Foreign Trust
Guide & Compliance
A foreign trust is a trust established under the laws of a jurisdiction outside the United States. The IRS applies the court test and control test to determine whether a trust is foreign or domestic. U.S. persons face specific reporting obligations and potential penalties for non-compliance.
Last reviewed: March 18, 2026
Reviewed against: IRS.gov, IRC Section 7701(a)(31)(B), and legal reference materials on the sources page.
Publisher: Larry Trustee AI Editorial Team | hello@larrytrustee.ai
What Makes a Trust Foreign?
The IRS uses two tests to determine whether a trust is domestic or foreign under IRC Section 7701(a)(31)(B).
Court Test
A court within the United States must be able to exercise primary supervision over the administration of the trust. If no U.S. court has this authority, the trust fails the court test.
Control Test
One or more U.S. persons must have the authority to control all substantial decisions of the trust. If non-U.S. persons control substantial decisions, the trust fails the control test.
Classification Result
If either test fails, the trust is classified as a foreign trust for U.S. tax purposes. Both tests must be satisfied for a trust to be treated as domestic.
IRS Reporting Requirements
U.S. persons involved with foreign trusts face specific reporting obligations. Penalties for non-filing can be substantial.
Annual Return to Report Transactions With Foreign Trusts
Filed by U.S. persons who create a foreign trust, transfer property to a foreign trust, or receive distributions from a foreign trust. Due with the tax return (including extensions).
Annual Information Return of Foreign Trust With a U.S. Owner
Filed by the foreign trust itself (or the U.S. owner if the trust fails to file). Reports the trust's income, deductions, and distributions. Due March 15 (with extensions available).
Non-Filing Consequences
Penalties for failure to file can equal 35% of the gross reportable amount for Form 3520 and 5% of the gross value of trust assets for Form 3520-A. Reasonable cause exceptions may apply.
Foreign Grantor vs. Non-Grantor Trusts
Foreign Grantor Trust
The U.S. person who created or funded the trust is treated as the owner for income tax purposes. Trust income is reported on the grantor's personal tax return. Distributions to U.S. beneficiaries are generally not subject to additional tax.
Foreign Non-Grantor Trust
The trust is taxed as a separate entity. U.S. beneficiaries receiving distributions may be subject to the throwback tax rules, which can result in an interest charge on accumulated income that was previously untaxed.
Common Foreign Trust Planning Scenarios
Foreign Trust Packet
When you select Foreign Trust in Larry Trustee AI, your packet includes 9 core documents plus the Foreign Trust Compliance Matrix.
9 Standard Documents
Trust Agreement, Trustee Acceptance, Successor Trustee Nomination, Beneficiary Distribution Schedule, Schedule of Trust Assets, Assignment/Transfer, Certification of Trust, Pour-Over Will Worksheet, and Execution Checklist.
Foreign Trust Compliance Matrix
Additional worksheet mapping IRS reporting requirements, identifying applicable forms (3520, 3520-A), deadlines, and compliance checkpoints specific to foreign trust administration.