Islands.¹²⁸ Regulations deemed in force from 1 January 2025 set the Government's rates in the defined benefit part at 6% of pensionable earnings plus an additional normal cost rate of 9.7%;¹²⁹ they set no member rate, and we found no rule on voluntary contributions. A member's accrued benefit, defined benefit or defined contribution, is fully vested at all times,¹³⁰ and a pension cannot be transferred or assigned beyond the Act's narrow exceptions.¹³¹ A retired or deferred member without Caymanian status who stops living in the Islands may elect the present value of the benefit as one lump sum, paid within a month.¹³²

Not settled: the Fund is vested in a statutory board. Cautious: a foreign employees' trust.

Not settled, and no IRS guidance addresses the plan. For a trust: a funded pool vested in a statutory board that administers it for members, held in custody accounts, fully vested and not assignable,^{124,125,130,131} and the IRS Chief Counsel read Singapore's statutory fund as a §402(b) employees' trust.¹³³ Against: the Act never calls the Fund a trust and vests it in the Board,¹²⁴ while Singapore's fund was held in trust for covered employees.¹³³ Trustees who take title to protect or conserve property for beneficiaries make a trust for U.S. purposes,³³ and with the question open the cautious course reads the plan as a foreign employees' trust, as for registered plans; run in the Islands under Cayman law, it meets neither test for a domestic trust.^36,37

Cautious: a §402(b) employees' trust; the 6% taken from your pay by law counts as your employer's.

On the cautious reading, an employees' trust the Government funds for its employees, described in §402(b), which a trust created outside the United States cannot escape unless it would otherwise qualify.^43,42 Your 6% is deducted from your pay because the Act requires it, so on the IRS Chief Counsel's reasoning, which is not precedent, it counts as your employer's,^127,48 and you are treated as owner of a part only if your own money ever exceeds everything counted as the Government's, your 6% included, if the grantor trust rules are otherwise met.⁵⁶ Employer money is income when vested,^43,44 and it is vested at all times,¹³⁰ so in the defined benefit part the Government's contribution for you, worked out by actuarial methods where it is not known, is income each year,⁴⁷ which the foreign earned income exclusion cannot cover.⁴⁵ Payouts are taxed under §72, with what was already taxed to you as basis.^59,61

The lump sum on leaving the Islands is made available, on the cautious course, once you could elect it: once you have no legal right to live in the Islands and have been away two months, if you joined before the Public Service Pensions (Amendment) Act, 2019 came into force, or two years, if you joined after.^{132,134,135,65} The amount for a year is what is first made available in it, not the whole balance again each year.⁵⁹ Whether money made available and left in the plan then counts as your own money for Part II is not settled, and no IRS guidance addresses it; the cautious course does not add Part II for it.⁵⁶

Rev. Proc. 2020-17 is unlikely, as for registered plans.

As for registered plans, Rev. Proc. 2020-17 is unlikely: the Islands have no income tax to exempt the plan from, so whether it is tax-favored is not settled, and we found no annual reporting on it to a tax authority, so on our reading the reporting condition is not met.^77,80,78 The lump sum on leaving the Islands is not tied to retirement, disability or death and carries no penalty.^132,86 The proposed regulations are unlikely for the same reasons.⁸⁹

No treaty.

The United States has no income tax treaty with the Cayman Islands.⁹²

As for registered plans: Part III for payouts, the lump sum on leaving and moves; Part II only for your own money.

No Part I for any contribution: on the cautious course the plan is read as a §402(b) trust.⁵⁸ No Part II or Form 3520-A for the part funded by the Government's money and your 6%; Part II and Form 3520-A can apply if your own voluntary money, if the plan takes any, comes to exceed everything counted as the Government's, your 6% included, and are then due each year for the part it funds.^96,56,97 Part III can apply if you receive a pension or other payout you do not report as compensation income, if money moves out of the plan, or if you take the lump sum on leaving the Islands, which on the cautious course is made available, and so goes on Part III, once you could elect it.^103,98,65,62 Money counted as made available in an earlier year and paid out later goes on Part III when it is paid, with a statement naming the year it was counted, whether or not it went on Part III that year: the count was a constructive receipt and the payout is the actual one, and line 24 covers what you receive actually or constructively, whether or not it is taxable; what was taxed when it was made available is basis by then, not compensation income you report, so the compensation exception does not take it off.^98,99,62 On the cautious course, a payout that mixes that money with growth or other money taxed only when it is paid goes on Part III in full, the part you report as compensation income included, since the exception covers a distribution you report as compensation income and part of this one is not.^98,62 No Form 4970: payouts from a §402(b) trust are taxed under §72, not under the trust distribution rules.^59,100 If the Board does not file Form 3520-A for a part you own, you attach a substitute to your Form 3520.¹⁰²

A death benefit paid to you as the U.S. beneficiary of a member is, on the cautious course, a payout from a foreign trust that goes on Part III.¹⁰³ If the plan is not a trust, none of these forms apply.¹¹⁵ FBAR (FinCEN Form 114) and Form 8938 are separate, and an exemption from Forms 3520 and 3520-A does not remove them.^122,123

A self-employed person must be a member of an approved pension plan or pay into an individual pension entitlement account with an approved provider,¹³⁶ 10% of earnings up to the year's maximum pensionable earnings each year;⁸³ an approved provider is an insurance company or other company licensed to undertake pension plans in the Islands.⁷ A member leaving a registered plan may move the balance to an individual retirement account with the member's approved provider, or to a retirement savings arrangement the Director approves,¹³⁷ and such an account must bar withdrawal except to move the money to a registered plan or another such account, to buy a life annuity, or within maxima the Director prescribes.¹³⁸

Not settled: an approved provider holds a locked account for you. Cautious: a foreign trust you own.

Not settled, and no IRS guidance addresses these accounts. For a trust: an approved provider holds a locked account for you on terms the law sets, which goes beyond only holding title at your direction,^138,139 and a self-employed member of a multi-employer plan holds an interest in that plan.⁵ Against: an approved provider may be an insurer holding the money as its own under a contract,^7,38 and we did not read an account's terms. With the question open, the cautious course reads the account as a foreign trust you own, as this site's guides read Ireland's custodian PRSAs and Hong Kong's MPF accounts with no employer money.³³ Run in the Islands under Cayman law, it meets neither test for a domestic trust.^36,37

No employer pays in for your own contributions, so §402(b) taxes nothing; whether its Part I exception covers you is not settled.

§402(b) reaches an employer's contributions,⁴³ and no employer pays in for your own self-employed contributions, so it taxes nothing to you there. Your own money funds your account, so you are treated as owner of it, since its income is held for you.^56,140 Money moved in from a registered plan left a §402(b) trust, and the notes on moves at the end of this guide say how that reads.¹⁰⁷

The argument against Part I is strong for a self-employed member of a multi-employer plan. The exception tests the trust, not the member: it covers a trust described in §402(b),⁵⁸ a multi-employer plan is open to the self-employed and to the employees of two or more employers,⁵ and the compensatory-trust regulation speaks of a nonexempt employees' trust including one created on behalf of a self-employed individual.¹⁴¹ A private ruling found that a fund individuals could also join was a §402(b) trust,¹⁴² but it ruled only for members whose employer paid in more than they did.¹⁴³ No IRS guidance says a member with no employer money is within the exception, so the cautious course reports each contribution you make;¹¹⁵ a missed Part I can cost the greater of $10,000 or 35% of it, capped at the amount.^144,145

Rev. Proc. 2020-17 is unlikely, as for registered plans.

As for registered plans, Rev. Proc. 2020-17 is unlikely: the Islands have no income tax to exempt the account from, and we found no annual reporting on it to a tax authority.^77,80,78 Self-employed contributions come from earnings,^83,84 and the employer condition does not apply where no employer pays in;⁸⁸ money moved in is protected only if it comes from a qualifying plan in the same country.¹⁴⁶ The proposed regulations are unlikely for the same reasons.⁸⁹

No treaty.

The United States has no income tax treaty with the Cayman Islands.⁹²

On the cautious course: Part I for money in, Part II and 3520-A each year, Part III for payouts and moves.

On the cautious course, you are treated as owner of your account, because your own money funds it and its income is held for you,^56,140 so Part II and Form 3520-A are due each year,⁹⁷ with a substitute if the provider does not file,¹⁰² and payouts and moves go on Part III, lines 24 and 27, as payouts to an owner.^103,64 Part I can apply if you pay in, or money is moved in, while you are a U.S. person or within 5 years before your U.S. residency started:^115,147 on the cautious course each contribution and each move in is a Part I transfer, though the exception for a §402(b) trust may reach a member of a multi-employer plan, as the §402(b) step says.⁵⁸ On the same cautious course, Part I also applies at your death as a U.S. citizen or resident, if any part of the account is then treated as owned by you or is in your gross estate, unless the exception for a §402(b) trust reaches the account, as it may: your executor reports it, whether or not the executor is a U.S. person.^117,58 No Form 4970 for what you own, because its income is taxed to you each year.¹⁰¹

Money moved in from a registered plan goes on that plan's Part III on the cautious course, as the notes on moves at the end of this guide say.¹⁰⁷ PFIC rules may apply to what the account invests in; this guide does not decide that. FBAR (FinCEN Form 114) and Form 8938 are separate, and an exemption from Forms 3520 and 3520-A does not remove them.^122,123

This block covers a life annuity bought for you with a plan's money,¹⁴⁸ savings and investment policies you buy from an insurer, and bank deposits and securities held in your own name, or by a bank, broker or licensed trust company only to act on your instructions.¹⁴⁹

Not a trust: a contract with an insurer, which holds the assets, or property that is yours.

Not a trust, on our reading. A trust needs trustees who take title to protect or conserve property for beneficiaries,³³ and an insurer owns its assets and owes you a contract; the Code treats insurance companies as corporations.³⁸ The strongest authority the other way is the IRS's private ruling that a foreign pension entity was a trust,³⁴ but that entity held assets for covered employees who could not assign their interests, not policies an insurer sells. Under an investment-linked policy you may be treated as owning the assets behind it for U.S. tax, which makes no trust.¹⁵⁰ A deposit or a security in your own name has no trustee at all,³³ and where a bank, broker or trust company holds title to your securities only to transfer it at your direction, that is not a trust either.¹⁴⁹ Whether a policy meets the U.S. definition of life insurance, or is an annuity, is a separate question this guide does not decide.

Does not apply: no employer pays in, and none of these is a trust.

§402(b) reaches only an employer's contributions to an employees' trust,⁴³ and a policy or account you hold yourself is not one. An annuity a registered plan buys in your name is a payout of its whole value from the plan, as that block says.⁷¹

Not needed.

Since §6048 reaches only foreign trusts.¹¹⁵

No effect on these forms.

The United States has no income tax treaty with the Cayman Islands.⁹²

Nothing for the policy itself; an annuity a plan buys you is that plan's payout, on the plan's forms.

No Part I, Part II, Form 3520-A, Part III, or Form 4970: Forms 3520 and 3520-A report foreign trusts.^115,97,103 How a foreign policy is taxed in the United States is not decided here. Funds held under a policy, or in your own name, may be subject to the PFIC rules; this guide does not decide that. FBAR (FinCEN Form 114) and Form 8938 are separate, and an exemption from Forms 3520 and 3520-A does not remove them.^122,123

A trust under the Trusts Act (2021 Revision). A settlor may keep, or give others, wide powers without invalidating the trust, among them a power to revoke, vary or amend it, to give the trustee binding directions on investments, to appoint, add or remove any trustee, protector or beneficiary, to change its governing law and the forum for its administration, and to require a named person's consent before the trustee acts.¹⁵¹ A trustee must keep accurate accounts and records, for at least five years.¹⁵²

An exempted trust is one the Registrar of Trusts registers because its beneficiaries do not and are not likely to include anyone resident or domiciled in the Islands,¹⁵³ and the Financial Secretary may undertake that no future Cayman tax on income, capital or estates will apply to it.¹⁵⁴ Where the settlor asks for it when the trust is set up, the beneficiaries' rights and remedies vest in the Registrar instead, and no beneficiary may then inspect its accounts, minutes or documents.¹⁵⁵ A private trust company is a company incorporated in the Islands that conducts no trust business other than connected trust business,¹⁵⁶ that is, trust business for trusts whose contributors are all connected persons, related in a way the Regulations list or companies in one group,¹⁵⁷ and it is a trust corporation under the Act.¹⁵⁸ The perpetuity period is 150 years, and an instrument that takes effect from 22 August 2024 may say that the rule against perpetuities does not apply, unless the trust holds land in the Islands;^159,160 a trust that lasts longer can keep accumulating income, which bears on the throwback (the tax, with interest, on an accumulation distribution, on Form 4970) described below.¹⁶¹ This guide does not cover Parliamentary pensions, employee benefit or share plan trusts set up by Cayman employers, or charitable trusts.

A foreign trust unless a U.S. court can supervise it and U.S. persons control all its substantial decisions.

An ordinary trust where the trustee holds property for the beneficiaries,³³ and a foreign trust where a trustee in the Islands administers it under Cayman law, since it then fails the court test, which alone makes it foreign, even where the trustee is a U.S. citizen.^36,37 A trust is domestic only on a day a U.S. court can supervise its administration and U.S. persons control all of its substantial decisions, counting everyone who can make one, not only the trustees.¹⁶² Powers a settlor keeps, or a protector's consent rights, do not on our reading stop it being a trust; they go to who is owner, below, and where a foreign person holds one that is a substantial decision, such as a power to revoke the trust or to replace the trustee, it also keeps the trust foreign, even with a U.S. trustee.^163,164 A bare trust whose trustee only holds title for an adult entitled to the property may not be a trust for U.S. purposes,¹⁴⁹ but that ruling is narrow,¹³⁹ so whether a bare trust is one is not settled, and the cautious course reports it as a trust. A bank or trust company that holds your own investments only to act on your instructions is not that kind of bare trust; it is an account, not a trust.¹⁴⁹ The block on deposits, securities and policies above covers such an account. A trust with a U.S. trustee, protector or adviser has its own block below.¹⁶² On our reading, registration as an exempted trust, a tax undertaking, or a private trust company as trustee changes none of this, since none of them moves the trust's administration or decisions to the United States.^153,36 A trust that mainly runs a business, rather than holding property for its beneficiaries, may be a business entity rather than a trust.¹⁶⁵

A U.S. person who funds it is owner when it has a U.S. beneficiary; a foreign settlor only in two narrow cases.

Who is treated as owner decides who files Part II and Form 3520-A. A U.S. person who transfers property to the trust is treated as owner of the part it funds for any year in which the trust has a U.S. beneficiary.¹¹⁶ Someone who funds the trust while not a U.S. resident and becomes one within 5 years is treated, for this rule and for Part I, as transferring that part of the trust on the day their U.S. residency starts.¹⁴⁷ A settlor who is not a U.S. person is treated as owner only if they can revoke the trust alone or with the consent of a related or subordinate party subservient to them, or if only they or their spouse can receive distributions during their life.¹⁶⁶ Otherwise, unless another grantor trust rule makes a U.S. person owner,¹⁴⁰ no one is owner, and the trust is taxed as a separate, non-grantor trust.¹⁶⁷

A trust has a U.S. beneficiary for the transferor rule if anyone has discretion to pay or benefit any person, unless its terms identify the class who may benefit and none of them is a U.S. person that year,¹⁶⁸ even if nothing is paid to a U.S. person that year;¹⁶⁹ a power to amend the trust to benefit a U.S. person counts, and so does a letter of wishes or other understanding that points to benefiting one, even one that says it is only a suggestion.¹⁷⁰ Where a U.S. person funds the trust, the IRS may treat it as having a U.S. beneficiary unless that person shows it has none.¹⁷¹ A beneficiary who first became a U.S. person more than 5 years after the transfer is not counted,¹⁷² and a transferor whose trust gains a U.S. beneficiary is taxed that year on the income the trust kept for that part to the end of the year before, as an accumulation distribution with the interest charge.^173,174 A settlor who is not a U.S. person keeps the revocable-trust exception for a year only if they can take the property back alone, or with the consent of a related or subordinate party subservient to them, for at least 183 days of it; a power that needs anyone else's consent, such as an independent trustee's or protector's, does not count.^175,176 Once the exception fails for a year it is lost for good.¹⁷⁷ Separately, a portion already treated as owned under §676, or under §677 other than its life insurance rule, on September 19, 1995 keeps that owner for the property it held that day, for as long as it stays so treated.¹⁷⁸ A U.S. settlor of a trust with no U.S. beneficiary can still be owner under another rule, for example by keeping a power to take the property back,¹⁷⁹ and a U.S. beneficiary who alone can take the property is owner of it.^180,166

When a settlor who was not a U.S. person dies, the revocable-trust and spouse-only exceptions end for that settlor's portion, because the person left with the power, even a surviving spouse, is not its grantor;¹⁸¹ a U.S. person who alone can take the property, or a U.S. person who funded the trust, can still be owner, and otherwise the portion is taxed as a non-grantor trust.^180,116,167 When a portion stops being owned by a U.S. person, the owner is treated, for the gain rule, as transferring it to a foreign trust that day.¹⁸² At death the gain is excused only if the trust's basis in the property is then reset to its value at death under section 1014(a), as where the owner could still revoke the trust;¹⁸³ otherwise the owner is treated as transferring it immediately before death and recognizes the gain.¹⁸⁴

Cayman law lets a settlor keep a power to revoke or amend the trust, to appoint and remove beneficiaries and to direct its investments without invalidating it;¹⁵¹ the U.S. rules above, not Cayman law, decide whether such a power makes anyone owner.^166,179

No relief: no income tax treaty, and the information agreements change neither U.S. tax nor these forms.

No treaty: the United States has no income tax treaty with the Cayman Islands,⁹² and its treaty with the United Kingdom covers only Great Britain and Northern Ireland.⁹³ The tax information exchange agreement and the FATCA agreement (under the U.S. Foreign Account Tax Compliance Act) between the United States and the Cayman Islands change neither U.S. tax nor these forms: they provide for the two governments to exchange information.^94,95

Part I for whoever funds it, Part II and Form 3520-A for an owner, Part III for whoever receives a distribution.

Part I can apply if a U.S. person transfers property to the trust, for the year of the transfer.¹¹⁵ A transfer to a foreign trust is treated as a sale, and you recognize any gain on what you transfer;¹⁸⁵ a transfer is not, to the extent anyone is treated as owning the part it funds.¹⁸⁶ Part I also applies on the death of a U.S. citizen or resident who was treated as owner of any part of the trust, or whose gross estate includes part of it, and to property that passes to the trust by reason of a U.S. person's death; the executor reports it, whether or not the executor is a U.S. person.¹¹⁷ The gain rule does not apply to property that passes to the trust by reason of a U.S. person's death, if its basis in that property is set under section 1014(a).¹⁸³ Part II and Form 3520-A can apply if a U.S. person is treated as owner: the owner files Part II and makes sure Form 3520-A is filed, or files a substitute, each year.^97,102 Part III can apply if a U.S. person receives a distribution, for that year.¹⁰³ Form 4970 can apply if a distribution from a non-grantor trust carries out income the trust kept in earlier years: that is an accumulation distribution, taxed with an interest charge.¹⁶¹ It can also apply to a transferor taxed when the trust gains a U.S. beneficiary, as the owner step says.¹⁷⁴ Rev. Proc. 2020-17 does not apply: it covers only retirement trusts and medical, disability, or educational savings trusts.¹⁸⁷

A distribution is any gratuitous transfer from the trust, whether or not it is a grantor trust and whether or not you are named as a beneficiary, including a credit card bill it pays or guarantees and a check written on its account.¹⁸⁸ On the proposed rules, a payment from a company the trust owns to a U.S. person who is a grantor, owner or beneficiary of the trust, or related to one, is treated as a distribution from the trust, unless that person shows it is properly attributable to their own interest in the company.^189,89 A loan of cash or marketable securities, or use of trust property, to you or a related U.S. person goes on Part III whether or not it is taxable;¹⁹⁰ it is treated as a distribution for income tax, except a loan made on a qualified obligation (a written loan in U.S. dollars, for 5 years or less, at an interest rate tied to the federal rate, for which you extend the IRS's time to assess and that you report each year) or use you pay the fair market value for within a reasonable time,^{191,192,193,194} and where a U.S. person funded the trust, the loan instead makes it a grantor trust, and it still goes on Part III.¹⁹⁵

If you are the U.S. owner of the part that pays you, you complete only lines 24 and 27, and the rest of this paragraph does not apply to you.⁶⁴ Otherwise, with a complete Foreign Grantor Trust Beneficiary Statement you treat a payment as coming from the owner, so a gift from the owner is not your income;¹⁹⁶ without one, the default method applies even to a distribution from a grantor trust.¹⁹⁷ From a non-grantor trust you may use the actual method if you have a Foreign Nongrantor Trust Beneficiary Statement,¹⁹⁸ and without one the default method applies: the part of this year's distributions above 1.25 times the average of the three years before is an accumulation distribution, taxed on Form 4970 with an interest charge figured on Form 3520's Schedule C, and the rest is ordinary income,^199,161,200 and once you use the default method you must keep using it in later years, except that in the year the trust ends you may use the actual method if you have the statement.²⁰¹ In the trust's first year as a foreign trust, you stop Part III once you have entered how many years it has been foreign, so no accumulation distribution is figured that year.²⁰² The statute treats the whole distribution as an accumulation distribution where adequate records are not given;²⁰³ the default method is the IRS's relief from that, open if you can give the trust's distributions for the three years before,²⁰⁴ and where there were none, it too makes the whole distribution an accumulation distribution.¹⁹⁹ A foreign trust's distributable net income, the income its distributions carry out, includes its capital gains,²⁰⁵ and the exception for income kept before a beneficiary was born or turned 21 does not apply to it.²⁰⁶

A U.S. trustee, protector, enforcer or director of a private trust company files nothing on Form 3520 for the role alone,^115,97,103 but a U.S. person with signature or other authority over the trust's foreign accounts may owe an FBAR.²⁰⁷ FBAR (FinCEN Form 114) and Form 8938 are separate and may also apply.²⁰⁸

A trust or power is a special trust under Part 8 of the Trusts Act, the Special Trusts Alternative Regime (STAR), if it is created by a written instrument that declares the Part applies.²⁰⁹ Its objects may be persons or purposes or both, of any number, and its purposes may be charitable or not.²¹⁰ A beneficiary does not, as such, have standing to enforce it or an enforceable right to the trust property; only enforcers appointed under its terms or by the court do,²¹¹ and an enforcer has a beneficiary's rights to be informed of its terms, to receive information about it from the trustee and to inspect its documents.²¹² Its terms may let the trustee or anyone else resolve an uncertainty about its objects.²¹³ Unless the court allows otherwise, its trustee must be or include a trust corporation, licensed or registered in the Islands, and keep at that corporation's office in the Islands a record of its terms, trustee and enforcers, settlements and settlors, its property at the end of each accounting year, and all distributions.^214,158 The rule against perpetuities does not apply to it.²¹⁵

A foreign trust; a purpose-only STAR trust is not settled and is reported as a trust on the cautious course.

A foreign trust, on our reading, where its objects include persons; for a STAR trust whose objects are only purposes, not settled, and the cautious course reports it as a trust. For both, a trust corporation takes title to property under a trust instrument and must keep it and record how it is applied,²¹⁴ which is the form of a trust for U.S. purposes: trustees who take title to protect or conserve property.³³ The strongest point against, for a purpose-only trust: the regulation speaks of conserving property for beneficiaries, and IRS advice lists designated beneficiaries among a trust's elements;^216,217 this site's Netherlands guide reads a purpose-only Dutch foundation as not a trust on that advice. But a Dutch foundation is a legal person that owns its assets, while a STAR trust is property held by a trustee for its objects, so the reading that files less has no legal form behind it. No IRS guidance addresses STAR trusts. Its trustee must be or include a Cayman trust corporation keeping its records in the Islands, unless the court allows otherwise,²¹⁴ so it cannot use the court test's safe harbor, and with that trustee holding its decisions it is a foreign trust.^218,36

A U.S. person who funds it is owner when it has a U.S. beneficiary; a foreign settlor only in two narrow cases.

Who is treated as owner decides who files Part II and Form 3520-A. A U.S. person who transfers property to the trust is treated as owner of the part it funds for any year in which the trust has a U.S. beneficiary.¹¹⁶ Someone who funds the trust while not a U.S. resident and becomes one within 5 years is treated, for this rule and for Part I, as transferring that part of the trust on the day their U.S. residency starts.¹⁴⁷ A settlor who is not a U.S. person is treated as owner only if they can revoke the trust alone or with the consent of a related or subordinate party subservient to them, or if only they or their spouse can receive distributions during their life.¹⁶⁶ Otherwise, unless another grantor trust rule makes a U.S. person owner,¹⁴⁰ no one is owner, and the trust is taxed as a separate, non-grantor trust.¹⁶⁷

A trust has a U.S. beneficiary for the transferor rule if anyone has discretion to pay or benefit any person, unless its terms identify the class who may benefit and none of them is a U.S. person that year,¹⁶⁸ even if nothing is paid to a U.S. person that year;¹⁶⁹ a power to amend the trust to benefit a U.S. person counts, and so does a letter of wishes or other understanding that points to benefiting one, even one that says it is only a suggestion.¹⁷⁰ Where a U.S. person funds the trust, the IRS may treat it as having a U.S. beneficiary unless that person shows it has none.¹⁷¹ A beneficiary who first became a U.S. person more than 5 years after the transfer is not counted,¹⁷² and a transferor whose trust gains a U.S. beneficiary is taxed that year on the income the trust kept for that part to the end of the year before, as an accumulation distribution with the interest charge.^173,174 A settlor who is not a U.S. person keeps the revocable-trust exception for a year only if they can take the property back alone, or with the consent of a related or subordinate party subservient to them, for at least 183 days of it; a power that needs anyone else's consent, such as an independent trustee's or protector's, does not count.^175,176 Once the exception fails for a year it is lost for good.¹⁷⁷ Separately, a portion already treated as owned under §676, or under §677 other than its life insurance rule, on September 19, 1995 keeps that owner for the property it held that day, for as long as it stays so treated.¹⁷⁸ A U.S. settlor of a trust with no U.S. beneficiary can still be owner under another rule, for example by keeping a power to take the property back,¹⁷⁹ and a U.S. beneficiary who alone can take the property is owner of it.^180,166

When a settlor who was not a U.S. person dies, the revocable-trust and spouse-only exceptions end for that settlor's portion, because the person left with the power, even a surviving spouse, is not its grantor;¹⁸¹ a U.S. person who alone can take the property, or a U.S. person who funded the trust, can still be owner, and otherwise the portion is taxed as a non-grantor trust.^180,116,167 When a portion stops being owned by a U.S. person, the owner is treated, for the gain rule, as transferring it to a foreign trust that day.¹⁸² At death the gain is excused only if the trust's basis in the property is then reset to its value at death under section 1014(a), as where the owner could still revoke the trust;¹⁸³ otherwise the owner is treated as transferring it immediately before death and recognizes the gain.¹⁸⁴

Two STAR points. An enforcer is not a beneficiary as such, so an enforcer's standing makes no one owner.²¹¹ A power to resolve an uncertainty about the trust's objects can work as a power to add them, which counts toward a U.S. beneficiary,^213,170 and an object framed as a purpose does not take a trust outside these rules: the regulation's example treats a trustee's discretion to benefit anyone studying ancient Greek as giving the trust a U.S. beneficiary.¹⁶⁹

No relief: no income tax treaty, and the information agreements change neither U.S. tax nor these forms.

No treaty: the United States has no income tax treaty with the Cayman Islands,⁹² and its treaty with the United Kingdom covers only Great Britain and Northern Ireland.⁹³ The tax information exchange agreement and the FATCA agreement (under the U.S. Foreign Account Tax Compliance Act) between the United States and the Cayman Islands change neither U.S. tax nor these forms: they provide for the two governments to exchange information.^94,95

Part I for whoever funds it, Part II and Form 3520-A for an owner, Part III for whoever receives a distribution.

As for other Cayman trusts: Part I can apply if a U.S. person transfers property to the trust.¹¹⁵ A transfer to a foreign trust is treated as a sale, and you recognize any gain on what you transfer;¹⁸⁵ a transfer is not, to the extent anyone is treated as owning the part it funds.¹⁸⁶ Part I also applies on the death of a U.S. citizen or resident who was treated as owner of any part of the trust, or whose gross estate includes part of it, and to property that passes to the trust by reason of a U.S. person's death; the executor reports it, whether or not the executor is a U.S. person.¹¹⁷ The gain rule does not apply to property that passes to the trust by reason of a U.S. person's death, if its basis in that property is set under section 1014(a).¹⁸³ Part II and Form 3520-A can apply if a U.S. person is treated as owner, each year;^97,102 Part III can apply if a U.S. person receives a distribution;¹⁰³ and Form 4970 can apply if a distribution from a non-grantor trust carries out income kept in earlier years.¹⁶¹ Rev. Proc. 2020-17 does not apply.¹⁸⁷

A beneficiary cannot, as such, enforce a STAR trust, and its enforcers hold the rights to information,^211,212 so a Foreign Grantor or Nongrantor Trust Beneficiary Statement comes only if the trustee provides one, which an enforcer can press it to do; without one, the default method applies to a distribution, as the Cayman trusts block above says.^197,219 The Form 3520 instructions say that a foreign trustee's or other fiduciary's reluctance to give information is not reasonable cause for a missing or incomplete form.²²⁰ FBAR (FinCEN Form 114) and Form 8938 are separate and may also apply.²⁰⁸

A trust governed by Cayman law, or under a deed that lets a settlor change its governing law and the forum for its administration,¹⁵¹ in which a U.S. person is trustee, protector or investment adviser, or which is run from the United States.¹⁶²

Domestic only if a U.S. court can supervise it and U.S. persons control every substantial decision; otherwise foreign.

A trust is domestic only on a day it meets both tests: a U.S. court can exercise primary supervision over its administration, and U.S. persons control all of its substantial decisions, with no one else able to veto any of them.^36,162 Substantial decisions include whether and when to distribute, how much, to whom, and whether to remove, add or replace a trustee, and they count whoever holds them, not only the trustees.^221,162

Some cases, which do not cover every deed. A foreign trustee that holds any substantial decision, such as whether, when, how much or to whom to distribute, or investments not delegated to an adviser U.S. persons control, keeps the trust foreign, whatever U.S. protector or adviser it also has.^162,221 A foreign adviser's investment decisions count as made by the U.S. persons who hired it if they can end its powers at will,^222,223 and a U.S. adviser's decisions are a U.S. person's own. A foreign person's power to remove or replace the trustee keeps a trust with a U.S. trustee foreign,¹⁶⁴ and so does a power only to appoint a successor to a trustee who has died or resigned, unless it is limited so that it cannot change the trust's residency.²²⁴ A power a foreign settlor keeps to revoke the trust, or to have its assets paid to them, is itself a substantial decision, so it too keeps a trust with a U.S. trustee foreign.¹⁶³

Where U.S. persons hold every substantial decision, the court test decides. Its safe harbor needs a deed that does not direct administration outside the United States, administration in fact only in the United States, and no clause that moves the trust if a U.S. court acts,²¹⁸ and administration includes keeping the trust's books and records,²²⁵ so a foreign trustee or agent keeping them abroad takes the trust outside the safe harbor, though the court test can still be met on the facts.²²⁶ A clause that moves the trust if a U.S. court tries to supervise it means no U.S. court has primary supervision, unless the trust moves only on a foreign invasion of the United States or widespread confiscation or nationalization of property there.²²⁷ The control test has no such exception: if an attempt by any governmental agency or creditor to collect information from or make a claim against the trust would move any substantial decision out of U.S. hands, U.S. persons do not control it.²²⁸ So a narrowly drawn clause can pass the court test and still fail the control test; how either rule reads on a given clause is not settled, and no IRS guidance applies them to one.

An inadvertent change, such as the death, incapacity, resignation or move of a person with a substantial decision, gives the trust 12 months to restore its residence; otherwise its residence changes from the date of the change.²²⁹ A trust that no one is treated as owning, and that becomes foreign, is treated, for the gain rule, as transferring all its assets to a foreign trust, and must also report under section 6048; on the proposed rules it reports the move on Part I.^230,231,232 A U.S. citizen or resident who funded any trust while it was domestic, and is alive when it becomes foreign, is treated as transferring their part to a foreign trust that day.²³³ A trust that becomes domestic is treated under the proposed rules as distributing all its corpus and income to the domestic trust, which reports that on Part III,^234,235 and because it was once foreign, the throwback (the tax, with interest, on an accumulation distribution) keeps reaching the income it accumulates, before and after the move.²³⁶ Where the deed or the facts leave unclear whether every substantial decision rests with U.S. persons, the cautious course reports the trust as foreign.

Two Cayman points. A STAR trust's trustee must be or include a Cayman trust corporation that keeps its records in the Islands, unless the court allows otherwise,²¹⁴ so a STAR trust cannot use the court test's safe harbor.²¹⁸ And a deed that makes the Islands the forum for administration, which Cayman law lets a settlor keep the power to change,¹⁵¹ may be read as directing administration outside the United States, which would leave the court test to the facts.^218,226

While foreign, as for other Cayman trusts; while domestic, these forms report it only for foreign gifts.

While the trust is foreign, as for other Cayman trusts above: who funds it, who can take it back and who can benefit decide who is owner.^116,147,166 While it is domestic, Forms 3520 and 3520-A do not report it as a foreign trust,¹¹⁵ though a distribution from a domestic trust treated as owned by a foreign person goes on the recipient's Part IV as a gift.²³⁷

No treaty.

The United States has no income tax treaty with the Cayman Islands.⁹²

Foreign: the Cayman trust answers. Becoming foreign is a transfer; becoming domestic, a distribution on the proposed rules.

While the trust is foreign: Part I can apply if a U.S. person funds it;¹¹⁵ Part II and Form 3520-A can apply if a U.S. person is treated as owner;⁹⁷ Part III can apply if you receive a distribution;¹⁰³ and Form 4970 can apply if an accumulation distribution carries out income it kept, even after it becomes domestic.^161,236 While it is foreign, Part I also applies on the death of a U.S. citizen or resident who was treated as owner of any part of it, or whose gross estate includes part of it, and to property that passes to it by reason of a U.S. person's death; the executor reports it, whether or not the executor is a U.S. person.¹¹⁷ When it becomes foreign, Part I can apply to the trust itself, which on the proposed rules reports the move when no one owns it,^231,232 and to a U.S. citizen or resident who funded it and is alive then, treated as transferring their part that day.²³³ When it becomes domestic, on the proposed rules the trust itself reports on Part III the corpus and income it is treated as receiving.^234,235

While the trust is domestic, no Part I, Part II, Part III or Form 3520-A reports it as a foreign trust,^115,97,103 but the trust reports gifts it receives from foreign persons on Part IV unless someone is treated as owning it,²³⁸ and a distribution from it, if a foreign person is treated as owning it, goes on your Part IV as a gift.²³⁷ FBAR (FinCEN Form 114) and Form 8938 are separate and may also apply.²⁰⁸

A foundation company is a company limited by shares or by guarantee, with or without share capital, whose memorandum states its objects, which may, but need not, be beneficial to other persons, and bars dividends or other distributions to its members as such.²³⁹ It is a body corporate,²⁴⁰ and it may cease to have members if it keeps one or more supervisors.²⁴¹ A beneficiary is a person who will or may benefit from it carrying out its objects,²⁴² but, unless its constitution expressly provides otherwise, has no powers or rights relating to the company, its management or its assets.²⁴³

Not settled: a company in form, a trust in purpose. Cautious: a foreign trust where it holds property for people.

Not settled, and no IRS guidance addresses Cayman foundation companies. A business entity is any entity not properly classified as a trust,²⁴⁴ so the question is whether it is a trust first. For a trust: a court looks to an arrangement's purpose, with its form only evidence,^245,246,247 and IRS advice says even a Liechtenstein Anstalt, which has a board, may be classified as a trust where it was created mainly to protect or conserve property for beneficiaries,²⁴⁸ which is what a foundation company holding a family's assets does. Against: it is a body corporate under the Companies Act,²⁴⁰ a further step from the Liechtenstein Stiftung a court held to be a foreign trust, whose own documents called it a trust.^249,250 No Cayman entity is on the list of foreign entities always treated as corporations,²⁵¹ so if it is not a trust it is classified by default: a corporation where all its members have limited liability.²⁵²

Three outcomes, on the cautious course. A foundation company that holds property for people, a family's or anyone else's, is reported as a foreign trust, with the answers above. One that mainly runs a business or serves a commercial purpose is a business entity.^165,253 One whose objects benefit no person, and that pays nothing to anyone, is not a trust on our reading, since IRS advice lists designated beneficiaries among a trust's elements;²¹⁷ but a person who will or may benefit from its objects is a beneficiary under the Act, so objects framed as purposes do not settle it.²⁴²

On the cautious reading, as for a Cayman trust, with the founder in the settlor's place.

On the cautious reading of it as a foreign trust, the owner rules for Cayman trusts above apply, with the founder in the settlor's place: a U.S. person who funds it is owner of the part it funds for any year in which it has a U.S. beneficiary,¹¹⁶ someone who funds it and becomes a U.S. resident within 5 years is treated as funding it on the day their residency starts,¹⁴⁷ and a founder who is not a U.S. person is owner only in the two narrow cases.¹⁶⁶ If it is a corporation, there is no owner analysis: the grantor trust rules apply only to trusts.¹⁰¹

No relief: no income tax treaty, and the information agreements change neither U.S. tax nor these forms.

No treaty: the United States has no income tax treaty with the Cayman Islands,⁹² and its treaty with the United Kingdom covers only Great Britain and Northern Ireland.⁹³ The tax information exchange agreement and the FATCA agreement (under the U.S. Foreign Account Tax Compliance Act) between the United States and the Cayman Islands change neither U.S. tax nor these forms: they provide for the two governments to exchange information.^94,95

Part I for whoever funds it, Part II and Form 3520-A for an owner, Part III for whoever receives a distribution.

On the cautious reading: Part I can apply if a U.S. person transfers property to it.¹¹⁵ A transfer to a foreign trust is treated as a sale, and you recognize any gain on what you transfer;¹⁸⁵ a transfer is not, to the extent anyone is treated as owning the part it funds.¹⁸⁶ Part I also applies on the death of a U.S. citizen or resident who was treated as owner of any part of it, or whose gross estate includes part of it, and to property that passes to it by reason of a U.S. person's death; the executor reports it, whether or not the executor is a U.S. person.¹¹⁷ The gain rule does not apply to property that passes to it by reason of a U.S. person's death, if its basis in that property is set under section 1014(a).¹⁸³ Part II and Form 3520-A can apply if a U.S. person is treated as owner, each year;^97,102 Part III can apply if a U.S. person receives a distribution;¹⁰³ and Form 4970 can apply if a distribution carries out income kept in earlier years while no one was owner.¹⁶¹ What counts as a distribution is as the Cayman trusts block above says.¹⁸⁸

If it is a corporation, Forms 3520 and 3520-A do not report it, and Form 5471 can apply to U.S. shareholders, officers and directors instead, which this guide does not cover;^115,254 a gift it pays you can be taxed as a distribution from it.²⁵⁵ FBAR (FinCEN Form 114) and Form 8938 are separate and may also apply.²⁰⁸

A mutual fund is a company, unit trust or partnership that issues equity interests to pool investor funds, spreading investment risks and letting investors receive profits or gains from investments,²⁵⁶ and a licensed unit trust needs a licensed trust company as its trustee.²⁵⁷ A private fund is defined in the same three forms.²⁵⁸

Not a trust: a fund whose manager can vary its investments is a business entity.

Not a trust, on our reading. An investment trust whose manager can vary the investments is not classified as a trust,²⁵⁹ so a unit trust whose manager can change its holdings is a business entity, treated as a corporation if all its investors have limited liability, unless it elects otherwise.²⁵² A fund that is a company is classified the same way, and one that is an exempted limited partnership, with a general partner liable for its debts, is a partnership by default.^260,252 A fund whose deed gives no power to vary its investments may be a trust whose investors are its owners, and on the cautious course is reported as one. The local label does not decide.²⁶¹

No owner: the grantor trust rules do not reach a business entity.

The grantor trust rules apply to trusts, so no one is treated as owner of a fund treated as a corporation or partnership; its investors hold shares or partnership interests.²⁵² The PFIC rules may apply to them; this site does not determine PFIC status.

No effect on these forms.

The United States has no income tax treaty with the Cayman Islands.⁹²

No Form 3520 or 3520-A while the manager can vary investments; a fixed trust follows the Cayman trusts block.

For a fund treated as a corporation or a partnership: no Part I, Part II, Part III, or Form 3520-A, and no Form 4970, because Forms 3520 and 3520-A report foreign trusts.^115,97,103 Form 5471 or Form 8865 can apply to some U.S. investors instead, which this guide does not cover.²⁵⁴

A fund whose deed gives no power to vary its investments is, on the cautious course, reported as a trust, as in the Cayman trusts block above, each U.S. investor who buys units in the place of a U.S. person who funds it.^115,116 FBAR (FinCEN Form 114) and Form 8938 are separate and may also apply.²⁰⁸

An exempted company is one whose objects are to be carried out mainly outside the Islands,²⁶² and a company is a body corporate from incorporation.²⁴⁰ An exempted limited partnership has general partners liable for all its debts if its assets are not enough, and limited partners who are not,²⁶⁰ and its property is held by the general partner upon trust as an asset of the partnership.²⁶³

Not a trust: a company is a body corporate, and an exempted limited partnership is a partnership.

Not trusts. No Cayman entity is on the list of foreign entities always treated as corporations,²⁵¹ so a company or LLC whose members all have limited liability is a corporation by default, unless it elects otherwise, and an exempted limited partnership, with a general partner liable for its debts, is a partnership by default.^252,260 The general partner's holding of the partnership's property on trust is a rule of partnership law: it holds as a partner, for the partnership, not to protect or conserve property for beneficiaries.^263,33

No owner: the grantor trust rules do not reach a business entity.

No owner: the grantor trust rules apply to trusts, and these are business entities.¹⁰¹ The PFIC rules may apply to a company's shareholders; this site does not determine PFIC status.

No effect on these forms.

The United States has no income tax treaty with the Cayman Islands.⁹²

No Form 3520 or 3520-A; Form 5471 or Form 8865 can apply instead.

No Part I, Part II, Part III, or Form 3520-A, and no Form 4970: Forms 3520 and 3520-A report foreign trusts.^115,97,103 Form 5471 for a foreign corporation or Form 8865 for a foreign partnership can apply to U.S. owners instead, which this guide does not cover.²⁵⁴ A gift a Cayman company pays you can be taxed as a distribution from it, as the gifts section says.²⁵⁵ FBAR (FinCEN Form 114) and Form 8938 are separate and may also apply.²⁰⁸

On a death, real estate vests in the personal representatives whatever the will says, in the same manner as personal property,²⁶⁴ an intestate's estate vests in a Judge of the Grand Court until administration is granted,²⁶⁵ and the representatives hold the real estate as trustees for the persons entitled to it.²⁶⁶ A registered pension plan pays a death benefit to the personal representative as the member's property where there is no designated beneficiary and no spouse or civil partner.¹¹¹ A will can also set up trusts of its own; those are in the Cayman trusts block above.³³

An estate while administered, on our reading, though the representatives hold as trustees. A long administration isn't settled.

An estate, not a trust, while it is being administered, on our reading. The strongest point against: the personal representatives take title and hold the real estate as trustees,^264,266 which fits the words of the U.S. definition of a trust created by will.³³ But U.S. law treats a decedent's estate as being administered for the period actually required to perform the ordinary duties of administration, and an executor who is also the will's trustee holds as executor only until those duties are complete.²⁶⁷ IRS advice describes a trust as having a trustee with a legal duty to protect and conserve the assets for the beneficiaries,²¹⁷ while a personal representative's ordinary duties are those of administration.²⁶⁷

A long administration is not settled, and no IRS guidance addresses it. A U.S. regulation treats an estate whose administration is unduly prolonged as ended, with its income taxed to those succeeding to the property,²⁶⁸ but no guidance says whether the representatives then hold a trust for Form 3520. Once administration ends, representatives who keep holding as trustees for adults entitled to the property hold what may be a bare trust, which on the cautious course is reported as one,^149,139 and once the will's own trusts take over, the Cayman trusts block above applies.

No owner analysis unless a long administration, or holding after it, is read as a trust; a non-U.S. decedent is not an owner.

While the estate is being administered there is no trust, on our reading, and so no owner analysis.¹⁰¹ If a long administration, or representatives holding after it, were read as a trust, a deceased person who was not a U.S. person would not be treated as owner after death, so it would be taxed as a separate, non-grantor trust.^166,167

No relief: no income tax treaty, and the IRS lists no estate or gift tax treaty with the Islands.

No relief: the United States has no income tax treaty with the Cayman Islands,⁹² and the IRS lists no estate or gift tax treaty with the Islands,²⁶⁹ which have no inheritance or estate tax of their own.⁷⁸

Part IV for what you inherit; Part III if a will trust pays you or, on the cautious course, the estate passes on a pension.

No Part I or Part II: you transfer nothing to a trust and own none.^115,97 What you inherit goes on Part IV if it passes the threshold, not on these parts.²⁷⁰ Part III and Form 4970 can apply if a will trust pays you, if a long administration is read as a trust, or if the representatives keep holding after administration as trustees and that is read, on the cautious course, as a bare trust: a distribution to you then goes on Part III,¹⁰³ and if it carries out income kept in earlier years, Form 4970 can apply.¹⁶¹ Part III can also apply, on the cautious course, to a registered plan's death benefit paid to the personal representative and passed on to you, in full, as the registered plans block says.^112,271 FBAR (FinCEN Form 114) and Form 8938 are separate and may also apply.²⁰⁸