What Is a Foreign Grantor Trust?
A Foreign Grantor Trust is a US tax classification for a non-domestic trust whose income is taxed to the grantor under grantor trust rules.
Also known as: FGT, Foreign Grantor-Type Trust.
How Foreign Grantor Trust works
A Foreign Grantor Trust is a trust failing the United States court test or control test, and therefore foreign, whose income is attributed to the grantor under Internal Revenue Code sections 671 to 679 instead of being taxed to the trust or beneficiaries. Section 672(f) generally limits grantor treatment to cases where income is taxed to a United States citizen, resident or domestic corporation, with narrow exceptions for trusts revocable by a non-United States grantor or distributable only to the grantor or spouse during the grantor's lifetime. A United States owner generally files Form 3520 and ensures the trust files Form 3520-A, and grantor status typically ends at death.
Foreign Grantor Trust vs Foreign Trust
Unlike a Foreign Trust in general, which may be taxed as a separate non-grantor taxpayer, a Foreign Grantor Trust passes income to the grantor for United States tax purposes.
Example
Illustrative example: A United States citizen living in Country A transfers investments to a trust administered by a trustee in Country B, naming a child resident in the United States as beneficiary. Because the trust is foreign and has a United States beneficiary, section 679 generally treats the citizen as owner, so trust income is generally reported on the citizen's own return.
Common misconception
Myth: Placing assets in a trust administered abroad moves the income outside the United States tax net.
Reality: A Foreign Grantor Trust with a United States owner generally leaves trust income taxable to that owner and adds annual information returns with significant penalties for non-filing.
Frequently asked questions
Who pays tax on a foreign grantor trust?
A Foreign Grantor Trust's income is generally taxed to the grantor treated as owner; for non-United States grantors, section 672(f) narrows grantor treatment to revocable trusts or trusts distributable only to the grantor or spouse during the grantor's lifetime.
What happens to a foreign grantor trust when the grantor dies?
A Foreign Grantor Trust generally loses grantor status at the grantor's death and becomes a non-grantor trust, which can change how distributions to United States beneficiaries are taxed.
Related terms
- Foreign Trust — Broader category, including non-grantor foreign trusts
- Trust — General legal arrangement underlying grantor classification
- Non-Resident Trust — Residence-based trust concept in other systems
- US Person — Owner status driving section 679 attribution
Related guides
- Global tax reform and US digital nomads — US tax context for Americans abroad
Sources
Last verified: 2026-10-08. This entry is general information, not tax or legal advice; rules vary by country and change over time.
