Foreign Trusts: Reporting Requirements for US Persons

US persons who are grantors, beneficiaries, or receive distributions from foreign trusts face extensive reporting requirements and potential taxation. If you create a foreign trust, make transfers to a foreign trust, or receive distributions from one, Form 3520 is required — and the penalties for non-filing start at 35% of the gross value of transfers or distributions. US persons who are treated as owners of a foreign trust (such as a grantor trust) must also file Form 3520-A annually, reporting the trust's financial information, with penalties of 5% of the trust's assets per year for non-filing. Foreign discretionary trusts are sometimes used in estate planning in countries where they're common tools, and beneficiaries who move to the US or who are already US persons can face significant US tax and reporting consequences. If you're added as a beneficiary to a foreign family trust, consult a tax professional immediately about your US reporting obligations.