Technical article
The Yearly Forms: A South Dakota Trust Versus an Offshore Trust, for a US Citizen
A domestic trust set up in South Dakota or Nevada has only the standard US trust returns.
Picture a US citizen in Texas with US$1 million to place in a trust. A friend says a trust abroad means more paperwork. She wonders how much more, and what happens if a form is late.
The IRS and the Treasury publish the rules, so this is an official picture, tier A. Here are the yearly filings side by side.
| Filing | South Dakota or Nevada trust | Offshore trust | Due | Penalty if missed |
|---|---|---|---|---|
| Usual trust return | Yes | Yes | Normal tax dates | Set in the form instructions |
| Form 3520 | No | Yes | April 15, or October 15 if extended | Greater of US$10,000 or 35% of property sent to the trust |
| Form 3520-A | No | Yes | March 15 for a calendar-year trust | Greater of US$10,000 or 5% of trust assets treated as owned |
| Foreign account report (FinCEN Form 114) | No | Yes, above US$10,000 | April 15, extended automatically to October 15 | Set in the form instructions |
| Gift tax return, Form 709 | If you give | If you give | April 15 of the next year | Set in the form instructions |
A domestic trust set up in South Dakota or Nevada has only the standard US trust returns. There is no Form 3520, no Form 3520-A and no foreign account report. One law firm says a trust that is a grantor trust is generally reported on the settlor's own return.
For an offshore trust, each filing has its own job. Form 3520 is filed by a US person who creates or funds a foreign trust. It comes due with the income tax return. Part II applies to a US owner even in a year with no transactions. The IRS says a foreign country's secrecy law is not a reasonable cause for filing late.
Form 3520-A is filed by the foreign trust with a US owner. The owner gets a copy of a statement from it. If the 3520-A is missing, the penalty on the owner is 5% of assets the owner is treated as holding. An extension is requested on Form 7004.
The foreign account report is filed online, not with the tax return. The usual trigger for a US settlor is a foreign trust account, or an account of an offshore company that the trust owns. The threshold is US$10,000 in the account at any time in the year.
Form 709 applies to a gift into any trust. It is due by April 15 of the next year, even when no tax is owed. For 2026 the lifetime exclusion is US$15 million and the annual exclusion is US$19,000 per person. Spouses file separately. A gift must be adequately disclosed, with the trust's tax number, its terms and how the assets were valued, for the time limit on an IRS challenge to start.
On cost, one law firm puts the accountant's fee for foreign-trust filings at US$2,000 to US$3,000 a year. A provider's blog adds US$3,000 to US$5,500 a year for US compliance work, which is a provider's estimate, tier U.
You might say: "A late form is a small thing. A penalty of US$10,000 seems out of scale." The instructions set it as a floor, and the percentage can be higher. As an example, 35% of a US$1 million transfer is US$350,000. The instructions are the place to read the penalty for your own case.
You could ask whoever prepares your return which of these filings your plan would trigger, and who would carry each date. You could also ask a trustee whether it sends the records your preparer needs each year.
This touches family. If a spouse also gives, each files separately.
If you have filed these forms, which one took you the most time? Share it here. Someone starting out may find it useful.
Figures are estimates for planning, based on public data. Date read: October 2026.
Sources
- IRS Form 709 instructions and gift tax FAQ (A)
- IRS Instructions for Form 3520 (A)
- IRS Instructions for Form 3520-A (A)
- IRS report of foreign bank and financial accounts page (A)
- Alper Law, Nevada trust page (C)
- CitizenX provider blog (U)
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