Technical article

My Heir Moves to the United States, the United Kingdom, Canada or Australia: What Changes for a Foreign Trust

A foreign trust brings Form 3520, which covers distributions as well as transfers.

By Neil Solomon · 3 min read

Imagine a family with a trust set up in a place with no tax on trust income. The trust pays a grandchild each year. For a long time the grandchild lived in a country that left the payments alone. Now the grandchild takes a job in Boston, London, Toronto or Sydney. What changes?

The trust does not change. The rules of the heir's new home do. Here is what the sources show for each.

United States. The IRS pages in the files say a US person heir is taxed on a distribution like any other US person. A foreign trust brings Form 3520, which covers distributions as well as transfers. The penalty for foreign trust reporting starts at the greater of US$10,000 or 35% of the amount that was due to be reported. Money that stayed in the trust for years and is paid out later carries an extra interest charge, at the IRS underpayment rate, and the interest is not deductible. The heir's own foreign bank accounts add a separate report over US$10,000, and Form 8938 at US$200,000 for a single person living abroad.

United Kingdom. The top income tax rate is 45% over GBP 125,140 (approximately US$163,000) for 2026-27. A payment from a trust abroad can be taxed up to that rate, and unlike an inheritance from a person's estate, it is not tax-free. The UK tax office matches capital payments to the gains the trustees made. A payment made more than two tax years after the gain carries a supplemental charge. One firm's example lifts a 20% rate to 32%. A newcomer who was non-resident for the previous 10 years may claim four years of relief, and payments to such a claimant do not match to the trust's gains. The heir reports the payment on the foreign pages of the return even if another country has taxed it.

Canada. A Canadian resident who receives distributions from a non-resident trust files Form T1142 and reports the income. In the first year of residence, individuals are exempt from that form, though they still report the income. These Canadian points come from tax-practice pages at tier C. Canada has no inheritance tax.

Australia. A resident beneficiary pays tax at marginal rates, topping at 45% over AUD190,000 (approximately US$123,000), plus 2% for the Medicare levy. A resident under 18 meets penalty rates on trust income: 66% above AUD416 (approximately US$270), then 45% on the whole amount once it passes AUD1,307 (approximately US$850). The tax office's figures apply for 2025-26. A trustee who pays on behalf of a non-resident beneficiary at year end is taxed on that share, and the beneficiary claims a credit.

You might say: "This is a lot for one grandchild who just took a job." It is. The work lands on the heir, and a trust that is simple for the family can be hard for a new resident to report. The first-year relief in Canada and the four-year relief in the UK both soften the first steps.

You could look at how many of the last ten years the heir spent outside the new country, since the UK relief turns on that count.

If a child or grandchild of yours has moved to one of these four, what was the first form they met? Share it here, because someone preparing for the same move may benefit from your story.

Figures are estimates for planning, based on public data. Date read: October 2026.