Private Wealth 2024 Comparisons

The United States comprises 50 States and the District of Columbia. The tax imposed by the US government at national level is known as “Federal” tax and is administered by the Internal Revenue Service, a bureau of the US Department of the Treasury.

Federal Income Tax

Income tax is imposed on the every US citizen and green card holder’s worldwide income and gains (regardless of their residence or domicile). US income-tax treaties include a savings clause that preserves the United States’ right to tax its citizens, residents and domestic entities. The tax is imposed at graduated rates of up to 37%. Long-term capital gains are taxed at 20% (28% for collectibles).

The US does not operate a remittance basis of taxation; individuals who are resident in the United States for US income-tax purposes are also subject to global taxation. Civil law foundations created to preserve and manage assets for beneficiaries are generally classified as trusts for US income-tax purposes. References to trusts apply to these foundations. Corporations are domestic corporations if they are created under US law; the US does not employ a “mind and management” test. Non-US individuals and entities are taxed on their US source income, subject to treaty relief. US source income includes:

• income that is “effectively connected” with a US trade or business (taxed at graduated rates, often subject to withholding tax); and
• “fixed annual periodic or determinable income” – eg, dividends, interest, rents, royalties, pensions and annuities, which is subject to 30% withholding tax, with the exception of treaty relief.

State Income Tax

State-level income taxes are imposed by 41 States. Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming do not impose income tax. Most States impose additional State and local taxes, such as sales taxes and property taxes.

Federal Transfer Tax Regimes

The federal tax regimes include the US Federal gift, estate and generation-skipping transfer taxes (collectively the “US Transfer Tax Regimes”) as well as an income-tax regime applicable to trusts, estates and beneficiaries. The US Transfer Tax Regimes apply to the global gifts and bequests of its citizens, regardless of their residence or domicile. For example, a US citizen who has never lived in the US and owns no US situs assets will be subject to the US Transfer Tax Regimes on the same basis as someone born and raised in the US who never lives anywhere else.

Individuals who are domiciled in the United States are subject to the US Transfer Tax Regimes on the same basis as US citizens. The US situs assets of individuals who are neither citizens nor domiciliaries are also subject to the US Transfer Tax Regimes. US citizens and domiciliaries who receive gifts and bequests from “covered expatriates” or trusts created by “covered expatriates” will be liable for US gift or estate tax subject to limited exceptions.

State Transfer Tax Regimes

Estate tax is also imposed in Connecticut, Hawaii, Illinois, Maryland, Maine, Massachusetts, Minnesota, New York, Oregon, Rhode Island Vermont Washington and Washington DC. Inheritance tax, which is levied on certain beneficiaries, is imposed in Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania.

US citizens and domiciliaries enjoy a unified Federal gift- and estate-tax exemption of USD13.61 million (indexed annually to reflect inflation).

If no Congressional action takes place, in 2026, that exemption will fall to USD5.49 million (indexed to reflect inflation since 2018). Anti-clawback rules will protect many gifts made under the current rules. If the decedent’s estate makes an election, the unused exemption may be used by a US citizen or domiciliary surviving spouse. The generation-skipping transfer-tax exemption available to an individual is the same as the gift-tax and estate-tax exemption, but is allocated separately.

Individuals who are not US citizens and are not domiciled in the US do not enjoy a US Federal gift-tax exemption, and their US estate-tax exemption is USD60,000.

The following gifts are not taxable gifts, and do not utilise an individual’s exemption.

• “Annual exclusion” gifts of a “present interest” in the gifted asset to an unlimited number of beneficiaries. The exclusion is USD18,000 per beneficiary in 2024, indexed annually to reflect inflation; beneficiaries can only receive one annual exclusion gift tax free from “covered expatriates”.
• Gifts made directly to qualifying education institutions for tuition.
• Payments made directly to doctors, hospitals and other healthcare providers for unreimbursed medical expenses.
• Gifts to qualifying charities are discussed in 10. Charitable Planning.

A step-up in basis may be available on death, as discussed in 2.5 Transfer of Property.

US law actively discourages basis-shifting transactions. The IRS may disregard basis-shifting transactions, applying anti-abuse rules such as the economic substance doctrine or the step transaction doctrine. Similarly, the “wash sale” rules disallow harvesting losses and reinvesting in the same stock within a 30-day period.

In June 2024, the US Internal Revenue Service issued proposed regulations that would require material advisors to disclose certain related party partnership transactions that step up the basis of partnership assets (REG-124593-23).

Insurance products are often used to mitigate income tax liability.

The US does not restrict foreign nationals from purchasing US real property. The Foreign Investment in Real Property Act (FIRPTA) governs the income taxation of non-resident aliens (individuals who are not US citizens or residents) and foreign entities that own US real property interests (USRPI). The FIRPTA rules are extremely nuanced, and the following is a broad outline of those rules.

FIRPTA treats gains and losses from the disposal of USRPIs as income that is effectively connected with a US trade or business. When a non-resident non-citizen disposes of a US real property interest, the purchaser must withhold 15% of the amount realised. If 15% exceeds the amount of tax due, the seller may apply for a withholding certificate, which permits the purchaser to withhold a reduced amount.

Real property income (as opposed to gains) is subject to 30% withholding tax unless it is ECI, or the taxpayer elects to treat the income as ECI. The election allows the taxpayer to deduct interest, depreciation and other expenses related to the property. Certain depreciation deductions may be “recaptured” on sale and taxed at ordinary income-tax rates.

The US Supreme Court’s opinion in Loper Bright Industries v Raimondo, 603 US _____ (2024) overruled the Chevron doctrine, which granted deference to the administrative agency’s interpretation of statutes. In the future, increasing numbers of conflicting judicial interpretations of the Internal Revenue Code may result in greater uncertainty.

The US Transfer Tax Regimes are a political issue. In 2017, the exemption was doubled subject to a sunsetting of the increased exemption on 1 January 2026, if Congress does not act sooner. Bills are introduced in Congress repeatedly both to significantly reduce the US estate-tax exemption and to repeal the US estate tax entirely.

Other proposed legislation would substantially alter the way the US taxes generational transfers of wealth (eg, eliminating the step-up in basis and certain valuation discounts; including grantor trusts in the grantor’s estate). Inclusion of grantor trusts in the settlor’s estate will have a significant adverse impact on international families because:

•       bequests to non-citizen spouses do not qualify for the unlimited US gift and estate-tax marital deductions; and

•       lifetime trusts that include the spouse as a beneficiary will be grantor trusts.

After enacting FATCA in 2010, the US declined to participate in CRS reporting. In 2021, the US enacted the Corporate Transparency Act, 31 USC. 5336 (CTA) which became effective on 1 January 2024. The CTA is administered by the Financial Crimes Enforcement Network, known as FinCEN. The CTA requires disclosure of the identity of beneficial owners, as well as incorporators/registrants including employees of corporate service providers. The Beneficial Ownership Information Reports filed with FinCEN are not public.

The CTA applies to corporations, limited-liability companies and any other entities required to file a document with a secretary of state or any similar office under the laws of a US State or Indian tribe and in connection with its creation or, in in the case of foreign entities, in connection with the registration to do business in any US State or tribal jurisdiction.

The CTA exempts certain inactive entities and 22 categories of entities that are otherwise regulated by US agencies, such as the US Securities and Exchange Commission, Commodity Futures Trading Commission, Insurance Federal Deposit Corporation FINCEN and the US Internal Revenue Service.

For beneficial owners of 25% or more of the reporting entity and individuals who applied to create or register the entity, reporting entities must disclose:

• name and address;
• date of birth; and
• a copy of an unexpired government issued ID.

In March 2024, the CTA was declared unconstitutional as applied to members of the National Small Business Administration (National Small Business Administration v Yellen 113 AFTR 2d 2024-885). The NSBA case is being appealed, and several other cases have been filed challenging the law. Legislation has been introduced to repeal the CTA (eg, the Repealing Big Brother Overreach Act, H.R. 8147). New York State has enacted the LLC Transparency Act (NY Limit. Liab. Co. §§1106-1108).

The US is less than 250 years old and, compared to many other jurisdictions, is a young country. While tribal nations of the original population (native Americans) still exist, they constitute a small percentage of the population. Over the past 200+ years, the US has been a melting pot, populated and developed by individuals from all over the world. Families tend to be smaller compared to those in other areas of the world.

There is a greater focus on individualism in US culture than in many others. Otherwise, as a result of the diversity of the population, in the author’s view, there are few consistent cultural norms that differ from other cultures.

US advisors tend to draft documents differently than advisors in other common law countries. Due, in part, to US tax considerations, US trusts tend to be more proscriptive compared to documents drafted by English educated practitioners, which tend to grant more discretion to trustees.

The US taxes citizens on their global income and gifts, and bequest adds complexity to international planning.

US taxpayers are required to file numerous “information returns” reporting their gifts from non-US persons, including family members, distributions from trusts/foundations, interests in foreign assets, and signatory authority over certain foreign financial accounts, regardless of whether any tax is due. Failure to file in a timely manner may result in significant penalties.

Controlled Foreign Corporations and Passive Foreign Investment Companies

Gifts and bequests of interests in entities should be carefully reviewed to determine if any of the entities are “passive foreign investment companies” (PFICs) or “controlled foreign corporations” (CFCs), so that planning can be executed to optimise the family’s position and the interests are reported in a timely manner. These nuanced regimes are outside of the scope of this guide and are very broadly summarised below.

The CFC and PFIC rules are anti-deferral regimes that discourage the accumulation of income offshore. Constructive ownership rules attribute the ownership of shares between family members and trusts, beneficiaries, corporations, shareholders, partnerships, partners and other entities.

Controlled foreign corporations (CFCs)

A non-US corporation is a CFC if:

• A “US Shareholder” owns more than 50% of the shares, directly or indirectly, or is considered their owner by applying the constructive ownership/attribution rules, by vote or by value;
• a US Shareholder is a US taxpayer who owns, directly or indirectly, or is considered to own, under the constructive ownership or attribution rules, ten percent (10%) or more of the shares of the corporation (by vote or by value);
• the US Shareholder of a CFC is subject to tax on their pro rata share of the following regardless of whether the CFC declares a dividend:
• subpart F (broadly passive income and gains);
• “global low-taxed intangible income” known as GILTI, which applies to various types of income in addition to income earned from intangibles.

Individuals may elect to be taxed on the same basis as corporate shareholders of CFCs. In an estate planning context, is common for CFCs to make entity elections, also known as “check-the-box” elections.

Entity elections, or “check-the-box” elections

Eligible entities may elect to be classified as either corporations or pass-through entities (a partnership if the entity has more than one shareholder, or a “disregarded entity” if the entity has one shareholder).

In an international context, an entity that has made an entity election is often referred to as a “hybrid entity”; the election does not impact its classification in its home jurisdiction. For example, an entity might be a corporation under local law and a “disregarded entity” for US tax purposes.

Passive foreign investment companies (PFICs)

A non-US corporation will be a PFIC if:

• 75% or more of the corporation’s income (including gains) is passive; or
• 50% or more of the corporation’s assets generate passive income, or would generate passive income if it generated income.

Excess distributions

When a US taxpayer receives, or is deemed to receive, a distribution of more than 125% of the average amount of the distributions received from the PFIC over the past three years, the amount in excess of 125% is taxed as an excess distribution. An excess distribution is taxed at the highest marginal US income-tax rate in effect, and is subject to an interest charge based on the number of days the individual has owned the shares of the PFIC. A gain recognised in connection with the disposal of a PFIC is an excess distribution.

A PFIC is not taxed as a PFIC in any year in which it is also a CFC (subject to exceptions regarding prior-year accumulations). PFIC status may be managed by making various elections. The “qualified electing fund” election, which allows the taxpayer to be taxed on their pro rata share of the PFIC’s income and gains each year, and the check-the-box or entity elections, are the most popular elections.

Unlike the entity election, the qualified electing fund, mark-to-market, deemed sale and other elections made under the PFIC regime impact the US shareholder, not the company or other shareholders.

International wills

The validity, construction and interpretation of wills is governed by State law rather than US Federal law.

The US is an original signatory to the Convention Providing A Uniform Law On The Form Of An International Will. The US has not enacted Federal enabling legislation. The Uniform Law Commission promulgated the Uniform Wills Recognition Act, which implements the convention. The District of Columbia and 21 States have enacted the Uniform Wills Recognition Act.

Transfer tax treaties

The US is a party to transfer tax treaties with the following jurisdictions: Australia, (Estate and Gift); Canada (included in the Income Tax Treaty); Denmark (Estate and Gift); Finland (Estate); France (Estate and Gift); Germany (Estate and Gift); Greece (Estate); Ireland  (Estate); Italy (Estate); Japan (Estate and Gift); Netherlands (Estate); South Africa (Estate); Switzerland (Estate); and United Kingdom (Estate and Gift).

All US treaties include a “savings clause” that allows the US to tax its citizens regardless of their domicile. Generally, double taxation is mitigated by provisions that require the US to provide foreign tax credits where the other jurisdiction has primary taxing rights.

US situs property – gift tax

Real property and tangible property located in the US has a US situs for US gift-tax purposes. The US Tax Court has ruled that interests in LLCs that elect to be treated as partnerships are intangibles (and not subject to US gift tax).

US situs property – estate tax

The following property has a US situs for US estate-tax purposes:

• shares issued by US companies, including LLCs; there is a mismatch in the gift- and estate-tax regimes – financial instruments are intangible, and are not US situs assets for US gift-tax purposes and ADRs do not have a US situs for US estate-tax purposes;
• real property located in the US;
• tangible property located in the US (eg, art, cars)
• debts owed by US citizens, US residents, US trusts, companies or other entities (subject to exceptions noted below); and
• assets held in trust attributable to US situs assets contributed to trusts if the settlor retained certain powers over the entity.

Non-US situs property estate tax

The following property does not have a US situs for US estate-tax purposes:

• real property located outside the US;
• tangible property located outside the US (eg art, cars);
• shares and other interests issued by non-US companies and entities;
• debts: 1) debts owed by non-US persons or entities; 2) “portfolio debt instruments” debt intended for non US purchasers that generate tax-free interest (to the extent they do not have a contingent interest component); and 3) certain instruments priced at an “original issue discount”;
• bank deposits and certificates of deposit (not cash in brokerage accounts or money market funds) to: 1) a non US bank outside of the US; 2) the foreign branch of a US commercial bank; or 3) a US bank or savings and loan establishment;
• insurance proceeds on a policy insuring the life of a non-resident alien; and
• art imported into the US solely for purposes of a public exhibition at a not-for-profit gallery or museum is not a US situs asset for gift- or estate-tax purposes while it is: 1) on loan to the museum or gallery; or 2) in transit in connection with the public exhibition.

The situs of partnerships is uncertain and determined on a case by case basis; guidance is inconsistent as to whether partners are taxed on their interests in an entity or their interest in the underlying assets.

Grantor trusts

International families frequently create trusts that are classified as “grantor trusts” for US income-tax purposes, which allow US taxpayers to receive distributions from the trust free from US income tax during the settlor’s lifetime.

Gifts and bequests to spouses who are not US citizens

The unlimited gift-tax and estate-tax marital deductions only apply to gifts and bequests made to US citizen spouses. In lieu of the unlimited gift tax deduction, US citizens and domiciliaries may make annual exclusion gifts to spouses who are not US citizens of up to USD185,000 (indexed annually to reflect inflation).

Bequests to non-citizen spouses in excess of an individual’s available estate-tax exemption will not incur estate tax if the bequest passes to a “qualified domestic trust”, or QDOT. Broadly, the QDOT must:

• be governed by the laws of US law;
• grant the surviving spouse an income interest for life;
• require a US trustee to pay US estate tax if capital or capital gains are distributed other than to pay US estate tax or due to hardship; and
• provide for adequate security (US bank trustee, letter of credit or bond).

Other arrangements may be agreed with the US Internal Revenue Service. Ownership of property held jointly by US citizen and non-citizen spouse is subject to tracing based on their relative contributions to the asset.

Gift and estate tax - covered expatriates

Generally, the donor (or the donor’s estate) is liable for US transfer taxes. When a “covered expatriate” transfers property to a US citizen or domiciliary (or US trust) that is not otherwise subject to US transfer tax, but would have been subject to US transfer taxes if the donor had not expatriated, that US donee will be liable for the tax unless:

• the donee is the donor’s US citizen spouse;
• the donee is a qualifying charity; or
• the transfer passes to the donee as a result of a qualified disclaimer.

Foreign tax credits will offset tax paid in other jurisdictions. Covered gifts to trusts are subject to a nuanced regime that imposes gift tax as well as income tax. Very broadly, a covered expatriate is a citizen or “long-term permanent resident” if, upon expatriation:

• their net worth, or tax liability, exceeded applicable thresholds;
• they were not compliant with their tax obligations (and did not qualify for the relief available for low-net-worth individuals); or
• they did not qualify for the exceptions to certain individuals who became dual nationals at birth.

Covered expatriates are subject to the expatriation exit-tax regime (which is outside of the scope of this guide).

Succession planning in the US is based on testamentary freedom.

Spousal Protections

Spouses are included in all intestate succession statutes. In addition, subject to the terms of a pre-nuptial or post-nuptial agreement, every State except Georgia permits a surviving spouse to make an election claiming a portion of their spouse’s estate.

Protections for Other Family Members

The inheritance protections afforded children by various civil law countries and sharia law do not exist in the US. No State other than Louisiana requires a parent to provide for their minor children upon death.

Marital joint property rights are determined at State rather than Federal level. Nine States are community property States and the other 41 States and the District of Columbia have “separate property” regimes.

Community Property States

The States of Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin have community property regimes (in which property acquired after marriage is deemed to be owned equally). The community property of both spouses receives a step-up on the death of the first spouse to die.

Community Property Trusts

Several separate property States (Alaska, Florida, Kentucky, South Dakota and Tennessee) allow married couples to create community property trusts. All of the property held in these trusts is eligible for a “step-up” in cost basis to fair market value on the death of the first spouse to die (as in a community property state).

Separate Property

In separate property States, married couples often hold property jointly as “tenants by the entireties”, which means both spouses own an undivided interest in the property and it passes to the surviving spouse by operation of law. This can be problematic if the surviving spouse is not a US citizen, because the automatic outright bequest can result in US estate-tax liability.

Joint Tenancies

Community property and undivided interests in joint property (tenancies by the entireties) cannot be sold without the consent of the other spouse. Tenants in common can freely dispose of their one-half interest in the property.

Marital Agreements

Pre- and post-nuptial agreements are governed by State rather than Federal law. Each State has its own specific requirements. However, agreements are generally binding if:

• they are in writing;
• each spouse fully discloses their financial position prior to execution of the agreement;
• each spouse has adequate legal representation;
• each spouse has adequate time to review the terms of the agreement; or
• neither spouse signed under duress, or was coerced into signing the agreement.

The terms are not unconscionable.

Multiple Spouses

An individual who has more than one spouse at the same time may be prosecuted for the crime of bigamy. For succession purposes, generally the later marriage is presumed to be valid unless the earlier marriage is continuing. Generally, multiple wives of foreign domiciliaries are not recognised as “spouses” for tax or succession purposes. However, see Matter of Diba, 975 NYS2d 635 (Sur. Ct. 2010), concerning a Senegalese domiciliary’s two wives being permitted to split elective spousal share.

In a domestic context, where assets remain in the US tax net, a gift is not treated as a disposal of the gifted assets. The gift does not trigger a capital-gains liability and the donee receives the gifted property with a “carry-over” basis – the lower of the fair market value on the date of the gift or the donor’s adjusted cost basis

Transfers of appreciated property by US taxpayers to foreign estates and to foreign trusts are taxable disposals if the entity is not classified as a grantor trust. If a foreign trust that is a grantor trust to a US person becomes a foreign non-grantor trust, an exit tax is imposed on the trust assets.

Generally, the adjusted cost basis of property acquired from the decedent or that has passed from the decedent (upon death) is:

• the fair market value of the property upon the decedent’s death;
• the fair market value of the property within six months after the date of death if electing an alternate valuation date lowers the value of the gross estate and the amount of estate tax due; or
• the special-use valuation determined may be available for certain farming and business assets.

Under current law, the following property will qualify for a step-up in basis on death:

• property bequeathed by the decedent or included in the decedent’s estate for US estate-tax purposes;
• property held in trust, if the decedent had the right:
• to revoke the trust and an income interest for life or the right to direct/order the payment of trust income;
• to change beneficial interests by exercising the right to alter, amend or terminate the trust and an income interest for life or the right to direct the payment of trust income.

There is no step-up for intentionally defective grantor trusts. A 2023 IRS revenue ruling confirmed that assets held in a grantor trust are not eligible for a step-up in basis if they do not meet the following requirements:

• the decedent held a 50% interest in community property under domestic or foreign law;
• the property was subject to general powers of appointment that lapsed or were exercised upon death.

Notable Exceptions

Deathbed gifts to a decedent

Bequests of property gifted to the decedent within one year of the decedent’s death are not eligible for a step-up in basis if bequeathed to the donor or the donor’s spouse

Income in respect of a decedent

Items of income that the decedent was entitled to but had not received or reported for tax purposes before death are not eligible for a step-up in basis. Examples of income in respect of a decedent (IRD) include:

• compensation (eg, salaries, bonuses, commissions, deferred compensation, pensions); and
• dividends, interest rents and royalties.

Items of IRD are subject to both estate tax and income tax. An income-tax deduction is available reflecting the amount of the estate tax associated with the IRD.

Trusts

Families often create trusts utilising their available US transfer-tax exemptions to make “completed gifts” of assets that will appreciate outside of the scope of US estate tax for future generations. Under current law, it is possible to create “intentionally defective grantor trusts”. This means that the income, gains losses and deductions are taxable to the settlor; that other beneficiaries receive distributions free from income tax during the settlor’s lifetime; and the trust assets are outside the scope of US estate tax. As noted above, legislative proposals would eliminate this planning if enacted in a future Congress.

Grantor-retained Annuity Tusts/Grantor-retained Unitrusts

The settlor retains an annuity or unitrust interest for a defined number of years, reducing the value of the gift. If the settlor survives the term, the assets are not subject to US estate tax.

Qualified Personal Residence Trusts

The settlor places residential property in trust, reserving the right to use the property for a defined number of years. If the settlor survives the term, the residence is not subject to US estate tax. If the settlor uses the property after the initial term, they must pay fair-market-value rent.

Family Limited Partnerships/Family Limited LLCs

Contributed assets are often valued at a discount.

Self-cancelling Instalment Notes

These are interest-bearing instalment debts with a term shorter than the seller’s life expectancy. They are priced at a premium (to avoid or reduce gift tax). If the seller dies during the term of the note, any outstanding principal is forgiven and outside the scope of US estate tax. The estate pays tax on any unrealised capital gains. IRC §529 plans are educational savings plans that grow tax free; individuals can contribute an amount equal to five years of their annual gift tax exclusion.

Taxation

Digital assets are treated as property for US tax purposes. Any NFTs classified as “collectibles” will be subject to the 28% long-term capital gains rate applicable to collectibles. To date, the situs of digital assets remains uncertain.

US citizens and domiciliaries are subject to tax in relation to digital assets, regardless of their situs, and will be eligible for treaty relief or foreign tax credits where applicable.

In an international context, it is anticipated that gifts and bequests of digital assets will be treated as gifts of intangible property that will not have a US situs for gift-tax purposes. Exceptions may apply to transfers of “cold wallets” and other circumstances where tangible property permitting access to the digital assets is located in the US.

Fiduciary Access

The regulation of digital assets requires a balancing of US Federal law, which prohibits accessing or disclosing the content of electronic records without the user’s consent, “terms of service” agreements (where applicable), privacy concerns and a fiduciuary’s duty to collect, preserve and manage assets.

Revised Uniform Fiduciary Access to Digital Assets Act

Every State except Massachusetts, the District of Columbia and the US Virgin Islands has adopted some version of the Revised Uniform Fiduciary Access to Digital Assets Act (or predecessor statutes). This Act facilitates access to digital assets for persons appointed as: i) agents/attorneys under powers of attorney; ii) guardians/conservators; iii) executors and personal representatives of a decedent’s estate; and iv) trustees.

The Act distinguishes between disclosure of content versus cataloguing information. For example, in the context of emails, there is a distinction made between the content of emails versus contacts, date and time of communications and contacts’ email addresses.

The Act further distinguishes between “electronic records” and other digital assets. See, for example, matter of Scandalios, No 2017-2976/A, 2019 BL 16301 (NY Sur Ct 14 Jan. 2019), where photographs in the decedent’s Apple account were not “electronic records” that require proof of the user’s consent or court order; matter of Serrano, 56 Misc 3d 497, 54 NYS3d 564 (Sur Ct, NY County 2017), concerning no user consent, with fiduciary’s request for access to Gmail account limited to information “reasonably necessary for the administration of the estate” – eg, non-content information (contact list and calendar).

If a decedent has used an online tool to direct a custodian (eg, Google) to disclose or not to disclose digital assets (including the contents of electronic records) those tools override directions set out in estate-planning documents. If the decedent has not used on online tool (or an online tool does not exist), authorisations or other directions contained in a will or other document will govern the disclosure of digital assets and override a default provision in a terms-of-service agreement.

If neither are conclusive, or do not exist, disclosure is permitted in accordance with the custodian’s terms-of-service agreement, where applicable.

Custodians may impose a reasonable administrative charge for costs associated with the disclosure, and have the discretion to provide:

• full access to the account content;
• partial access to allow the fiduciary to fulfil their fiduciary duties;
• a record of any digital assets the user could have accessed if the user was alive on the date of the request.

If a user’s request to disclose part but not all of a digital asset presents an undue burden, and disclosure of part of but not all content is authorised, a custodian can decline to follow the user’s wishes if segregating information places an undue burden on the custodian.

Custodians may require the following before disclosing any information about the account.

• A written request for disclosure.
• A certified copy of a death certificate.
• Documents appointing the fiduciary.
• Copies of the will (or other relevant document).

• If authorisation was not given via an online tool or estate-planning document:

• information identifying the account by account number or other designation; and
• evidence demonstrating that the account or other digital asset belonged to the decedent.

• A court order finding that:

• the account belonged to the decedent;
• disclosure would not violate Federal law; and
• the decedent consented to the disclosure (if consent was not provided through an online tool).

Custodians may also require a court order before disclosing content information.

In the US, as in other jurisdictions, bequests of NFTs, cryptocurrency and other monetised digital assets require careful planning with regard to the identification of the assets, access to keys and other issues, including the appointment of a digital-assets executor where appropriate.

The United States (except for Louisiana) is a common law jurisdiction, and trusts are the most popular vehicle for US estate planning. Two States, Wyoming and Nevada, have enacted foundation regimes that are similar to the foundations created in civil law jurisdictions. Louisiana, a civil law jurisdiction, also recognises “usufructs”.

For US Federal income-tax purposes, trusts are classified as:

• domestic (if US persons can make all significant decisions relating to the administration of the trust and a US court can exercise primary jurisdiction over the administration of the trust) or foreign;
• grantor trusts (meaning the settlor is taxed as if they owned the assets directly due to the powers they have retained) or non-grantor trusts.

Grantor Trust Status

While a trust (or portion of a trust) is a grantor trust, the grantor is subject to tax on the trust’s income and gains as determined for US income-tax purposes. Beneficiaries may receive distributions free from tax while the trust is a grantor trust.

If an original trust instrument grants trustees discretion to pay US income tax, they may do so without causing any collateral tax consequences. The IRS has announced that the addition of a tax reimbursement clause to a grantor trust could result in a taxable gift by the beneficiaries to the settlor.

Non-grantor Trusts

When the settlor dies, the trust becomes a non-grantor trust. Beneficiaries are taxed on trust distributions unless they are composed of capital for US income-tax purposes. The trust is eligible for a deduction for distributions of “distributable net income” (broadly current-year income and gains) made to beneficiaries. If the trust is a foreign trust, any distribution that includes accumulated income and gains will be taxed at ordinary income-tax rates and will be subject to an interest charge, capped at the amount of the distribution. Capital gains are included in a foreign trust’s income.

Uncompensated use of property owned by a foreign non-grantor trust and loans that are not “qualified obligations” are treated as taxable distributions of trust assets.

Trusts are recognised by every State in the US. Each State has its own jurisprudence regarding the validity construction and administration of trusts. Thirty-five (35) States and the District of Columbia have adopted the Uniform Trust Code.

Trust Residence

If a US citizen or resident is named as a trustee, consideration must be given to the composition of other power holders and whether the trust will be a US domestic trust, subjecting trust assets to US income tax and holding companies to US anti-abuse rules (eg, controlled foreign corporation and passive foreign investment company rules).

Estate and Gift Tax Liability

If that US person or their siblings, spouse, parents, grandparents, children or grandchildren are beneficiaries of the trust, their powers must be carefully circumscribed to avoid inadvertently creating a US estate or gift tax liability.

Technically, powers held by “related or subordinate parties” should not be problematic from a transfer-tax perspective. However, IRS guidance is inconsistent on that point, and case law carves out safe harbours to liability.

When a trust makes distributions that satisfy a US person’s legal obligation to support a beneficiary, the US person can be taxed on the value of that distribution.

US taxpayers who have signatory authority over trust bank accounts must report those accounts on their FBAR.

Most States have “decanting” statutes that allow the trustees to resettle trust assets.

The degree of power that a settlor will want to retain over a trust is largely dependent upon tax planning. If the trust holds life insurance that is intended to be excluded from the settlor’s estate, the settlor cannot retain any “incidents of ownership” over the policy.

A gift is complete for US gift-tax purposes if a donor has parted with “dominion and control” over the trust’s assets. However, it is possible for a gift to be “complete” and for gifted assets to be included in the donor’s estate upon death.

The retention of an entitlement to enjoy trust assets, to vote stock in a controlled corporation, a power of reversion, revocation, or a power that is classified as a power of appointment, including the unfettered power to hire and fire trustees, within three years of death may result in estate tax inclusion.

Settlors frequently retain the power to make distributions subject to “ascertainable standards” of health maintenance income and support which do not create an estate-tax liability.

Trusts are the most popular asset-protection vehicle. Historically, if a settlor continued to benefit from assets held in trust, those assets were subject to the claims of the settlor’s creditors. In 1997, Alaska enacted asset-protection trust statutes that protected trust assets from the settlor’s creditors. Many other States, including Delaware, Nevada and South Dakota offer domestic asset- protection trusts.

Succession and governance issues arise in several contexts, all of which are often interrelated, and include:

• family business;
• family office (if any);
• family trusts and other vehicles;
• family governance and succession, more generally.

In addition to trusts, family limited partnerships and family limited-liability companies and insurance products are also widely used for succession planning. There has been substantial litigation over the years relating to discounts.

Anti-abuse rules (known as the Chapter 14 special valuation rules) disregard or re-characterise certain gifts between family members where the donor retains certain interests in the entity or property. These rules impact a wide range of family business transactions including recapitalisations, restructurings, creation of and gifts of interests in entities, as well as QPRTs, GRATs, buy-sell agreements and other transactions.

Governance and succession provisions are often embedded in private trust companies and family office structures, with an increased focus on the differing needs and interests of family members of different generations, including the UN Sustainable Development Goals and Principles for Responsible Investment.

Life insurance provides tax-efficient solutions for many families, and has been widely used in conjunction with buy-sell agreements. On 6 June 2024, the US Supreme Court ruled that a corporation’s contractual obligation to redeem a decedent’s shares does not necessarily reduce the value of the interest in the value of the corporation for US estate-tax purposes. (See Connelly v United States,___US ___ No 23-146, Opinion 6/6/24). This decision may require some additional planning for families who had employed the Connelly solution, but does not otherwise detract from the advantages of insurance planning and buy-sell agreements.

Discounts are available under current law for lack of marketability, lack of control, minority interests and future values. Legislative proposals would curtail the availability of these discounts.

While families might prefer to settle issues privately, the courts are the primary forum for dispute resolution. Indeed, a court refused to grant a “motion to seal” in a dispute between members of the Getty family and their investment advisor, who claimed she was fired because she questioned their tax planning. See KPG Investments, Inc. v Marlena Sonn, Case No CV22-000444 KPG Invs. v Sonn, 3:22-cv-00236-ART-CLB, 2 (D. Nev 28 June 2023).

A family obtained a temporary restraining order against corporate foundation for improper licensing of publicity and intellectual property rights in Newman v Newman’s Own Foundation (Conn. Super. Ct. 2024).

There are notable cases relating to stolen art and repatriation of cultural property. The Ninth Circuit Court of Appeals issued its decision in Cassirer v Thyssen-Bornemisza Collection Foundation, 89 F.4th 1226 (9th Cir. 2024), denial of rehearing en banc, --- F.4th ---- (2024) applying Spanish law foundation had prescriptive title to Pissaro painting); see alsoEmber v Museum of Fine Arts, 103 F. 4th 308 (5th Cir. 1924).

There are many cases involving breaches by family members, including exercising undue influence to obtain powers of attorney and co-mingling assets. See, for example, Ahlgren v Ahlgren, No 13-22-00029 CV (Tex. App, Corpus Christi 2023) affirming award of profit disgorgement and constructive trust for breach of trust, breach of informal fiduciary duty, and unjust enrichment); Kinniburgh v Moncur, 530 P.3d 579 (Wyo. 2023). (Breach of duties of loyalty and impartiality did not result in damages.)

The Estate of David Kleiman lost its appeal against the alleged creator of Bitcoin in Kleiman v W.K. Inf. Def. Rsch, LLC, No 22-11150 ___ F. 4th ___ (11th Cir. 2023) where the decedent was not in partnership with the alleged creator of Bitcoin and not entitled to half of the defendant’s mined Bitcoin.

There is significant litigation regarding assisted reproduction, the rights of embryos, and when life begins. See, for example, Pieper v Carlson, No A23-0806, (Minn. Ct. App. 2024) concerning the right to use frozen embryos. See, also, Le Page v Center for Reproductive Medicine (No SC-2022-0515) (Ala. S. Ct. 16 February 2024) with respect to the accidental destruction of frozen embryos (with the embryos considered children for the purposes of wrongful death action). Alabama subsequently enacted legislation insulating providers from civil/criminal liability for loss/damage to embryos in connection with IVF treatments.

Remedies include compensatory and punitive damages, and equitable remedies such as rescission and the declaration of a constructive trust.

Corporate trustees are prevalent in the United States. The market includes bank trust companies as well as independent trust companies. Most corporate trustees decline to be held responsible for simple negligence.

It is common for trustees (other than bank trustees who are investing trust assets) to require a trust have its own investment advisor to whom they delegate responsibility for investing trust assets. Trustees are generally absolved of responsibility (by State statute or through the trust deed) for properly delegated functions.

Every State has passed some version of the Uniform Prudent Investor Act, which codifies modern portfolio theory, or their own version of the statute, which can be waived in trusts or wills.

There is tension between those seeking a greater focus on ESG (eg, trustees who have adopted the UN Principles for Responsible Investment) and States that seek to ban such considerations. Some States, such as Delaware, New Hampshire, Oregon, Illinois and Georgia, have amended their prudent investor rules to allow consideration of the personal values of beneficiaries.

Trustees are permitted to hold operating businesses and business assets. If persons operating the business are required to possess any regulatory authorisations, the trustees will need to satisfy those regulatory requirements if they wish to operate the business. Even if permitted to do so by law, most professional trustees will not run a business held in trust, and will not be responsible for the operation of the business.

It is common to include provisions in trust deeds and other documents waiving the duty of diversification.

Citizenship

The US grants citizenship on the basis of “jus solis” to everyone born there. Proposals to limit citizenship by birth are included in proposed legislation. Derivative citizenship is given to individuals who were born to a US citizen parent who (under current law) has been present in the US for five years, during two of which they were over the age of 18.

It is also possible for individuals to become naturalised US citizens.

Domicile

An individual is domiciled in a place for US Federal gift and estate-tax purposes if they reside there for even a short period of time and have no definite present intent to leave in the future. Domicile is not lost unless the individual actually moves.

Residency is based on days of presence (the substantial presence test) or the activation of a green card or “permanent resident” status.

Subject to various exceptions, an individual will be present under the substantial presence test if they are present for 183 days or more taking into consideration:

• all of the days of presence in the current year;
• one-third of the days of presence in the prior year; and
• one-sixth of the days of presence in the second prior year.

Exceptions apply to individuals present in the US due to certain medical emergencies, foreign government-related individuals, students, teachers, trainees and professional athletes.

Care should be taken not to prematurely activate a green card by entering the US after it has been issued prior to the intended residency start date.

The US does not operate a citizenship-by-investment programme. Expedited processing of naturalisation petitions is available to individuals receiving social security benefits and to others on a case-by-case basis.

“EB5” visas are similar to residency-by-investment programmes, allowing a limited number of individuals to obtain a conditional green card each year in exchange for investment in designated economic projects.

Special-needs Trusts

Substantive trust law is generally governed by State law.

Special- (supplemental) needs trusts were authorised by Federal law to allow disabled persons to benefit from additional resources that make their lives more comfortable without compromising their eligibility for Federal programmes such as Social Security, Medicare and certain Federally funded vocational programmes. States have enacted statutes reflecting these provisions. See, for example, N.Y. EPTL §7-1.12.

Special-needs trusts may be “first-party” trusts, created by the disabled person or their guardian/conservator, or third-party special-needs trusts, typically created by other family members. Pooled special-needs trusts are also an option.

Special-needs trusts may also be beneficiaries of charitable split-interest trusts (eg, providing a unitrust or annuity interest for the special-needs trust and distributing the remaining interest to charity).

Appointment of a guardian, conservator or similar party is governed by State law. The District of Columbia and 46 States have adopted the Adult Guardianship and Protective Proceedings Jurisdiction Act. The other four States (Florida, Michigan, Texas and Kansas) have enacted their own statutes.

A court order is required to appoint a guardian/conservator in all States.

Elder planning is a multi-disciplinary exercise. The US has many options for “aging in place”, both at home and in communities that provide increasing amounts of medical and personal-care assistance, as needed.

There is also a flourishing long-term care insurance market to help finance the costs of nursing homes and other arrangements.

Powers of Attorney

Every State has statutes governing the terms of financial powers of attorney and healthcare directives or other documents appointing people to make medical decisions in the event of incapacity. Powers of attorney can be effective upon execution or upon incapacity.

Use of revocable trusts is common to facilitate the management of assets, as well as to avoid probate. Special needs trusts and charitable split-interest trusts are also useful for certain individuals.

Generally, State law governs a child’s right to succession. Regardless of State law, wills and other documents may limit a child’s rights, provided the restrictions do not violate public policy.

Amendments to the Uniform Probate Code (UPC) seek to respect all parenting choices and to treat all children equally whether they are born to a married couple, adopted or conceived using assisted-reproduction techniques but born after the death of an intended parent.

The UPC incorporates the Uniform Parentage Code to define the parent-child relationship where a child is conceived through assisted-reproduction techniques.

Children Born Out of Wedlock

It is unconstitutional for a State to prohibit inheritance solely because a child was born out of wedlock. However, States may require proof of parentage.

Adopted and De Facto Parents

Adoptive parents and “de facto parents” are a child’s parent under the UPC.

The UPC provides that, generally, adoption terminates the parental relationship of a child’s parent, giving the child a “fresh start”, unless:

• the child is adopted by a step-parent or another relative of the parent or step parent; or
• the adoption occurred after the death of a parent.

De facto parentage is recognised under the UPC and the Uniform Parentage Act.

Posthumous Children

The Uniform Probate Code provides that gifts to classes of persons such as children or issue are determined in accordance with the rules of intestate succession. When a marriage ends due to death, posthumous children are treated as marital children.

Death during the gestational period

A child who was in gestation when the decedent died will be deemed to have been alive when the decedent died if the child survives for at least 120 hours after birth.

Death prior to pregnancy – assisted reproduction

If a decedent dies prior to the start of a pregnancy by assisted reproduction, the child will be deemed to have been alive on the decedent’s death if:

1. the intended pregnancy results in the birth of a child who survives for at least 120 hours after birth; and
2. the embryo is in utero within 36 months of the decedent’s death, or is born within 45 months of the decedent’s death.

Surrogacy Agreements

The parental rights of surrogates are governed by surrogacy agreements. Generally, gestational surrogates and donors do not have any parental rights over the child.

The US Supreme Court has ruled that same-sex couples should enjoy the Federal benefits that are available to heterosexual couples, and that States must recognise same-sex marriages. The Court may seek to overrule these decisions in the future. See Justice Thomas’s concurrence in Dobbs v Jackson Women’s Health Organization,597 U.S. 215,322 (2022).

Contributions to qualifying US charities, often referred to as 501(c)(3) organisations, may be eligible for a US income-tax charitable deduction.

Individuals who are not US citizens or resident in the United States for US income-tax purposes may utilise the deduction to reduce tax on “effectively connected income” but not income such as dividends and interest, that are subject to 30% withholding tax.

There are many other tax-exempt organisations that support the goals of 501(c)(3) organisations in various ways but are not eligible to receive tax-deductible contributions (eg, 501(c)(4) social welfare organisations.

While the US income-tax charitable deduction is limited to contributions to US charities, gifts to charitable organisations organised outside of the country may be eligible for the US gift and estate-tax charitable deductions if the donee charity is determined to be deemed equivalent to a US charity. Individuals who are not US citizens and are not domiciled in the United States may only deduct donations to US charities.

Donations to “Friends of” Organisations

US charities that further the charitable goals of non-US charities are generally deductible provided they are not earmarked or mere conduits for the foreign charity.

Broadly, eligibility for an income-tax deduction is based on whether the donee is taxed as a private foundation, and the type of property transferred. US charities are taxed as private foundations unless they are classified as:

• churches (or other similar religious organisations);
• hospitals and medical-research organisations;
• schools;
• operating to support State-related universities;
• governmental units;
• conduit foundations; or
• organisations that receive substantial public support from contributions and/or their exempt functions (one-third public support; or one-third public support and exempt function income; not more than one-third from investment income; and unrelated business taxable income).

Individuals may deduct up to 30% of their “contribution base” (20% of which may be long-term capital gains property) to private foundations each year. The contributions limit is 50% for other qualifying charities (plus an additional 10% in cash through 2025). Limitations apply to certain donations, most notably: conservation easements; tangible property (related use rules); appreciated property; closely-held stock; certain publicly-traded family business interests; inventory property; and property created by the donor (eg, sculpture, NFTs).

The deductibility (fair market value versus cost basis) of donations of digital assets, such as cryptocurrency and NFTs, varies based on how each digital asset is otherwise classified for US tax purposes.

Donor-advised funds (including international donor-advised funds) are popular with individuals who engage solely in grant-making. The income-tax benefits are greater than those associated with a private foundation. The administration is handled by the fund, and the private foundation rules are not applicable.

Private foundations are popular with individuals and family offices that wish to engage in charitable activities beyond grant-making. Unless a foundation qualifies as a distributor foundation (distributing all of their contributions each year), it is subject to a 4% excise tax. Private foundations are subject to an enhanced regulatory regime known as the “private foundation rules” which prohibit self-dealing, excessive business holdings, jeopardising investments, taxable expenditures, and requiring a 5% payout each year.

Private foundations can make grants to and collaborate with international charities. In some jurisdictions, it is also possible to create “dual qualified foundations” that are classified as tax-exempt charities in the United States and the second jurisdiction.

Contributions to “private operating foundations” are subject to the 50/60% limits.

Supporting foundations are less common. They are created exclusively to support a public charity, and are supervised or controlled by, or in connection with, the supported charity or are operated in connection with one or more public charities.

Split-interest trusts (charitable remainder trusts and charitable lead trusts) are popular estate-planning vehicles. They can be created during lifetime or in a will. These structures permit the donor to make a charitable gift while retaining (or gifting to another) a unitrust or annuity interest for a term of years or for life.