U.S. Beneficiary of Foreign Grantor Trust and Non Grantor Trust

A U.S. beneficiary of both a Foreign Grantor Trust and Non-Grantor Trust has certain reporting obligations that they must meet with respect to their interest in a foreign trust.  Form 8938 Statement of Specified Foreign Financial Assets requires specified individuals to file an information return identifying specified foreign financial assets that they hold.  “An interest in a foreign trust or foreign estate” is identified in the instructions of Form 8938 as a specified foreign financial asset that must be reported.

In this context, Form 3520 Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts would be filed where the taxpayer is a U.S. person who received (directly or indirectly) a distribution from a foreign trust (including the uncompensated use of trust property) during the current tax year or a related foreign trust held an outstanding obligation issued by the taxpayer (or an obligation of a person related to the taxpayer) that was treated as a qualified obligation during the current tax year.

A U.S. beneficiary who receives a distribution from a foreign trust must complete and file Form 3520 by the time the beneficiary’s individual income tax return is due, including extension.  If a Form 3520 was completed, a taxpayer does not need to also prepare a full Form 8938.  In such a situation, the taxpayer should only fill out Part IV of Form 8938, indicating the number of Form 3520s are attached to the return.