Foreign Trusts

US persons living outside the United States (example Canada or the UK) think of their country of residence as “home”. It would never occur to them that certain kinds of retirement vehicles are “foreign”. Furthermore, it would never occur to them that these same retirement vehicles are “trusts”. But, from the US point of view, they are both “foreign” and “trusts”, making them “foreign trusts”.

The US regards “foreign trusts” as potential instruments of tax evasion. Therefore they are subject to very specific reporting requirements. This is what Form 3520 is about. It is long, comprehensive, and expensive to complete. The penalties for failure to complete these forms are draconian.

In addition, the trustee of the “Foreign Trust” is in most circumstances required to complete a form 3520-A.

A failure to to complete either of these forms may subject the taxpayer to severe penalties.

A common example of an investment vehicle that may be a “foreign trust” is the new Canadian “TFSA”.

If you are a US person, you must avoid this investment vehicle.

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