Understanding Trustee-Documented Trusts Under CRS and FATCA
Both CRS and FATCA require Financial Institutions (actually, Foreign Financial Institutions (FFIs) under FATCA but just plain ol’ Financial Institutions under CRS) to report information about offshore financial. Among the various classifications CRS and FATCA provides, Trustee-Documented Trusts (TDTs) are a specialized category of Financial Institution designed to streamline compliance for certain trusts.
A Trustee-Documented Trust is a trust that is not required to register with the IRS for FATCA or locally for CRS. Instead, the trustee of the trust undertakes AEOI obligations on behalf of the trust. This classification allows the trust to rely on the trustee’s status and infrastructure, simplifying the reporting process.
For a trust to qualify as a Trustee-Documented Trust, several conditions must be met:
- The trust must be a Financial Institution, typically because it is an investment entity managed by a Financial Institution.
- The trustee must also be a Financial Institution. Under CRS, the trustee must be a so-called “Reporting Financial Institution”. Under FATCA, the trustee must be Reporting U.S. Financial Institution, a “Participating FFI”, or a “Reporting Model 1 FFI” (in FATCA Model 1 IGA countries), or a “Reporting Model 2 FFI” (in FATCA Model 2 IGA countries). However, Trustee-Documented Trusts are not permitted for trust that are not governed by an IGA, i.e., that are governed by the U.S. FATCA regulations. Also, some of the very first IGAs that were entered into do not permit Trustee-Documented Trusts
- The trustee must agree to fulfill AEOI due diligence, reporting, and withholding responsibilities on behalf of the trust.
Trustee-documented status is beneficial in scenarios where the trust lacks the operational capacity or legal expertise to comply with CRS or FATCA on its own. Instead of registering with the IRS for its own Global Intermediary Identification Number (GIIN) for FATCA or registering locally for CRS, the trust relies on the trustee’s registration and compliance infrastructure. This is particularly useful for private trusts administered by institutional trustees that manage a wide range of fiduciary responsibilities.
Understanding the Role and Relevance
However, it’s important to note that a Trustee-Documented Trust is still a Financial Institution and must be disclosed appropriately in due diligence and reporting chains. Financial institutions dealing with such trusts must ensure that the trustee is indeed fulfilling the required obligations.
In practical terms, Trustee-Documented Trusts offer a streamlined alternative for CRS and FATCA compliance when a regulated financial institution is already in place and equipped to handle reporting requirements. This approach reduces administrative burden, especially for closely held or private trusts, while maintaining the transparency CRS and FATCA seek to achieve.
Because Trustee-Documented Trust status is an optional compliance path, not a mandatory classification, it is not the subject of the AEOIclassification.com platform, which is designed to determine whether an entity is a Financial Institution or an Non-Financial Entity, and which subcategory of those two main classifications it fits into. However, any trustee dealing with CRS or FATCA needs to be familiar with the concept of a Trustee-Documented Trust.