Foreign Grantor Trust Rules for Non-U.S. Grantors

Meaning of foreign grantor trust status

A foreign grantor trust is a trust treated under U.S. income tax rules as owned by its non-U.S. grantor. The trust is foreign when it is not considered a U.S. domestic trust, and grantor refers to the non-U.S. person who funded it for U.S. tax purposes.^[4]

The IRS describes an owner by reference to the grantor trust rules in Internal Revenue Code sections 671 through 679. A person treated as owning trust assets is therefore the owner for this U.S. tax classification, even when another person receives trust distributions.^[1]

The key distinction is who is treated as earning the trust income. When a non-U.S. grantor qualifies, the income is attributed to that grantor under the grantor trust rules. A nonresident noncitizen grantor may qualify for foreign grantor trust status under limited exceptions.^[5][6]

The non-U.S. grantor rule

Grantor trust treatment is generally restricted when the grantor is a non-U.S. person, subject to specified exceptions, including an exception for certain older trusts. The two main exceptions cover trusts the grantor can revoke and trusts where only the grantor or the grantor's spouse can receive distributions during the grantor's lifetime.^[2][5]

Revocation power and return of assets

One route applies when the grantor alone can revest title to the trust property in the grantor, or can do so with the consent of a related or subordinate party who is subservient to the grantor.^[5]

The relevant power enables the grantor to require the trust to return ownership of assets that the grantor transferred, as provided in section 672(f)(2)(A)(i).^[3]

The power must be exercisable by the grantor alone, without the approval or consent of any other person, or with the consent only of a related or subordinate party who is subservient to the grantor.^[2]

The rule concerns a power held by the grantor, not merely a trustee's general authority to manage trust property. A trustee holds legal title and has power to manage and control trust property under the trust instrument.^[1]

Sole beneficiary during the grantor's life

A second route applies when trust income or principal may be distributed only to the grantor, the grantor's spouse, or both during the grantor's lifetime.^[2][5][6]

The condition concerns who may benefit during the grantor's lifetime, not simply whether the grantor appears among a wider beneficiary group.^[3]

A trust that qualified under one of these limited conditions ceases to be a grantor trust when the non-U.S. grantor dies.^[5]

How the conditions fit the U.S. tax classification

These conditions explain when income attribution may be assigned to a non-U.S. grantor instead of the trust or its beneficiaries. Foreign grantor trust status is a U.S. income tax classification, and the exceptions concern the grantor's retained power or lifetime beneficiary arrangement.^[4][5]

When the foreign trust does not qualify, the nongrantor rules apply and a U.S. beneficiary is generally taxed on income distributed to that person, subject to exceptions. When grantor status ends at the grantor's death, the trust becomes a separate taxpayer on its U.S.-source income.^[2]

The two conditions covered here are distinct tests. The first asks whether the grantor has the specified ability to revoke or recover trust assets. The second asks whether the grantor or spouse alone may benefit during the grantor's lifetime.^[2]

Questions and answers

Related resources

Related glossary terms

• U.S. owner of a foreign trust: The Form 3520 instructions define a U.S. owner as a person treated as owning trust assets under grantor trust rules. Ownership can apply to part of a trust.
• Beneficiary other than the grantor treated as owner: Section 678 describes when a person other than the grantor is treated as owner of part of a trust, based on a power over trust corpus or income and exceptions.
• Power to control beneficial enjoyment: Section 674 describes when control over trust benefits causes a grantor to be treated as owner of a trust portion. The rule concerns beneficial enjoyment.

Related articles and guides

• Form 8938 and Foreign Trust Assets: A U.S. citizen's guide to Form 8938: what counts as a specified foreign financial asset, when the form accompanies a tax return, and how filing thresholds vary.
• Cook Islands reporting and U.S. trust forms: Cook Islands CRS rules and trustee company requirements, with the IRS reporting that applies to U.S. citizens who are treated as owners of a Cook Islands trust.
• What a trust means under U.S. and international law: Trust terms and structure, the Hague Convention's rules, and U.S. tax classification and limited reporting rules, all explained plainly for U.S. citizens.

Tools and official documents

• Form 3520-A: annual information return of a foreign trust: Form 3520-A is a foreign trust's annual information return for a U.S. owner: ownership, annual statements, attachments, related forms and filing timing.
• Foreign trust reporting role finder: Tick the roles that describe a connection to a foreign trust or foreign account to see the forms the IRS and FinCEN instructions discuss. Roles can overlap.

Related pages

• Topic guides
• Foreign grantor trusts after the grantor dies
• Grantor and nongrantor trust taxation
• Grantor trust rules in sections 671 to 679
• Foreign trust distributions: DNI and UNI