What is a foreign trust? IRS rules, reporting forms, and deadlines (2026)

A foreign trust is any trust that fails either the court test or the control test under US tax law. If you are a US citizen or resident who owns, benefits from, or contributes to one – a foreign pension plan, an inherited family trust, or an estate structure set up abroad – you likely have IRS reporting obligations even if no US tax is due.

This article covers the 2026 filing season for tax year 2025. The key forms are Form 3520 and Form 3520-A, with Form 8938 and FBAR potentially applying alongside them.

What you’ll learn:

• What makes a trust “foreign” under IRS rules – the court test and the control test
• Who qualifies as an owner, beneficiary, or transferor – and what each role means for reporting
• Which forms apply, when they are due, and how penalties work
• How FBAR and FATCA overlap with foreign trust reporting

You’re in the right place if you are a:

• Owner or grantor under the grantor trust rules
• Beneficiary who receives or expects distributions
• Transferor who moved money or property into a trust
• US person with a foreign pension or retirement arrangement that may be treated as a trust

This article is brought to you by Taxes for Expats (TFX) – a top-rated tax firm serving US citizens, residents, and anyone with US tax obligations, both at home and abroad.

Our tax services cover foreign trust reporting, Form 3520 preparation, and cross-border compliance.

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What is a foreign trust?

For US tax purposes, the IRS defines a foreign trust as any trust that fails either the court test or the control test under Treas. Reg. § 301.7701-7:

• Court test – a US court must be able to exercise primary supervision over the administration of the trust
• Control test – one or more US persons must have the authority to control all substantial decisions of the trust

If either test is not satisfied, the trust is classified as foreign. A trust must pass both tests to be treated as domestic.

Why location alone does not decide

The foreign trust definition turns on supervision and control, not the trust’s mailing address or country of formation. A trust set up in London with a UK trustee fails the control test. A trust established under California law but administered by a Swiss bank may fail the court test.

Why expats run into this more often than expected

Many foreign entities classified as trusts for US tax purposes would not be treated as trusts if they were domestic. A significant number of foreign pension funds – such as Australian super funds and UK pension schemes – fall under the foreign trust definition. US pension accounts, while trust-like in structure, are not treated as trusts for tax reporting purposes.

Foreign trust vs domestic trust

A trust is foreign if it fails either the court test or the control test. A domestic trust must satisfy both.

The distinction matters because foreign trusts carry additional IRS information-reporting requirements – Forms 3520 and 3520-A – that domestic trusts do not. A trust that shifts from domestic to foreign trust status, or vice versa, can trigger reporting consequences in the year of the change.

Foreign trust vs domestic trust: the residence test

 

Classification checklist:

• Is the trust supervised by a US court? If no → likely foreign.
• Do US persons control all substantial decisions – distributions, investments, trustee appointments, termination? If no → likely foreign.
• Has a trustee change, amendment, or relocation shifted control away from US persons? If yes → retest immediately.

Substantial decisions include the timing and amount of distributions, selection of beneficiaries, investment decisions, and whether to terminate the trust.

Even one non-US trustee with authority over a substantial decision can cause a trust to fail the control test. A trust originally established as domestic can become foreign after a trustee change.

Who is considered an owner of a foreign trust?

Under IRC § 679, a US person who transfers property to a foreign trust that has at least one US beneficiary is generally treated as the owner of the portion of the trust funded by that property.

Ownership status is determined under the broader grantor trust rules in IRC §§ 671–679, not just one section. The IRS uses these rules to decide who reports trust income on their own return.

Ownership decision checklist:

• Did you transfer money or property to a foreign trust? If yes → check whether any US beneficiary exists.
• Do you retain a power to revoke, control distributions, swap assets, or borrow from the trust? If yes → you may be treated as owner under §§ 673–677.
• Is the trust revocable? If yes → the grantor is almost always treated as the owner under § 676.
• Can any US person benefit from the trust at any time, even in the future? If yes → the IRS may presume a US beneficiary exists under § 679(c).

Owner vs beneficiary – a quick distinction:

• Owner (grantor): treated as owning part or all of the trust for US tax purposes. Reports trust income on their personal return, even without receiving distributions.
• Beneficiary: not treated as the owner. Has reporting and tax consequences when distributions occur, but does not report trust income annually.

The Form 3520 instructions point directly to the grantor trust sections when discussing ownership reporting.

Based on TFX client scenario: A US expat in Switzerland funds a family trust with $500,000 for their US-resident children. Even though the trust is set up abroad and may not distribute anything for years, the grantor must report the trust income yearly because US beneficiaries exist.

See our TFX guide to foreign grantor trusts for a deeper look at how ownership and reporting interact in cross-border families.

Types of foreign trusts

Foreign trusts come in many forms, and their classification directly affects your tax obligations and filing requirements.

The table below compares the main types. For each, the key question is: who reports the income, and when?

Foreign trust types at a glance

 

Grantor vs non-grantor: who pays the tax?

A grantor trust is one where the person who created or funded it retains enough control or benefit that the IRS treats that person as the tax owner. The grantor reports trust income on their personal US tax return.

A non-grantor trust is treated as a separate taxable entity. US beneficiaries are taxed only when they receive distributions, which can trigger accumulation distribution rules and the throwback tax.

Can an irrevocable trust be a grantor trust?

Yes. Whether a trust qualifies as a grantor trust depends on retained powers under IRC §§ 671–679 – not on whether it can be revoked. A foreign trust created by a US person with US beneficiaries is generally a grantor trust under § 679, even if irrevocable.

Foreign grantor trusts are often the result of cross-border family planning where a US person funds a trust abroad. The grantor remains the tax owner as long as the grantor trust rules apply.

What is a foreign express trust?

Some jurisdictions allow a foreign express trust – a trust deliberately created by a written deed or declaration rather than imposed by law or court order. These are frequently used in international estate planning for asset protection, confidentiality, and succession planning.

A foreign express trust can still be treated as owned by a US person under the grantor rules, even when trustees and assets sit abroad.

Grantor trust vs non-grantor trust

The single most important distinction is who bears the US income tax liability – the grantor or the beneficiaries.

In a foreign grantor trust, the US owner reports trust income on their personal return even if no distributions are made. In a foreign non-grantor trust, US beneficiaries are taxed only when they receive distributions – and accumulated income distributions can trigger the throwback tax with an interest charge.

 

Which one applies to you?

• Did a US person fund the trust? If yes → likely a foreign grantor trust under § 679
• Does the grantor retain any powers – revocation, control over distributions, power to substitute assets? If yes → likely a grantor trust even if irrevocable
• Is the trust funded entirely by a non-US person with no US owner? If yes → likely a non-grantor trust for the US beneficiary

How § 679 works in practice

IRC § 679 creates foreign grantor trust treatment when a US person transfers property to a foreign trust with at least one US beneficiary. The definition of “US beneficiary” is broad – it includes anyone who could benefit from the trust at any time, even in the future.

For non-US grantors, IRC § 672(f) generally limits grantor treatment to revocable trusts or trusts distributable only to the grantor or spouse during the grantor’s lifetime.

See our TFX guide to foreign non-grantor trusts for the beneficiary-side rules, including throwback tax calculations.

US tax implications of foreign trusts

US citizens and residents involved with foreign trusts face a specific set of IRS reporting and tax rules – whether you are a grantor, beneficiary, or transferor.

Some years are reporting-only: forms are required even when no extra income tax is due. Other years create taxable events. Reporting and taxes can move in different directions in the same year.

Three tax layers to track:

• Income tax – grantor trusts: income attributed to the US owner annually. Non-grantor trusts: beneficiaries taxed on distributions, with throwback rules for accumulated income
• Gift and estate tax – transfers to a trust may trigger gift tax reporting. Estate inclusion depends on retained powers and funded assets
• Information-return penalties – Form 3520 and Form 3520-A penalties can apply even when no additional income tax is due. The penalty for a missed Form 3520 is the greater of $10,000 or 35% of the gross value of the reportable transfer or distribution

Grantor rules

Under the grantor trust rules in IRC §§ 671–679, when a US person transfers property to a foreign trust that has at least one US beneficiary, the IRS treats the transferor as the owner of that portion of the trust for US tax purposes.

This means you report all income, deductions, and credits tied to that trust on your Form 1040 – even if you receive no distributions or cash. The trust’s activity is yours from the IRS’s perspective.

Retained powers that trigger grantor trust status:

• Power to revoke the trust (§ 676)
• Power to control beneficial enjoyment of trust income or principal (§ 674)
• Administrative powers – ability to borrow from the trust, substitute assets of equivalent value, or deal with trust assets for less than adequate consideration (§ 675)
• Income payable to the grantor or grantor’s spouse (§ 677)
• Transfer to a foreign trust with a US beneficiary (§ 679)

Based on TFX client scenario – Swiss family trust: A US citizen contributes personal assets into a Swiss trust that will benefit their children, all US persons. Even though the trust is set up abroad and may not make distributions for years, the grantor must report the trust income yearly because US beneficiaries exist.

 

Beneficiary rules

If you received a distribution from a foreign trust, you generally must report it on Form 3520, regardless of whether any US tax is due on the distribution itself.

For non-grantor foreign trusts, distributions can carry out current-year distributable net income or previously accumulated income. When the trust distributes accumulated income, the throwback tax rules under IRC §§ 665–668 may apply. These rules tax the income as if it had been distributed in earlier years, with an interest charge for deferred tax.

Beneficiary obligations are not limited to cash distributions. Under IRC § 643(i), certain loans of cash or marketable securities from a foreign trust to a US beneficiary are treated as distributions. The same applies to uncompensated use of trust property – living rent-free in a trust-owned home, for example, or using a trust credit card.

What to watch for as a beneficiary:

• Current-year distributions – taxed as ordinary income, retaining the character of the underlying trust income
• Accumulated income distributions – subject to throwback tax and an interest charge under § 668
• Principal distributions – generally not taxable, but you must document that the distribution is from corpus
• Loans and property use – treated as distributions unless compensated at fair market value or structured as a qualified obligation

Based on TFX client scenario – UK pension trust inheritance: A US resident inherits a stake in a British pension trust established by a UK relative. When the trust makes a distribution, it includes income earned over multiple years. Since this income was not previously taxed in the US, the throwback tax regime applies.

Common mistake: Assuming only the trustee has filing duties. A US beneficiary has their own Form 3520 obligation, independent of what the trustee files.

See our TFX guide to foreign inheritance reporting for the separate rules on reporting inherited assets from abroad.

Gift and estate tax exposure

Gift reporting

Transferring assets to a foreign trust may require gift tax reporting under US rules. Separately, Form 3520 Part IV applies when large gifts or bequests are received from foreign persons.

For tax year 2025, the reporting thresholds are:

• Gifts from nonresident alien individuals or foreign estates: report on Form 3520 if the aggregate exceeds $100,000. This threshold is fixed under current law and not inflation-adjusted. It was set administratively by IRS Notice 97-34, not by statute.
• Gifts from foreign corporations or foreign partnerships: report on Form 3520 if the aggregate exceeds $20,116 (2025). For tax year 2026, this threshold increases to $20,573. This figure is adjusted annually for inflation.

The foreign gift itself is generally not income taxable. But the penalty for failing to report is 5% of the gift’s value per month the failure continues, capped at 25%.

Estate inclusion

When a US citizen or resident dies, assets they funded or retained certain powers over may be pulled into the taxable estate. This is a separate analysis from income tax and trust reporting, and depends on the facts and the relevant estate-tax rules.

See our TFX guide to estate taxes for expatriates for the full estate-tax framework, including the $13.99 million (2025) basic exclusion for US citizens.

IRS reporting requirements

The IRS requires US persons to comply with strict reporting requirements for foreign trusts, and the key forms are Form 3520, Form 3520-A, Form 8938, and FBAR.

Each form has its own trigger, its own deadline, and its own penalty regime. Filing one does not satisfy the others.

 

What you file when – quick decision aid:

• Form 3520: file when there is a reportable event – a transfer to a foreign trust, a distribution to you, or US ownership under the grantor trust rules. Also file Part IV for large foreign gifts.
• Form 3520-A: file when the trust has a US owner. It is the trust’s annual information return and should produce the owner and beneficiary statements that support Form 3520 reporting.
• Form 8938: file when you meet the asset-threshold rules for specified foreign financial assets and your foreign trust interest is reportable under those rules.
• FBAR: file when you have financial interest in or signature authority over foreign financial accounts and the combined maximum value exceeds $10,000 at any time during the calendar year. FBAR is about accounts – not the total value of the trust.

Foreign trust reporting forms at a glance

For foreign trusts, IRS rules require annual information reporting even in years when no additional income tax is due.

The table below is a quick reference for matching your facts to the right form.

 

A US owner who files a substitute Form 3520-A with Form 3520 – because the trustee did not file – follows the Form 3520 deadline, not the Form 3520-A deadline.

Filing duties can apply even when no additional income tax is due for the year.

Need help filing Form 3520 or Form 3520-A?

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Who must file Form 3520?

File one Form 3520 per foreign trust if any of the following apply to you:

• You transferred money or property to a foreign trust.
• You are treated as the owner under the grantor trust rules (IRC §§ 671–679).
• You received a distribution from a foreign trust – including loans of cash or marketable securities, and uncompensated use of trust property.
• You received a gift or bequest over $100,000 from a nonresident alien individual or foreign estate.
• You received aggregate gifts exceeding the annual threshold ($20,116 for 2025) from foreign corporations or foreign partnerships.

What does not trigger Form 3520: signature authority or a financial interest in a foreign bank account alone. That may trigger FBAR and potentially Form 8938, but Form 3520 is about trust transactions, ownership, and large foreign gifts.

Filing triggers by role:

 

Penalty snapshot:

Form 3520 penalties under IRC § 6677 are the greater of $10,000 or:

• 35% of the gross value of reported transfers or distributions (Parts I and III)
• 5% of the gross value of trust assets treated as owned by a US person (Form 3520-A failures)

If noncompliance continues after IRS notice, an additional $10,000 penalty applies for each 30-day period, capped at the gross reportable amount.

Foreign trust taxation deadlines & extensions

When it comes to foreign trusts, the IRS distinguishes between Form 3520 and Form 3520-A deadlines – and they work differently.

• Form 3520 has its own due date that is separate from your income tax return. For calendar-year 2025 individuals, it is due April 15, 2026. Qualifying US citizens and residents abroad receive an automatic extension to June 15, 2026. Filing Form 4868 for an income tax extension moves the Form 3520 deadline to October 15, 2026. Form 3520 is filed separately – mailed to the IRS, not attached to Form 1040.
• Form 3520-A is due by the 15th day of the 3rd month after the end of the trust’s tax year. For a calendar-year 2025 trust, the statutory deadline was March 15, 2026, which fell on a Sunday, so the effective due date was March 16, 2026.

Deadline calendar for tax year 2025:

 

A Form 1040 extension does not extend Form 3520-A. The Form 3520-A extension is requested using Form 7004, filed with the trust’s EIN, by the Form 3520-A due date.

Deadline note: We are publishing this article in October 2026. The Form 3520-A deadline (March 16, 2026) and the standard Form 3520 deadline (April 15, 2026) have already passed. If you have not yet filed, contact a tax professional to discuss late-filing options and potential penalty relief.

See our TFX guide to filing for a tax extension for the general extension rules, and our article on the difference between Form 4868 and Form 2350 for expat-specific extension options.

Common expat scenarios

These are among the most common foreign trust situations we see at TFX. Foreign pensions, inherited trusts, and family structures abroad all require fact-specific classification – and each one comes with different reporting steps.

Foreign pension-like arrangement

Some foreign retirement plans – such as an Australian super fund or a UK pension scheme – may be treated as trust-like structures for US reporting purposes. The classification depends on the plan’s structure and governing documents.

• Reporting risk: Filing gaps on trust forms or on foreign asset forms
• What to do: Collect plan documents and annual statements. Confirm classification using the Form 3520 instructions and the Form 3520-A instructions. Some tax-favored foreign retirement trusts qualify for relief under Rev. Proc. 2020-17.

See our TFX guide to foreign pension taxation for the income-tax side of the analysis.

Inherited family trust abroad

An inheritance can arrive through a trust rather than directly. Distributions from an inherited foreign trust can be reportable even when the tax due is unclear at first glance.

• Reporting risk: Treating a trust distribution as a simple inheritance and missing Form 3520
• What to do: Request a trust accounting for the year and any beneficiary statements. Keep records of dates and amounts. Determine whether the distribution carries current-year income, accumulated income, or principal.

Non-US spouse or family trust

A trust created by a non-US spouse or parent can touch US reporting once a US person becomes a beneficiary, receives gifts, or receives trust distributions.

• Reporting risk: Mixing up “gift reporting” (Form 3520 Part IV) with “trust reporting” (Form 3520 Parts I–III) and filing the wrong sections
• What to do: Identify whether payments are gifts or trust distributions. Track totals against the reporting thresholds – $100,000 for gifts from foreign individuals/estates, $20,116 (2025) for gifts from foreign corporations/partnerships.

Trustee will not cooperate

Trustees sometimes refuse to file Form 3520-A or share the required statements.

• Reporting risk: The US owner can still face penalties when the trust does not file
• What to do: Document all requests in writing. Gather what information you can. Prepare a substitute Form 3520-A attached to your Form 3520, completed to the best of your ability, following the IRS instructions. Filing a timely substitute can reduce or eliminate the 5% penalty.

US expat who created a trust abroad

A US citizen or resident who creates and funds a foreign trust – for asset protection, succession, or investment – is typically treated as the grantor-owner under § 679 if any US person can benefit.

• Reporting risk: Not realizing that annual reporting (Form 3520-A and Form 3520) is required even in years with no distributions
• What to do: Confirm grantor trust classification. File Form 3520-A by the deadline (or Form 7004 to extend). Report trust income on your Form 1040.

Records to collect in every scenario:

• Trust deed and all amendments
• Annual trust financial statements
• Distribution letters and beneficiary statements
• Transfer history and documentation
• Prior US filings related to the trust

Behind on trust reporting? Streamlined filing can help.

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Foreign trust reporting examples

The following worked examples show how the rules apply in real expat situations we see at TFX.

Each ends with the required filing action, deadline, and documents to request.

Distribution from a parent’s trust abroad

A US resident receives a $75,000 cash distribution from a discretionary family trust in the UK established by their non-US parent. The trust is a non-grantor trust with accumulated income from prior years.

• Likely reporting issue: The distribution may include accumulated income subject to throwback tax under IRC §§ 665–668, plus an interest charge
• Required action: File Form 3520 Part III reporting the distribution. Without a beneficiary statement from the trustee, the default method treats the entire $75,000 as accumulated income
• Deadline: April 15, 2026 (October 15, 2026 with a valid extension)
• Records to request: Beneficiary statement showing the breakdown of current-year income, accumulated income, and principal. Trust accounting for the year

US owner whose trustee does not file Form 3520-A

A US citizen is treated as the owner of a foreign trust under § 679. The foreign trustee refuses to file Form 3520-A.

• Likely reporting issue: The US owner faces a penalty of the greater of $10,000 or 5% of the gross value of the US-owned trust assets
• Required action: File a substitute Form 3520-A attached to Form 3520, completed with whatever information the owner can obtain
• Deadline: Form 3520 deadline – April 15, 2026 (October 15, 2026 with extension)
• Records to request: Any available trust financial statements, asset schedules, and written correspondence documenting the request to the trustee

Beneficiary with trust-account signature authority

A US beneficiary has signature authority on a foreign trust’s bank account in Germany with a $25,000 balance. The beneficiary writes personal checks on the trust account totaling $8,000.

• Likely reporting issue: Signature authority alone triggers FBAR – not Form 3520. But writing checks on the trust’s account is treated as a distribution under § 643(i), which does trigger Form 3520
• Required action: File FBAR reporting the foreign account (aggregate value over $10,000). File Form 3520 Part III reporting $8,000 as a trust distribution
• Deadline: FBAR: April 15, 2026 (automatic extension to October 15, 2026). Form 3520: April 15, 2026 (extensions available)
• Records to request: Bank statements showing account balances and check amounts. Trust documentation showing the beneficiary’s authority

FATCA and FBAR compliance

FBAR and FATCA are separate from foreign trust reporting – but they can overlap when trust-owned accounts are involved.

Trust reporting does not replace FBAR or FATCA filing, and vice versa.

FBAR is not based on “the trust exceeds $10,000.” The filing rule applies when a US person has a financial interest in or signature authority over one or more foreign financial accounts, and the aggregate value of all reportable foreign accounts exceeds $10,000 at any time during the calendar year.

A trust may hold foreign bank or brokerage accounts. A US person might have signature authority or another form of reportable control over those accounts. That can bring FBAR into the picture even when the income tax return feels straightforward.

FBAR vs FATCA vs foreign trust reporting:

 

Does trust reporting replace FBAR or FATCA?

No. Each form has its own trigger and its own deadline rules. A US person involved with a foreign trust may need to file all three.

See our TFX guide to FBAR filing for the full FBAR rules, and our article on FATCA reporting and exemptions for the Form 8938 side.

Quick wrap-up

Key takeaways:

• What is a foreign trust for US tax purposes? Any trust that fails the court test or the control test under Treas. Reg. § 301.7701-7. The tests focus on supervision and control, not location.
• Who reports it? US owners, beneficiaries, and transferors – each with different forms and different triggers.
• Which forms matter? Form 3520 for trust transactions, Form 3520-A for trusts with a US owner, plus FBAR and Form 8938 when account or asset thresholds are met.
• What deadlines are critical? Form 3520-A: March 15 (extended with Form 7004). Form 3520: April 15 (extended with Form 4868 or the automatic expat extension). FBAR: April 15, automatic extension to October 15.

Next-step checklist:

• Gather the trust deed and any amendments
• Determine whether you are an owner, beneficiary, or transferor
• Confirm whether the trust is grantor or non-grantor
• Identify all foreign accounts held by or through the trust
• Confirm your filing deadlines and file or extend on time

See our TFX guide to US tax forms for expats for a broader view of the forms that may apply alongside foreign trust reporting.

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