My wife and I are US green card holders with an annual income of around $270,000. All of her family is in the UK. Her father passed away in 2016 in the UK and left a will where all his money would be invested, with the proceedings to be used by his ex-wife until her death, when the money would be equally split between my wife and her brother, around £50,000. Therefore, she is currently part of a trust with her brother and stepmom.
My wife's brother's financial advisor suggested that my wife be removed from the trust in order to avoid taxation in the US. However, this doesn't make sense to me. From what I've read, this money would only be subject to taxation in the US when it is distributed, that is, after her stepmom dies and my wife actually receives the money. In this situation, my wife would prefer to get the money and pay any due US taxes.
Would there be any reason for the US to tax her foreign trust before any of the money is distributed to her? Or was the financial advisor just too generic with the knowledge that "the US government taxes foreign income"? Also, due to the relatively low amount of the trust, would this money be taxed at all? I believe there is a minimum threshold for foreign income to start being taxed in the USA.