What Is a Foreign Trust?
A Foreign Trust is a trust classed as non-resident, which under United States tax rules means any trust failing the court or control test.
Also known as: Non-US Trust, Offshore Trust.
How Foreign Trust works
A Foreign Trust, under United States rules, is any trust for which a US court cannot exercise primary supervision over administration or for which US persons do not control all substantial decisions, so a single non-US trustee with decision power can make a trust foreign. Classification drives reporting: a US person who creates, funds or lends to a foreign trust generally files Form 3520, and US owners must ensure the trust files Form 3520-A. Under the grantor trust rules, a US owner is taxed on trust income, and section 679 can treat a US transferor as owner where the trust has a US beneficiary. Other countries classify trusts by their own residence rules, so one trust may be domestic in one system and foreign in another.
Foreign Trust vs Foreign Grantor Trust
Unlike a Foreign Grantor Trust, which is one subtype taxed to its owner, a Foreign Trust is the broader residence classification covering both grantor and non-grantor arrangements.
Example
Illustrative example: A US citizen living in Country A settles a family trust governed by Country A law, with a Country A trust company as sole trustee and US-resident children as beneficiaries. Because a non-US trustee controls substantial decisions, the trust is foreign for US purposes, and the funding generally triggers Form 3520 reporting.
Common misconception
Myth: A trust created abroad under foreign law is outside US reporting if the settlor lives abroad.
Reality: A Foreign Trust with US settlors, owners or beneficiaries generally carries US reporting duties such as Form 3520 and 3520-A, regardless of where the settlor lives.
Frequently asked questions
What makes a trust a foreign trust?
Under US Treasury regulations, a trust is a Foreign Trust unless a US court can exercise primary supervision over administration and one or more US persons control all substantial decisions.
Does a US person have to report a foreign trust?
A US person who creates, funds or lends to a Foreign Trust generally files Form 3520, and US owners must ensure the trust files Form 3520-A, subject to exceptions.
Related terms
- Foreign Grantor Trust — Subtype taxed to the owner under grantor rules
- Trust — Underlying legal arrangement before residence classification
- Non-Resident Trust — Equivalent residence concept in non-US systems
- US Person — Defines who carries US reporting duties
Related guides
- Global tax reform and US digital nomads — US persons abroad facing foreign structure reporting
Sources
- eCFR, 26 CFR 301.7701-7 (Trusts, domestic and foreign)
- IRS, Foreign trust reporting requirements and tax consequences
Last verified: 2026-10-08. This entry is general information, not tax or legal advice; rules vary by country and change over time.
