Offshore asset protection for US persons

What 'US person' means here

For these purposes, a US person is a US citizen or a US tax resident — including green card holders and those who meet the substantial presence test — regardless of where they live. A US citizen living in London and a green card holder living in California face the same offshore-trust tax and reporting rules. This page is about that group specifically, because most general offshore-planning material glosses over the US obligations that make US persons a distinct case.

The tax fact that matters most

An offshore asset protection trust settled by a US person is a foreign grantor trust. The settlor reports all trust income on their own US tax return as if the trust did not exist. The offshore location is irrelevant for income tax. The structure does not reduce US tax liability, shelter income, or defer anything. This is the single most important fact for a US person to understand before settling anything: the value is creditor protection through jurisdictional separation, not tax. Anyone marketing offshore trusts to US persons as a tax play is describing something the law does not provide, and following that advice creates the most serious category of compliance failure.

The reporting obligations

A US settlor must file Form 3520 (transactions with the foreign trust) and Form 3520-A (the trust's annual information return) every year, regardless of whether any distributions or transactions occurred. FBAR applies to the trust's foreign financial accounts above the $10,000 aggregate threshold. FATCA requires Form 8938 for specified foreign financial assets above defined thresholds. The penalties for missing these are severe — the greater of $10,000 or significant percentages of the reportable amounts — and they apply per missed filing. A CPA with foreign-trust experience should handle all of them together.

Why CRS makes disclosure non-optional

The Cook Islands, Nevis, and other offshore jurisdictions participate in the OECD Common Reporting Standard. Financial account information is exchanged automatically with the IRS. The IRS will have information about the trust account whether or not the settlor files voluntarily. A trust that appears in CRS data but not on the settlor's Forms is an inconsistency the IRS is specifically equipped to identify. For a US person, voluntary compliance is not a choice about privacy — it is the only rational position, because the alternative is a visible discrepancy with data the IRS already holds.

Getting the US compliance right

Engage a CPA who prepares Forms 3520 and 3520-A regularly before settling the trust, not after. Confirm the filing calendar — Form 3520-A is due March 15, a month before the personal return. Keep the trust accounts and the CPA on the same timeline so filings are never late. Swear an accurate solvency affidavit at formation. And treat every reporting obligation as mandatory rather than optional. A US person who does all of this has a lawful, fully-compliant offshore structure. One who treats the reporting as optional has a problem that dwarfs whatever the trust was meant to solve.

General information, not tax advice. Confirm all obligations with a CPA experienced in foreign trust reporting before settling anything.