Foreign Trust

Katelynn Minott, CPA & CEO July 31st, 2026

A foreign trust is a trust that is not treated as a domestic trust under U.S. tax rules. For U.S. expats, a foreign trust can create U.S. reporting when they create, fund, own, receive distributions from, borrow from, use property from, or benefit from a trust outside the United States.

Why it matters for U.S. expats

Foreign trusts can create U.S. filing obligations even when the trust is ordinary, tax-compliant, or locally standard in the country where it was created. A U.S. person may need to file Form 3520, make sure Form 3520-A is filed, report trust income, disclose distributions or loans, and review connected FBAR, FATCA, PFIC, foreign pension, and foreign gift issues. The penalties for missed foreign trust reporting can be severe, even when little or no U.S. tax is owed.

Common questions

1. When is a trust considered foreign for U.S. tax purposes?

A trust is foreign unless a U.S. court can exercise primary supervision over its administration and one or more U.S. persons control all substantial trust decisions.

2. Do U.S. expats need to report foreign trusts?

Yes, when they create, transfer property to, own, receive distributions from, or have certain transactions with a foreign trust. The reporting usually involves Form 3520, Form 3520-A, or both.

3. What is Form 3520 used for?

Form 3520 is used by U.S. persons to report certain transfers to foreign trusts, ownership of foreign trusts, distributions from foreign trusts, and certain large foreign gifts or bequests.

4. What is Form 3520-A used for?

Form 3520-A is the annual information return for a foreign trust with a U.S. owner. It reports information about the trust, its U.S. owners, and its U.S. beneficiaries.

5. Who files Form 3520-A for a foreign trust?

The foreign trust files Form 3520-A. If the trust does not file it, the U.S. owner may need to file a substitute Form 3520-A with Form 3520.

6. Is a foreign trust always a foreign grantor trust?

No. A foreign trust can be a grantor trust or nongrantor trust for U.S. tax purposes. The classification affects who reports the trust’s income and which forms are required.

7. Are distributions from a foreign trust taxable?

They can be. The tax treatment depends on whether the trust is a grantor trust or nongrantor trust, what the distribution represents, and whether the income was already taxed to a U.S. owner.

8. Can loans from a foreign trust be treated as distributions?

Yes. Loans of cash or marketable securities, or the uncompensated use of trust property, can be treated as reportable distributions under U.S. foreign trust rules.

9. Can a foreign pension be treated as a foreign trust?

It can be. Some foreign pensions, retirement accounts, and savings arrangements may be treated as foreign trusts for U.S. purposes, though certain tax-favored foreign retirement trusts may qualify for limited Form 3520 and Form 3520-A relief.

10. Do foreign trust accounts need to be reported on FBAR?

Yes, if the U.S. person has a reportable financial interest in or signature authority over foreign financial accounts and the aggregate FBAR threshold is met.

11. Does Form 8938 apply to foreign trusts?

It can. A U.S. person may need to report interests in foreign trusts or related specified foreign financial assets if the Form 8938 threshold is met.

12. What records should U.S. expats keep for a foreign trust?

Keep the trust deed, trustee statements, letters of wishes, ownership and beneficiary details, asset values, account statements, income records, distribution records, loan documents, property-use records, foreign tax documents, and copies of Forms 3520 and 3520-A.

When to get help

Professional guidance is important when:

You created, funded, inherited, or benefit from a trust outside the United States.
You received money, property, loans, or use of property from a foreign trust.
You are unsure whether the trust is a grantor trust or nongrantor trust.
You need to file Form 3520 or Form 3520-A.
The trust owns foreign bank accounts, investments, real estate, businesses, pensions, or insurance products.
You missed prior-year foreign trust reporting.
You need to coordinate trust reporting with FBAR, Form 8938, PFIC, foreign pension, or Foreign Tax Credit issues.

Bright!Tax can review the trust structure, identify the U.S. reporting requirements, and prepare Forms 3520, 3520-A, FBAR, FATCA, and related expat tax filings. Get started with Bright!Tax.

Understanding FBAR: How the U.S. Tracks Foreign Accounts

Official sources

Reviewed by

Katelynn Minott, CPA & CEO

Last reviewed

July 2026