Federal Taxes

The United States imposes a comprehensive federal tax regime that is relevant to individual clients, estates, trusts and foundations. This includes federal income tax, estate tax, gift tax, and generation-skipping transfer (GST) tax. These taxes apply to US citizens and domiciliaries on a worldwide basis, regardless of their residence or the location of their assets.

The United States imposes federal income tax on the worldwide income of its citizens and residents, with rates of up to 37% and long-term capital gains generally taxed at 20%. Non-residents are taxed only on US-source income, which may be subject to withholding or graduated rates depending on the nature of the income and applicable treaty relief. There is no remittance basis of taxation.

Federal transfer taxes include estate, gift, and GST taxes. These apply to global transfers by US citizens and domiciliaries. For 2025, the unified exemption is USD13.99 million per individual. Non-citizen, non-domiciliary individuals are subject to estate tax only on US-situs assets and do not benefit from the unified exemption; their exemption is limited to USD60,000.

State-Level Taxes

State-level income taxes are imposed by most states, though nine – including Florida and Texas – do not levy such taxes. Several states also impose estate or inheritance taxes, which may apply in addition to federal transfer taxes. Property and sales taxes are common at the state and local levels.

US federal law provides several exemptions from estate, gift, and GST taxes. Each individual has a lifetime exemption of USD13.99 million in 2025, which may be used during life or at death. For married couples, the combined exemption is USD27.98 million. Beginning in 2026, the exemption will increase to USD15 million per person under recently enacted legislation.

In addition, individuals may make annual exclusion gifts of up to USD19,000 per recipient in 2025 without using any of their lifetime exemption. Other transfers are also excluded from gift tax entirely, including direct payments to educational institutions for tuition and to medical providers for unreimbursed expenses. Gifts to qualifying US charities are also exempt from gift and estate tax and may be deductible for income tax purposes, subject to applicable limits.

Individuals who are neither US citizens nor domiciled in the United States are subject to transfer tax only on US-situs assets. They are not entitled to the lifetime exemption and instead have a limited estate tax exemption of USD60,000. They are generally eligible for the annual gift tax exclusion.

The United States offers several income tax planning opportunities, particularly through basis adjustment at death. When a person dies, the basis of their capital assets is generally stepped up to fair market value as of the date of death. This allows heirs to sell inherited assets with little or no capital gains tax, since gains are measured from the stepped-up basis. In community property states, both halves of community property may receive a full step-up in basis, which can significantly reduce tax exposure for surviving spouses.

At the federal level, long-term capital gains are taxed at up to 20%, or 28% for certain assets, while short-term gains are taxed at ordinary income rates. State treatment varies, with some states taxing capital gains as income and others imposing no income tax at all.

Notably, the US tax system discourages basis-shifting transactions that are designed to create artificial losses or defer taxable gains. One such rule is the “wash sale” rule, which applies when a taxpayer sells a security at a loss and then acquires the same or an almost identical security within 30 days before or after the sale. In this case, the loss is disallowed for tax purposes and instead added to the basis of the newly acquired security, effectively deferring the loss until the replacement asset is sold. The rule applies across all accounts under the taxpayer’s control and is intended to prevent taxpayers from claiming tax benefits while maintaining the same investment position.

Trust structures are also widely used for income tax efficiency. Intentionally defective grantor trusts (IDGTs) and grantor retained annuity trusts (GRATs) allow appreciation to be shifted out of the taxable estate while income remains taxable to the grantor, preserving favourable tax treatment. These tools are often combined with valuation discounts and other strategies to manage both income and transfer tax exposure.

Non-residents and non-citizens may generally purchase real estate in the United States without restriction under federal law, but they are subject to specific tax rules. When a non-resident sells US real property, the Foreign Investment in Real Property Tax Act (FIRPTA) generally requires the buyer to withhold 15% of the gross sale price and remit it to the IRS. This withholding is intended to cover potential capital gains tax owed by the foreign seller. The gain is treated as effectively connected income and taxed at graduated rates unless reduced by treaty.

Rental income from US real estate may generally be subject to a 30% withholding tax unless the owner elects to treat the income as effectively connected with a US trade or business, or the activities already rise to such level. This allows deductions for expenses such as interest and depreciation. Depreciation may be recaptured on sale and taxed at ordinary income rates.

Common planning strategies include holding real estate through structures such as limited liability companies (LLCs) with foreign blockers or irrevocable trusts. These structures can help manage liability, preserve privacy and reduce estate tax exposure. If properly structured, they may also avoid probate and facilitate succession planning. However, care must be taken to avoid inadvertently triggering US estate or gift tax, particularly where US persons are involved as beneficiaries or power holders.

US tax laws are subject to change, and the potential for future shifts plays a significant role in estate and income tax planning. While the current federal estate, gift, and GST tax exemptions are set at USD13.99 million per person in 2025, recently enacted legislation will increase the exemption to USD15 million per person beginning in 2026. This increase has provided some short-term clarity, but broader uncertainty remains, particularly around proposals to limit valuation discounts, eliminate the step-up in basis at death, or include grantor trusts in the taxable estate.

Clients are responding to this uncertainty by accelerating planning strategies that take advantage of current exemptions and rules. These include the use of dynasty trusts, grantor retained annuity trusts, and charitable lead or remainder trusts to shift appreciation out of the estate while preserving income tax efficiency. Many are also making large lifetime gifts to lock in the current exemption before any future changes.

Foreign Account Tax Compliance Act (FATCA)

The United States has not adopted the OECD’s Common Reporting Standard (CRS) or the EU’s DAC6. Instead, it enforces the Foreign Account Tax Compliance Act (FATCA), which requires foreign financial institutions to report information about accounts held by US taxpayers. US residents with offshore accounts must comply with these federal reporting requirements.

Corporate Transparency Act (CTA)

Under the federal Corporate Transparency Act (CTA), corporations, LLCs, and similar entities formed under the laws of a foreign country and registered to do business in any US state must report their beneficial ownership information to the Financial Crimes Enforcement Network (“FinCEN”) unless an exemption applies.

These transparency measures are designed to combat money laundering and tax evasion. For clients in the US, especially high net worth individuals using trusts or private entities, this means increased scrutiny and the need for careful structuring to ensure compliance.

The United States is culturally diverse, and succession planning often reflects a wide range of family structures and values. While some families prioritise early wealth transfers and collaborative planning across generations, others prefer to retain control and delay transitions. Many high net worth individuals use revocable trusts, family limited partnerships, or private trust companies to maintain oversight while gradually involving younger generations.

Family size and dynamics vary, but there is a growing trend towards planning for blended families, multigenerational households, and philanthropic goals. Long-term trusts, such as dynasty trusts, are commonly used to preserve wealth across generations while minimising tax exposure. These structures offer flexibility and control, which appeals to families navigating complex personal and financial relationships. Cultural attitudes towards disclosure, control and legacy often shape how and when wealth is transferred.

As families and businesses become increasingly global, succession planning in the United States must account for a wide range of cross-border complexities. US citizens and domiciliaries are subject to federal income and transfer taxes on their worldwide assets, regardless of where those assets or beneficiaries are located. This can create tension when foreign jurisdictions impose conflicting tax rules, forced heirship regimes, or reporting obligations that do not align with US law.

International planning often requires co-ordination across multiple legal systems. For example, a US trust may not be recognised in a civil law country, or a bequest to a non-citizen spouse may not qualify for the unlimited marital deduction unless structured through a qualified domestic trust. Similarly, beneficiaries residing abroad may face local tax consequences upon receiving distributions from US estates or trusts.

To address these challenges, US advisers frequently collaborate with foreign counsel to align estate plans with applicable treaties and local laws. Trusts governed by US law are commonly used to hold assets for international families, offering long-term control, tax deferral, and asset protection. Planning also takes into account reporting obligations under FATCA, the CTA, and other transparency regimes that may affect foreign account holders and entity structures. Flexibility and careful co-ordination are essential to ensure that succession plans remain effective across borders.

The United States does not have forced heirship laws. Individuals are generally free to distribute their assets as they wish through a valid will or trust. However, nearly every state provides certain protections for surviving spouses. In most jurisdictions, a surviving spouse has the right to claim an elective share of the deceased spouse’s estate, typically ranging from one third to one half, unless waived through a valid prenuptial or postnuptial agreement.

These rights are automatic and apply regardless of the terms of the will, though they can be modified or waived by agreement. Such agreements must be in writing, entered into voluntarily, and based on fair disclosure. Beyond spousal protections, US law does not require individuals to leave assets to children or other heirs, and testamentary freedom is a foundational principle of estate planning. As a result, trusts and marital agreements are commonly used to tailor succession plans to individual family circumstances.

Separate Property Regime

Marital property laws in the United States vary by state, but most states follow a “separate property” regime rather than a community property system. In separate property states, assets acquired during the marriage are not automatically considered jointly owned unless titled as such. However, in the event of divorce, the courts typically apply equitable distribution principles, dividing marital property fairly, though not necessarily equally. Property acquired before marriage, by gift or by inheritance is generally treated as separate unless commingled.

Community Property Regime

In community property states, assets acquired during the marriage are considered jointly owned and are typically divided equally upon divorce or death. Some separate property states allow couples to opt into a community property regime through a community property trust, which can offer favourable income tax treatment by allowing a full step-up in basis at the death of the first spouse.

One spouse generally cannot transfer jointly owned property without the other spouse’s consent. In many states, this includes restrictions on transferring or encumbering a primary residence.

Prenuptial and Postnuptial Agreements

Prenuptial and postnuptial agreements are recognised and enforceable in all US states if properly executed. These agreements must be in writing, signed voluntarily, and based on fair and reasonable disclosure of assets and liabilities. The courts may also consider whether each party had independent legal counsel and sufficient time to review the terms. Valid agreements can address property rights, alimony, and inheritance rights, and are commonly used to clarify expectations and avoid future disputes.

In the United States, the tax basis of property depends on whether the transfer occurs during life or at death. If property is transferred during life, the recipient generally receives a carryover basis, meaning they take the same cost basis as the donor. This can result in capital gains tax if the property is later sold for more than the original basis.

If property is transferred at death, the recipient typically receives a step-up in basis to the fair market value as of the decedent’s date of death. This adjustment can significantly reduce or eliminate capital gains tax if the asset is sold shortly after inheritance. The step-up applies only to assets included in the decedent’s taxable estate and does not apply to items classified as income in respect of a decedent, such as retirement account distributions or unpaid compensation.

As mentioned in 2.4 Marital Property above, several separate property states allow married couples to create community property trusts. Assets held in these trusts are eligible for a full step-up in basis on the death of the first spouse, not just the decedent’s half, offering a valuable planning opportunity for reducing capital gains tax.

The US offers several planning tools to help transfer assets to younger generations in a tax-efficient or tax-free manner.

Intentionally Defective Grantor Trust (IDGT)

One common strategy is the use of an intentionally defective grantor trust (IDGT). This type of irrevocable trust allows the grantor to transfer appreciating assets, such as real estate or business interests, using their lifetime gift tax exemption. The trust assets grow outside the taxable estate, and the grantor continues to pay the income tax, which further reduces their estate without additional gift tax.

Grantor Retained Annuity Trusts (GRATs)

Grantor retained annuity trusts (GRATs) are also used to pass appreciation to beneficiaries with little or no gift tax. The grantor receives annuity payments for a set term, and any growth beyond the IRS-assumed rate passes to the next generation gift tax-free.

Charitable Lead Trusts (CLTs) and Charitable Remainder Trusts (CRTs)

Charitable lead trusts (CLTs) and charitable remainder trusts (CRTs) are split-interest trusts that combine charitable giving with family wealth transfers. These structures can reduce the taxable value of the gift and may provide income tax deductions.

Qualified Personal Residence Trusts (QPRTs)

Qualified personal residence trusts (QPRTs) allow a personal residence to be transferred at a discounted value while the grantor retains the right to live in the home for a set term. After the term, the property passes to beneficiaries, often with significant gift tax savings.

Dynasty Trusts

For multigenerational planning, dynasty trusts – structured to last for multiple generations – are commonly used in jurisdictions that permit long-term or perpetual trusts. These trusts can leverage valuation discounts, GST tax exemptions, and other techniques to preserve wealth and minimise transfer taxes over time.

Digital assets (including email accounts, social media profiles, and cryptocurrency) are becoming an increasingly important component of individuals’ estates. As a result, incorporating these assets into succession planning is essential to ensure proper management and transfer upon death.

Access to and control of these assets by fiduciaries are governed primarily by the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA), which has been adopted in most US jurisdictions. Under RUFADAA, a personal representative, trustee or guardian may access digital assets if the account holder has provided explicit authorisation through estate planning documents or via online tools offered by service providers.

To ensure effective succession planning, it is essential to include clear instructions in estate planning instruments regarding the management of digital assets. This includes specifying who should have access, the scope of authority (eg, view only v full control), and how credentials such as usernames and passwords should be handled. Without such provisions, fiduciaries may face legal or technical barriers to accessing these assets, even if they are otherwise entitled to manage the decedent’s estate.

Cryptocurrency presents unique challenges due to its decentralised nature and reliance on private keys. Failure to document access credentials can result in permanent loss of value. As such, practitioners often recommend secure storage solutions and explicit guidance in estate documents to ensure continuity and control.

Trusts and similar planning vehicles are central to tax and estate planning in the United States, offering flexibility, privacy and long-term wealth preservation.

Revocable Trusts

Revocable trusts are widely used to avoid probate, maintain privacy, and provide continuity of asset management. These trusts allow the grantor to retain control during life and direct the disposition of assets at death without court involvement.

Irrevocable Trusts

Irrevocable trusts – including IDGTs, GRATs, and CLTs and CRTs – are commonly employed to remove appreciating assets from the taxable estate, reduce transfer taxes, and achieve philanthropic goals. These structures can be tailored to meet specific family, tax and legacy objectives.

Dynasty Trusts

Dynasty trusts, often established in jurisdictions that permit perpetual or long-duration trusts, are used to preserve wealth across multiple generations while minimising exposure to estate, gift and GST taxes. These trusts frequently incorporate valuation discounts and other advanced techniques to enhance tax efficiency.

Private Foundations and Donor-Advised Funds (DAFs)

For charitable planning, private foundations and donor-advised funds (DAFs) are frequently utilised. Private foundations offer greater control over grant-making and governance, while DAFs provide a simpler, lower-cost alternative with similar tax benefits and flexibility in directing charitable contributions.

Community Property Trusts

A notable recent development is the growing use of community property trusts in certain jurisdictions that allow married couples to opt into a community property regime. These trusts can provide a full step-up in basis on all trust assets at the death of the first spouse, offering a significant income tax advantage not typically available under common law property rules.

Trusts are fully recognised and respected under US federal law and form a cornerstone of estate and tax planning for high net worth individuals and families.

As mentioned in 3.1 Types of Trusts, Foundations or Similar Entities, revocable trusts, irrevocable trusts and dynasty trusts are commonly used to avoid probate, minimise transfer taxes, preserve family wealth across generations, and provide flexibility in managing and distributing assets.

For families seeking centralised governance and continuity, private trust companies (PTCs) are increasingly popular. These family-controlled entities serve as a trustee for one or more family trusts, offering enhanced privacy, control and alignment with family values. PTCs often operate in tandem with family offices, which provide integrated oversight of legal, financial and administrative matters. Together, these structures support sophisticated, multigenerational wealth strategies and reinforce the United States’ reputation as a jurisdiction that supports advanced trust planning.

US citizens and residents who serve as fiduciaries or beneficiaries of foreign trusts, foundations or similar entities may face significant federal tax and reporting consequences. These rules are complex and often require co-ordinated legal and tax advice.

Under US tax law, citizens and residents are taxed on their worldwide income. As such, any distributions received from a foreign non-grantor trust are generally subject to US income tax. If the trust has accumulated income from prior years, the beneficiary may also be subject to the throwback tax regime, which imposes punitive interest charges and compressed tax brackets on the distributed income.

A US person acting as a fiduciary of a foreign trust may trigger additional reporting obligations. Failure to comply with these requirements can result in substantial penalties, even if no tax is due.

If the grantor or a beneficiary also serves as a fiduciary, the trust may be classified as a grantor trust for US tax purposes. In such cases, the grantor is responsible for paying income tax on the trust’s earnings, which can be advantageous from an estate planning perspective. This structure allows the trust assets to grow without reduction from income taxes, effectively enhancing the value transferred to beneficiaries.

Planning opportunities include:

• structuring foreign trusts to avoid the throwback tax by ensuring current distributions of income;
• using domestic trusts where appropriate to simplify compliance and improve tax efficiency; and
• co-ordinating with foreign counsel to align trust terms with US tax rules and reporting obligations.

The US has taken meaningful steps to support flexibility in the structuring of irrevocable trusts and similar entities, allowing for future modifications and continued involvement by the settlor.

“Decanting”

One such method is the use of “decanting”, which allows a trustee to transfer assets from an existing irrevocable trust into a new trust with updated terms. This can be used to adjust provisions for beneficiaries, extend the trust’s duration, or respond to changes in tax law, provided certain statutory requirements are met. Decanting does not require court approval in many cases, making it a practical tool for modernising trusts.

Non-Judicial Settlement Agreements (NJSAs)

Another tool is non-judicial settlement agreements (NJSAs), which enable interested parties to agree on certain modifications to a trust without going to court. These agreements can be used to clarify or interpret trust terms, approve accounting, or resolve disputes, as long as the changes are within the bounds of what a court could otherwise approve.

Non-Judicial Modification of Irrevocable Trusts

Some jurisdictions also permit non-judicial modification of irrevocable trusts under certain circumstances, even beyond what is allowed through NJSAs. Through non-judicial modification, an irrevocable trust may be modified without court approval if the settlor and all qualified beneficiaries agree to the change. This allows for more substantive modifications, such as altering distribution provisions, changing administrative terms, or even terminating the trust, provided the modification is not inconsistent with a material purpose of the trust. This flexibility enables settlors and beneficiaries to adapt trust terms to evolving family, financial or legal circumstances while avoiding the time and expense of judicial proceedings.

Retention of Powers

Settlors can also retain certain powers in irrevocable trusts, such as the power to remove and replace trustees and to direct investment of trust assets. These retained powers can provide comfort and control without necessarily causing estate tax inclusion, depending on how they are structured.

Irrevocable Trusts

In the US, one of the most popular and effective methods for asset protection planning is the use of irrevocable trusts. These trusts, when properly structured, can shield assets from future creditors while still allowing for long-term control and management.

IDGTs and SLATs

A common example is the IDGT, which allows the grantor to transfer assets out of their estate for estate tax purposes while continuing to pay the income tax. This reduces the taxable estate and helps preserve the trust’s value for beneficiaries. Some jurisdictions also permit the use of spousal lifetime access trusts (SLATs), which allow one spouse to benefit from the trust while the assets remain protected from creditors and estate taxes.

Spendthrift provisions

In addition, these trusts may also include spendthrift provisions, which are designed to protect beneficiaries by restricting their ability to transfer their interest in the trust – either voluntarily or involuntarily. This restriction prevents creditors from accessing trust assets to satisfy a beneficiary’s personal debts, as long as the assets remain within the trust. Spendthrift clauses are a reliable tool for shielding inherited wealth from risks such as divorce, litigation or financial mismanagement.

Spendthrift trusts

Additionally, some US jurisdictions recognise self-settled spendthrift trusts. These trusts include spendthrift provisions even when the grantor is also a beneficiary, offering an extra layer of protection for the grantor’s assets.

LLCs

LLCs are another popular tool. When properly formed and maintained, an LLC can protect personal assets from business liabilities and vice versa.

In the US, family business succession planning often involves the co-ordinated use of entity structuring, recapitalisation and trust-based strategies to transfer wealth and control across generations in a tax-efficient manner while minimising the potential for family conflict.

Entities

An effective strategy is the use of entities such as an LLC, a family limited partnership (FLP), or an S Corporation. The senior generation contributes business assets to the entity and retains control through a small voting interest, while transferring non-voting interests – typically representing the majority of the economic value – to family members or trusts. These non-voting interests are generally eligible for valuation discounts due to lack of control and marketability, which reduces the taxable value of the transfer. This structure allows the transferor to shift significant value out of their estate while maintaining operational authority. When the non-voting interests are placed in trust, this also provides asset protection and allows for structured distributions, which can help reduce the risk of family conflict and maintain long-term control of the business.

IDGTs

To further enhance tax efficiency, many families utilise an IDGT. This strategy allows the senior generation to gift appreciating assets – such as non-voting business interests – into a trust for the benefit of future generations. The trust is structured so that the grantor continues to pay income taxes, allowing the trust assets to grow income tax-free. When paired with dynasty trusts, this strategy supports long-term wealth preservation and minimises transfer tax.

Private Trust Company (PTC)

For high net worth families with more complex needs, the formation of a private trust company (PTC) can be a valuable addition to the overall succession plan. A PTC is a family-controlled entity formed to serve as trustee of one or more family trusts. It allows the family to centralise decision-making, maintain privacy, and ensure that trusteeship remains aligned with the family’s values and long-term objectives. PTCs can be structured with flexibility, making them an appealing option for families seeking greater control over trust administration and continuity across generations.

Family Office

Many high net worth US families also integrate a family office into their succession planning strategy to provide centralised management of wealth, governance, and legacy planning. A family office can co-ordinate legal, tax, investment and philanthropic efforts across generations, ensuring alignment with the family’s long-term goals. In the context of business succession, the family office often plays a key role in overseeing trust administration, managing distributions and facilitating communication among beneficiaries. This structure helps reduce the risk of conflict by promoting transparency and professionalism in decision-making. The favourable regulatory environment and access to experienced fiduciary professionals in the US make it an attractive jurisdiction for establishing both single-family and multi-family offices.

When a partial interest in a privately held entity is transferred during lifetime or at death, the fair market value of that interest is generally adjusted to reflect discounts for lack of control and lack of marketability, among other things. These discounts recognise that a minority interest in a closely held business is less valuable because it does not carry decision-making power and cannot be easily sold.

In the US, this principle is commonly applied in estate and gift tax planning, particularly when transferring non-voting interests in LLCs or corporations to trusts. The use of qualified appraisals is essential to substantiate the valuation discounts and ensure compliance with IRS regulations. These discounts can significantly reduce the taxable value of the transferred interest, making them a powerful tool for tax-efficient wealth transfer.

Wealth disputes in the US are increasingly driven by a combination of legal limitations, evolving family dynamics, and the growing complexity of estate structures. One major trend is the exclusion or unequal treatment of heirs in wills or trusts, which often leads to litigation. While some states enforce in terrorem (or “no contest”) clauses that discourage challenges by penalising beneficiaries who contest an estate, others do not. In jurisdictions where such clauses are unenforceable, disinherited or disadvantaged heirs – such as children from prior marriages or estranged family members – may be more inclined to initiate litigation.

Another common source of conflict arises from blended families and multiple marriages. Disputes frequently occur between surviving spouses and children from earlier relationships, particularly when estate plans are unclear or perceived as unfair. These cases often involve claims of undue influence, lack of capacity, or breach of fiduciary duty by trustees or personal representatives.

Additionally, the use of discretionary trusts, where trustees have broad authority to make unequal distributions, can lead to disagreements among beneficiaries. While these structures offer flexibility and tax efficiency, they can also create perceptions of favouritism or mismanagement, especially when communication is poor or expectations are not managed.

Finally, the increasing use of complex planning tools – such as dynasty trusts, decanting, and directed trusts – has introduced new legal and administrative challenges. These mechanisms, while powerful for tax and asset protection purposes, can also become flash points for litigation if beneficiaries feel excluded from decision-making or if fiduciaries fail to meet their duties. As wealth planning becomes more sophisticated, so too do the disputes that arise from it.

In the US, aggrieved parties in wealth disputes or disputes involving trusts, foundations, or similar entities may seek compensation through various legal remedies. These include injunctions to prevent certain actions, monetary damages to compensate for losses, and trust reformation to correct or modify the terms of a trust. In certain circumstances, the courts may also award attorney’s fees to the prevailing party.

The rationale behind these damages is to restore the injured party to the position they would have been in had the wrongdoing not occurred, to discourage misconduct, and to ensure fairness in the administration of estates and trusts.

The use of corporate fiduciaries is prevalent in the US. Trust companies and banking institutions are commonly appointed to serve as corporate fiduciaries, including as trustees and personal representatives of estates. Generally, these entities are authorised to exercise fiduciary powers and are often selected for their professional expertise, administrative capacity, and perceived neutrality in managing complex or high-value estates and trusts.

Corporate fiduciaries and other professional fiduciaries in the US are generally held to a higher standard of conduct. They are expected to act with the care, skill and diligence that someone in their professional role would reasonably be expected to exercise. This includes adhering to fiduciary duties such as loyalty, impartiality and prudence. For example, a fiduciary must manage investments in accordance with the prudent investor rule, which requires a thoughtful and diversified investment strategy tailored to the trust’s objectives and the beneficiaries’ interests. Failure to meet these standards can result in personal liability for losses caused by breaches of duty.

In the US, it is possible under certain circumstances, albeit rare, to pierce the veil of a trust or similar entity to hold fiduciaries personally liable for the liabilities of the entity itself. Trusts are treated as separate legal arrangements, and fiduciaries are not automatically responsible for the trust’s obligations unless they breach their fiduciary duties. However, if a fiduciary engages in misconduct – such as self-dealing, bad faith, or gross negligence – they can be held personally liable for the resulting damages.

To protect fiduciaries from liability, trust documents often include exoneration or exculpatory clauses that limit a fiduciary’s liability for actions taken in good faith. Additionally, fiduciaries may delegate specific responsibilities, such as investment management, to qualified third-party professionals. This delegation must be done prudently, with care in selecting and monitoring the agent. These protections help ensure that fiduciaries can perform their duties without undue risk, provided they act responsibly and within the bounds of the law.

US law regulates fiduciary investment of assets through the “prudent investor rule”, which requires fiduciaries to manage assets with care, skill and caution, as a prudent investor would. This rule emphasises a total return approach, meaning fiduciaries must consider both income and capital appreciation when making investment decisions. The law does not label any specific investment as inherently prudent or imprudent; instead, it evaluates the fiduciary’s overall strategy and process.

Fiduciaries are expected to diversify investments unless they reasonably believe that not doing so is in the best interest of the beneficiaries and aligns with the trust’s purpose. They must also balance risk-and-return objectives based on the trust’s goals and the needs of the beneficiaries. Trustees are required to disclose investments in instruments they control and must inform beneficiaries about the nature of these investments and any relationships with affiliated entities involved in them. This framework encourages transparency and accountability while allowing flexibility in investment choices.

The Prudent Investor Rule

The US applies the prudent investor rule as the standard for fiduciary investment of assets. This rule requires fiduciaries to invest and manage trust assets as a prudent investor would, considering the purposes, terms, distribution requirements, and other circumstances of the trust. It emphasises a total-return approach and requires fiduciaries to evaluate investments in the context of the entire portfolio, rather than in isolation. This approach aligns with modern portfolio theory in its focus on risk-adjusted returns and diversification, but it is more flexible and principle-based rather than formulaic.

Diversification

Diversification is generally required under the prudent investor rule unless the fiduciary reasonably determines that it is in the best interest of the beneficiaries not to diversify. Trustees must balance income production and capital preservation, and they are expected to disclose investments in instruments they control, especially if there are potential conflicts of interest.

Generally, trusts and similar entities are authorised to hold active businesses. However, fiduciaries must manage these interests prudently and in accordance with their duties. If a trust owns a business, the trustee may effectively run it, but they must do so in a way that aligns with the trust’s objectives and the beneficiaries’ interests. There are no blanket prohibitions, but fiduciaries must avoid self-dealing and must act in good faith, with loyalty and care. They may delegate business management functions to qualified professionals, provided they exercise proper oversight.

Domicile, residency and citizenship each carry distinct legal and tax implications under US federal law.

To establish domicile in a US state, an individual must demonstrate an intent to reside there permanently or indefinitely. This is typically evidenced by actions such as purchasing a primary residence, registering to vote, obtaining a driver’s licence, and using the state address for tax and legal purposes. Severing ties with a prior domicile is also important to avoid conflicting claims.

Residency for US federal tax purposes is determined by citizenship status or by meeting the substantial presence test. US citizens and lawful permanent residents (green card holders) are considered tax residents and are subject to US income tax on their worldwide income, regardless of where they live. Non-citizens may also be treated as US tax residents if they are physically present in the US for a sufficient number of days over a three-year period.

Citizenship is governed exclusively by federal law. US citizens and green card holders are subject to US estate and gift tax on their worldwide assets. Non-citizens who are not domiciled in the US are generally subject to US estate and gift tax only on their US-situs assets, though treaty provisions may alter this outcome.

Standard Federal Naturalisation Process

The United States does not offer a general fast-track mechanism for citizenship based solely on residence in a particular state. Individuals seeking US citizenship must typically follow the standard federal naturalisation process, which includes lawful permanent residency (usually for five years), demonstration of good moral character, passing English and civics exams, and taking an oath of allegiance.

“Trump Card” Programme

However, in 2025, a new federal initiative – informally known as the “Trump Card” programme – was announced, offering a fast-track pathway to US citizenship for foreign nationals who invest USD5 million. While full regulatory details are pending, the programme is expected to allow qualified applicants to bypass traditional waiting periods and obtain citizenship within weeks. The initiative is framed as a mutually beneficial arrangement: wealthy individuals gain expedited access to US citizenship, while the US government receives substantial capital inflows to support economic and budgetary goals.

Applicants will be vetted and must meet eligibility criteria, but the programme is positioned as a premium route for those who can contribute significantly to the US economy. It is not automatic and requires registration, documentation and approval by US immigration authorities.

Expedited Naturalisation

Outside of this programme, expedited naturalisation is available in limited cases under existing federal law – for example, for individuals who have served honourably in the US military or for spouses of US citizens working abroad for qualifying organisations. These pathways require specific documentation and are evaluated on a case-by-case basis.

The US provides several specialised planning mechanisms to support the financial and personal well-being of minors and individuals with disabilities, particularly in the context of preserving eligibility for public benefits and ensuring long-term care.

Special Needs Trusts (SNTs)

One of the most widely used tools is the special needs trust (SNT). These trusts are designed to hold assets for the benefit of a person with a disability without disqualifying them from means-tested government programmes such as Medicaid and Supplemental Security Income (SSI). To maintain eligibility, the trust must be carefully drafted to ensure that distributions are used for supplemental (not basic) needs and do not count as income or resources under programme rules. There are several types of SNTs, including first-party, third-party, and pooled trusts, each with specific requirements and use cases.

Uniform Transfers to Minors Act (UTMA)

For minors, the Uniform Transfers to Minors Act (UTMA) allows assets to be transferred to a custodian who manages them until the minor reaches the age of majority (typically 18 or 21, depending on the state, and up to 25 in some jurisdictions). While UTMA accounts are simple and cost-effective, they lack the long-term control and asset protection features of a trust. For larger gifts or more complex planning needs, irrevocable trusts are often preferred, as they can extend beyond the age of majority and provide greater flexibility in managing distributions and protecting assets from creditors or imprudent spending.

These planning tools are often integrated into broader estate and wealth transfer strategies to ensure continuity of care, financial security and alignment with family objectives.

The appointment of a guardian, conservator, or similar fiduciary in the United States is governed by state law, and in all jurisdictions, a court order is required. The Adult Guardianship and Protective Proceedings Jurisdiction Act (UGPPA) has been adopted by the District of Columbia and 46 states. The remaining states, including Florida, Michigan, Texas and Kansas, have enacted their own statutes.

Guardianship

A guardianship proceeding is typically initiated when a minor or an adult is legally determined to be incapable of managing their personal or financial affairs. The process involves a petition, evaluations, and a judicial determination of incapacity. Once appointed, the guardian must submit periodic reports and remains under ongoing court supervision.

Conservatorship

Conservatorship is generally used when an individual is absent or missing – such as due to military deployment or disappearance – and their property requires management. The conservator is appointed by the court and must file regular financial reports and seek approval for major decisions. The conservatorship remains in effect until the absentee returns, or is declared deceased, or the court terminates the arrangement.

Durable Powers of Attorney, Health Care Proxies and Living Wills

To avoid court involvement, individuals often execute durable powers of attorney, health care proxies, and living wills, allowing them to designate trusted agents to manage financial and medical decisions without judicial oversight.

Financial Wellness Programmes

US-based professionals and institutions are increasingly focused on helping individuals prepare for longer life spans through structured financial wellness programmes. These include education on budgeting, expense tracking, and disciplined saving habits. Individuals are encouraged to start saving early and consistently, using strategies like dollar-cost averaging and diversified investment portfolios to manage risk over time. Liquidity and accessibility of funds are also emphasised to ensure flexibility in later years. Retirement planning tools such as traditional IRAs, Roth IRAs, and back-door Roth IRAs are commonly used, along with strategies for maximising social security and dividend income streams. These approaches are designed to support sustainable withdrawal rates over 25-year to 35-year retirement horizons, based on historical market data.

In addition, advisers are promoting the use of cash balance plans and wealth forecasting systems to help individuals estimate the amount needed to sustain desired spending levels in retirement. These models account for variables like asset allocation, savings rates, and retirement age. The goal is to align financial capital with declining human capital as individuals age, ensuring that retirement income remains stable after taxes and inflation.

Flexible Retirement Options

As people live longer and remain active later in life, there is a growing emphasis on flexible retirement options, extended working years, and intergenerational wealth planning. This includes preparing for caregiving responsibilities and ensuring that financial plans accommodate both personal needs and those of aging parents or grandparents.

Family offices and private wealth managers are adapting to these trends by offering personalised, multigenerational financial advice, including strategies for care-giving, long-term care insurance, and aging. Planning often includes evaluating the affordability of remaining in the family home, funding home modifications, and co-ordinating with community-based support services.

Under US law, children born out of wedlock, adopted children, surrogate children, and posthumously conceived children may inherit and be included in a class of beneficiaries, subject to specific legal requirements.

Children born outside of marriage are recognised as descendants of their mother and, if paternity is established, of their father. Adopted children are treated as legal descendants of their adoptive parents but generally not of their biological parents.

Surrogacy is permitted in many states, with legal parentage determined by the type of surrogacy and applicable state law. Gestational surrogacy typically allows the intended parents to be recognised as legal parents through court orders, while traditional surrogacy may require termination of the surrogate’s parental rights.

Posthumously conceived children may inherit only if the decedent clearly provided for them in estate planning documents. Their rights vary by jurisdiction and often depend on documented intent and timing of conception.

Same-sex marriage is legally recognised throughout the United States. In 2015, the US Supreme Court’s landmark decision in Obergefell v Hodges affirmed that same-sex couples have a fundamental right to marry under the Constitution.

US law encourages charitable giving through a range of federal tax incentives that play a central role in both income tax and estate planning.

Cash Contributions and Non-Cash Contributions

For income tax purposes, individuals can deduct up to 60% of their adjusted gross income (AGI) for cash contributions to public charities. Non-cash contributions, such as appreciated securities, are deductible up to 30% of AGI. Contributions to private foundations are also deductible, though at lower thresholds – 30% for cash and 20% for non-cash assets. These deductions reduce taxable income, offering immediate financial benefits while supporting philanthropic goals.

Common Charitable Vehicles

In estate planning, charitable giving can significantly reduce the taxable estate. Assets donated to qualified charities are excluded from the estate’s value, potentially lowering or eliminating federal estate tax liability. Common vehicles include charitable lead trusts (CLTs) and charitable remainder trusts (CRTs), which allow donors to support charitable causes while retaining income streams or passing assets to heirs in a tax-efficient manner. Donor-advised funds (DAFs) and private foundations also offer structured ways to manage charitable contributions over time, with varying levels of control and regulatory requirements.

501(c)(3) Public Charities

501(c)(3) Public Charities are non-profit organisations that receive broad public support or qualify as “per se” charities, such as churches, schools and hospitals. These entities are not controlled by a single family or small group of donors. Contributions to public charities are eligible for the most favourable tax treatment – up to 60% of adjusted gross income (AGI) for cash donations and 30% for non-cash assets. Public charities are subject to fewer regulatory burdens and are often used in direct giving or through donor-advised funds.

Private Foundations

Private foundations, by contrast, are typically funded and controlled by a single family or a small group of donors. They offer greater control over grant-making and can be used to employ family members or support specific causes over generations. However, they are subject to stricter IRS regulations, including annual minimum distribution requirements, self-dealing prohibitions, and limitations on business holdings. Deduction limits are also lower – 30% of AGI for cash and 20% for non-cash contributions.

Supporting Organisations

Supporting organisations are a unique type of 501(c)(3) public charity that exists to support one or more other public charities, often offering a hybrid between the control of a private foundation and the favourable tax treatment of a public charity. While more complex to establish and operate, they offer distinct advantages. Notably, supporting organisations can hold certain assets that private foundations generally cannot, such as closely held business interests, real estate, and partnerships, without triggering the same self-dealing or excess business holdings restrictions. This makes them especially attractive for donors who wish to contribute illiquid or complex assets while maintaining a close relationship with the supported charity.

Other Options

DAFs are charitable accounts held by public charities that allow donors to make contributions, receive immediate tax deductions, and recommend grants over time. DAFs are easy to set up and maintain, offering flexibility and privacy. However, donors do not retain legal control over the funds and can only suggest, not direct, how grants are distributed.

CLTs provide income to a charity for a set term, after which the remaining assets pass to non-charitable beneficiaries. This structure can reduce gift and estate taxes while supporting charitable causes during the donor’s lifetime. CLTs are more complex to administer and may involve upfront gift tax considerations.

CRTs operate in reverse, paying income to the donor or other beneficiaries first, with the remainder going to charity. CRTs offer income tax deductions and capital gains tax deferral, making them attractive for donors with highly appreciated assets. However, they are irrevocable and require ongoing administration.