What is Foreign Trust?
A trust created or administered outside the US, subject to special reporting requirements for US persons involved.
Definition
A foreign trust is a trust that fails either the court test (no US court has primary supervision) or the control test (no US person has authority to control all substantial decisions). US persons who create, transfer property to, or receive distributions from foreign trusts face extensive reporting obligations on Forms 3520 and 3520-A. Foreign trusts are treated with suspicion by the IRS due to their potential for tax avoidance, and penalties for non-compliance are severe.
Who Needs to Know This?
US persons who are grantors, beneficiaries, or transferors of foreign trusts. Common for US expats who inherit interests in foreign family trusts.
Key Deadline
Form 3520 due April 15; Form 3520-A due March 15
Potential Penalties
35% of gross distributions or transfers; minimum $10,000 penalty per form
Related Forms
Common Mistakes to Avoid
- 1Not recognizing a foreign arrangement as a trust for US purposes
- 2Failing to file Forms 3520 and 3520-A
- 3Not understanding that foreign pensions may be treated as trusts
- 4Assuming small trust values don't require reporting
Related Terms
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