IRS treatment of UK Trust

I am a UKC, my wife is a USC and my 2 adult children are dual nationals.  We all live in the UK and pay UK taxes.  We have just become aware of FATCA and having never files US tax returns it is giving us nightmares.  One of the issues is our family trust which was set up with money from my late father's estate for the purpose of managing UK inheritance tax.  I am the settlor and therefore in UK terms take the tax liability.  My wife and I are trustees and the children are beneficiaries.  I now have to complete a form for the Trust bank account which will be passed to the IRS.  The language of this form is difficult to say the least and seems to regard our trust as a financial institution.  Does anyone have any experience of how the IRS treats UK trusts and how we could be taxed?

One assumes that your late father knew that your wife and children were US persons. It is quite odd therefore that a foreign trust was drafted without legal advice that considered US aspects.

As you and your wife are also trustees you both have had a fiduciary duty since the trust was created to both file any required US returns and potentially provide annual K-1s to US person beneficiaries.

Your best option today is for both the trustees and your wife (as separate persons) to seek US legal advice on the US tax implications of the existing structure and how to approach the IRS with the least penalties. From a trust perspective, this advice will also need to include FATCA registration and compliance.

Thank you Guya.  I know ignorance is never an excuse but when the trust was created we were unaware that any of us had a US tax liability.  As far as we knew we were UK domiciled and subject to UK taxation.  The solicitor who drafted the trust didn't pick up that my wife's US nationality could be a problem.
Can you tell me if the trust as described would be classed as a Non-Financial Foreign Entity (NFFE) in the eyes of the IRS?

Thank you Guya.  I know ignorance is never an excuse but when the trust was created we were unaware that any of us had a US tax liability.  As far as we knew we were UK domiciled and subject to UK taxation.  The solicitor who drafted the trust didn't pick up that my wife's US nationality could be a problem.
Can you tell me if the trust as described would be classed as a Non-Financial Foreign Entity (NFFE) in the eyes of the IRS?

I think you should look at "foreign grantor trusts" and "foreign non-grantor trusts". How is the trust invested? The underlying investments will also need to be considered for US tax purposes and having a US citizen as a trustee and US beneficiaries will require US compliance.

Does your wife has a US place of birth listed in her passport? If so it should have been really obvious to the solicitor and any banks and financial institutions that she was a US person. That said, the only way the trustees can protect their position today is to seek professional advice. Your wife may equally want the protection of professional advice given that she is also personally delinquent in the eyes of the IRS.