Federal Taxes

The US has a comprehensive federal tax system that affects individuals, trusts, estates, companies and charitable organisations. The federal taxes relevant to private clients are the US income tax, estate tax, gift tax and generation-skipping transfer (GST) tax.

US citizens and individuals who are deemed residents (domiciliaries) for US tax purposes generally remain subject to federal wealth transfer taxes on their worldwide assets, regardless of where they physically reside or where their assets are located. US citizens and tax residents are typically taxed on their worldwide income. The highest federal individual income tax rate is currently 37%, while long-term capital gains are generally taxed at a maximum rate of 20%. There is an additional 3.8% tax on certain assets generating passive income, known as the net investment income tax.

Non-resident, non-citizen individuals are generally subject to US income tax only on their US-source income, subject to an applicable statutory withholding regime and any applicable tax treaty provisions. The US does not provide a remittance basis of taxation. Non-resident, non-citizen individuals are generally subject to US gift tax on transfers of US tangible personal property and real property, and are subject to US estate tax on all US situs assets, whether tangible or intangible.

State-Level Taxes

State tax regimes vary. Most states (and some cities) impose a separate, individual income tax, although several – including Florida and Texas – do not. Certain states impose separate estate and inheritance taxes, with Connecticut being the only state to impose a separate gift tax. State and local property and sales taxes are common and may represent significant additional tax burdens for private clients.

For 2026, the lifetime exemption is USD15 million per individual (both for gift and estate taxes, computed in the aggregate, and for GST tax), indexed for inflation annually. Non-resident, non-citizen individuals receive an estate tax exemption of USD60,000 and no gift tax exemption, unless modified by an applicable tax treaty. The top rate for all federal wealth transfer taxes is 40%. Married individuals may use portability to “transfer” any unused estate and gift tax exemption (but not GST exemption) to a surviving spouse at death.

Individuals are afforded the ability to give up to USD19,000 per person to an unlimited number of individual recipients without utilising any of the lifetime gift tax exemption. Payments made directly to medical providers and to educational institutions for tuition are outside the gift tax regime and do not result in the imposition of gift tax or use of an individual’s lifetime gift tax exemption. Charitable gifts made to qualifying US charitable organisations are subject to a 100% charitable deduction for gift and estate tax purposes.

The US income tax system offers several planning opportunities for individuals and families, in connection with investment assets, charitable giving, trust planning, and the transfer of wealth to future generations. Effective planning seeks to reduce current income taxes while preserving flexibility and minimising future transfer taxes.

Assets included in a decedent’s taxable estate receive a basis adjustment to fair market value on the decedent’s date of death (or, if elected, the alternate valuation date six months after death if the estate is subject to estate tax). Unrealised appreciation during the decedent’s lifetime might escape federal capital gains tax, allowing fiduciaries of the estate and inheriting beneficiaries to dispose of inherited assets with minimal or no realised capital gain.

Federal long-term capital gains are generally taxed at preferential rates of up to 20%, while short-term capital gains are taxed at ordinary income tax rates. Some states treat capital gains as ordinary income; others have no income tax regimes, and some tax capital gains at preferential rates like the federal income tax regime.

Recent legislative changes have increased the importance of co-ordinating income tax and estate planning. For 2026, higher standard deductions, an increase in the state and local tax deduction cap (with certain eligibility limits) and a new overall limitation on itemised deductions for taxpayers in the top federal bracket may influence whether taxpayers itemise deductions, the timing of charitable contributions and state tax payments, and the recognition of capital gains.

Trusts continue to play a central role in sophisticated income tax planning. A grantor trust may be structured to require the settlor to remain liable for the trust’s income taxes while allowing trust assets to grow income-tax free outside the settlor’s estate. Leveraged sales to grantor trusts remain widely used to shift wealth to lower generations without the application of wealth transfer taxes.

As part of the recent legislative changes, several changes were made to the Qualified Small Business Stock (QSBS) exclusions. A tiered exclusion was introduced, allowing taxpayers to exclude 50% of eligible gain after a three-year holding period, 75% after four years and 100% after five years. The legislation increased the maximum gain exclusion from USD10 million to USD15 million and raised the aggregate gross asset ceiling from USD50 million to USD75 million. With the expansion of benefits afforded to certain owners of specified QSBS, many C corporation founders are exploring the creation of non-grantor trusts to make gifts of QSBS stock to “stack” additional QSBS income tax exemptions.

Retirement planning has evolved following SECURE 2.0 changes taking effect in 2026. Certain higher-income participants aged 50 or older generally must make workplace plan catch-up contributions on a Roth basis if their prior-year wages exceed the applicable threshold, and enhanced catch-up contribution limits may apply for certain participants aged 60 to 63.

The US offers a variety of pre-immigration and exit planning opportunities for individuals, particularly high net worth individuals and internationally mobile families. Before becoming a US tax resident, individuals often review asset ownership structures, trusts and investment holdings to mitigate future US income and wealth transfer tax exposure.

Planning opportunities may exist before relinquishing US citizenship or terminating long-term lawful permanent resident status. Individuals may seek to manage potential exposure to the expatriation tax regime under US law, including reviewing asset dispositions, deferred compensation arrangements, trusts and succession planning structures before expatriation occurs.

Many planning opportunities are available only before residency status changes, so advance planning is critical.

Non-resident aliens may acquire and own US real property without restrictions under federal law. The ownership, operation and disposition of US real estate may result in significant US income, withholding and transfer tax consequences.

The disposition of US property by a non-citizen, non-resident person is generally subject to the Foreign Investment in Real Property Tax Act (FIRPTA). FIRPTA typically mandates the purchaser of US real property from a non-citizen, non-resident person to withhold 15% of the gross purchase price and remit such withholding to the IRS, subject to certain statutory exceptions and withholding certificates. Gain recognised on the sale is generally treated as effectively connected income and taxed at the applicable federal income tax rates, unless modified by an income tax treaty.

Rental income resulting from rental activities that do not constitute a US trade or business is generally subject to a 30% gross withholding tax unless the owner elects to treat the income as effectively connected with a US trade or business. Making this election permits deductions for ordinary and necessary expenses, including mortgage interest, property taxes, depreciation and operating costs. Upon disposition, depreciation deductions may be subject to recapture under applicable tax rules.

Depending on the investor’s objectives, US real estate may be acquired through US limited liability companies (LLCs) owned by foreign companies treated as corporations for US purposes or using an irrevocable trust. When US persons are beneficiaries or hold powers with respect to a foreign trust, consideration must be given to the US income and wealth transfer tax effects.

Beginning in 2026, real estate professionals and other brokers may have additional reporting obligations when digital assets are used in real estate transactions, including reporting the fair market value of digital assets used by buyers and received by sellers in covered closings.

Recent changes to the wealth transfer tax laws have made the rules “permanent”, as all so-called sunset provisions were eliminated. Bills are proposed from time to time to reduce the exemptions or to change the taxation of transactions with trusts, but none of those have succeeded yet. The proposals that have gained traction in the past relate to the taxation of grantor trusts, whether assets owned by a decedent will receive an income tax basis adjustment and whether valuation discounts are available when transferring interests in entities for the benefit of family members.

Foreign Account Tax Compliance Act (FATCA)

The Foreign Account Tax Compliance Act (FATCA) requires non-US financial institutions to report pertinent information about financial assets and accounts owned by US taxpayers. Any US persons with foreign accounts must comply with these requirements under FATCA.

Corporate Transparency Act (CTA)

Under current FinCEN guidance, the Corporate Transparency Act (CTA) reporting regime has been narrowed. US entities and US persons are generally exempt from federal beneficial ownership information reporting, while certain foreign entities registered to do business in a US state or Tribal jurisdiction may still be required to report non-US beneficial ownership information unless an exemption applies.

For high net worth clients using trusts, LLCs, private entities or cross-border structures, the practical focus in 2026 may be confirming whether any foreign-formed entity requires reporting under CTA, maintaining accurate ownership and control records, and monitoring FinCEN rule-making and state-level transparency regimes.

The US is culturally diverse, and succession planning 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.

Family size and dynamics vary, but there is a growing trend towards planning for blended families, multi-generational households and philanthropic goals. Long-term trusts, like dynasty trusts, are commonly used to preserve wealth across generations while minimising tax exposure. Cultural attitudes towards disclosure, control and legacy shape how and when wealth is transferred.

As families and businesses become increasingly global, succession planning in the US must account for a wide range of cross-border complexities. US citizens and residents are subject to federal income and wealth transfer taxes on their worldwide assets, regardless of where the assets or beneficiaries are located.

International planning 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. 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 may be used to hold assets for international families, offering long-term control, tax deferral, and asset protection. Planning accounts for 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 helping ensure that succession plans remain effective across borders.

The US does not have forced heirship laws. Individuals are generally free to transfer their assets as they wish through a valid will or trust. In most states, a surviving spouse has the right to claim an elective share of the deceased spouse’s estate, ranging from one third to one half of the elective estate, which frequently includes assets held in a revocable trust.

These rights are automatic and apply regardless of the terms of the will, although they may be modified or waived by prenuptial or postnuptial agreements.

Separate Property Regime

Marital property laws in the US 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 in joint names. In the event of divorce, the courts typically apply equitable distribution principles, dividing marital property fairly, though not necessarily equally, and providing spousal support in the form of alimony. Property acquired before marriage, by gift or by inheritance is generally treated as separate unless commingled, but the appreciation on separate property during the marriage as the result of the efforts of one of the parties is generally considered a marital asset. Controlling the marital rights in the event of divorce and in the event of death through a marital agreement may be advisable for a high net worth individual or member of a high net worth family. Family trusts are increasingly considered by a family court in the event of a divorce when dividing marital property and granting support rights.

Community Property Regime

In community property states, assets acquired during the marriage are considered owned equally by the spouses and are typically divided equally upon divorce or death.

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

Some common law states have enacted the Uniform Disposition of Community Property Rights on Death Act, which would preserve the rights of a surviving spouse in community property held under the laws of another jurisdiction, which may include the laws of a foreign jurisdiction.

Prenuptial and Postnuptial Agreements

Prenuptial and postnuptial agreements are generally valid and enforceable in all US states if executed voluntarily, free from duress and with full and fair financial disclosure. Courts may 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. These agreements are generally not permitted to control obligations with respect to children of the marriage.

In the US, 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 carry-over basis, meaning they take the same cost basis as the donor. Special rules apply if the property is encumbered.

If property is transferred at death, the recipient typically receives a basis adjustment to the fair market value as of the decedent’s date of death. The basis adjustment 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, like retirement accounts or unpaid compensation.

Several separate property states allow married couples to create community property trusts. Assets held in these trusts may receive a basis adjustment to fair market value on the death of the first spouse, offering a valuable planning opportunity to reduce capital gains tax on low basis assets.

The US offers planning tools to facilitate the transfer of assets to intended beneficiaries 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 using the transferor’s lifetime gift tax exemption. The trust assets appreciate outside the taxable estate, and the grantor continues to pay the income tax, which further reduces their estate.

Grantor Retained Annuity Trusts (GRATs)

GRATs are used to pass appreciation to beneficiaries with little or no gift tax. The grantor receives annuity payments for a set term, and, generally, any growth beyond the IRS-assumed rate of return passes to the beneficiaries of the GRAT gift tax-free. If the settlor dies during the annuity term, the assets of the GRAT may be wholly included in the settlor’s gross estate for estate tax purposes.

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

CLTs and CRTs are split-interest trusts that combine charitable giving with family wealth transfers. These structures may reduce the taxable value of the gift and provide a charitable income tax deduction. Given the charitable nature of these trusts, complex rules applicable to private foundations apply to the administration of a CLT or a CRT.

For 2026 planning, charitable strategies might account for new income tax deduction limitations, including a 0.5% AGI floor for itemised charitable deductions and a reduced tax benefit for taxpayers in the top federal bracket. These changes may make timing, bunching and vehicle selection – whether as direct gifts, donor-advised funds, CLTs or CRTs – more important.

Qualified Personal Residence Trusts (QPRTs)

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. Like a GRAT, a QPRT remains wholly includible in the settlor’s gross estate if the settlor does not survive the term. If the settlor wishes to continue to occupy the residence after the term has expired, fair market value rent would need to be paid.

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

Access to and control over 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.

Effective succession planning might 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 versus full control), and how credentials like 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 may result in permanent loss of value. Practitioners often recommend secure storage solutions and explicit guidance in estate documents to ensure continuity and control.

Trusts and related planning vehicles play a pivotal role in US tax and estate planning by enabling taxpayers to achieve key objectives, including minimising wealth transfer taxes while preserving privacy and establishing mechanisms for efficient management and continuity of wealth over generations. 

Revocable Trusts

Revocable, or living, trusts are commonly used to streamline the administration of a taxpayer’s estate, avoid probate and maintain privacy. Such trusts allow the settlor to retain full control over trust assets during life, provide for succession of control during incapacity, and to dispose of assets upon death.

Irrevocable Trusts

Irrevocable trusts are powerful tools for removing value from a grantor’s taxable estate, reducing transfer tax exposure and supporting multi-generational and charitable planning goals. Irrevocable trusts are highly customisable and must be carefully structured to align with the settlor’s objectives and applicable wealth transfer tax and income tax rules. Irrevocable trusts include IDGTs, GRATs, QPRTs, CLATs and CRTs, among other trust vehicles.

Dynasty Trusts

Dynasty trusts are typically established under the laws of a jurisdiction that permits perpetual trusts, or trusts that can last for a minimum of several hundred years. They are designed to preserve family wealth (including family-owned companies) and provide creditor protection and streamlined mechanisms for investment and distribution of the trust estate to successive generations while minimising wealth transfer tax exposure to the family.

Private Foundations and Donor-Advised Funds (DAFs)

When US taxpayers wish to benefit charity on a larger scale, or take advantage of charitable income tax deductions in a given year without a clear sense of where those assets should be donated, private foundations and DAFs are often formed. Private foundations, which can be formed either as operating foundations or grant-making foundations, provide greater control to the family while DAFs provide similar tax benefits and flexibility in directing charitable contributions without the same level of control and complexity.

Trusts are a key component of the US wealth transfer tax system and are firmly recognised and respected under federal and state law. They are among the most versatile planning vehicles available for preserving wealth, facilitating succession planning and implementing tax-efficient strategies for high net worth individuals and families.

Revocable trusts, irrevocable trusts and dynasty trusts each serve distinct planning objectives. Depending on a taxpayer’s circumstances, these structures may be used to avoid probate and minimise wealth transfer taxes while establishing curated governance for the management and distribution of trust assets.

If a foreign citizen or tax resident serves as a trustee, protector or other fiduciary of a US trust, it may trigger significant US tax, reporting and compliance consequences. The conversion of a US trust to a foreign trust may trigger a capital gains tax on the entire trust estate. US beneficiaries of foreign trusts may be subject to US income tax on distributions and may face additional tax and interest charges under the “throwback rules” applicable to certain distributions of accumulated income.

Extensive information reporting requirements may apply to both US fiduciaries and beneficiaries of a foreign trust, and penalties for non-compliance can be substantial. Planning opportunities generally focus on careful trust structuring, selection of fiduciaries, management of trustee powers, distribution planning, and co-ordination of US and foreign tax rules to avoid unintended trust residency changes, double taxation, or adverse tax treatment of beneficiaries.

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. 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 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 might result in substantial penalties, even if no tax is due.

If the grantor or a beneficiary serves as a fiduciary, the trust may be classified as a grantor trust for US tax purposes. 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.

Irrevocable Trusts

One of the most effective asset protection strategies is the use of irrevocable trusts. Under the laws of some states, a settlor may be able to create a trust for the settlor’s own benefit that shields the trust estate from the settlor’s creditors. Irrevocable trusts created by a third party, particularly if trust distribution are wholly discretionary, generally cannot be reached by the creditors of a beneficiary. When properly designed and administered, these trusts may provide a flexible framework for the long-term management and preservation of family wealth across generations, and may be structured to remove assets from a client’s taxable estate.

Spendthrift Trusts

Some irrevocable US trusts include spendthrift provisions that prohibit the beneficiaries from selling or otherwise transferring a beneficial interest in a trust. Spendthrift language aims to secure the trust assets and prevents creditors from attaching the trust assets to satisfy a beneficiary’s personal obligations. To be effective, a spendthrift clause should prohibit both voluntary and involuntary transfers.

LLCs and LLLPs

Limited Liability Companies (LLCs) are a common tool used to protect assets from liability. LLCs are common owners of personal residences to protect personal assets (and maintain some degree of privacy), and can be used to protect business interests from personal liabilities, and individual assets from business liabilities. A limited liability limited partnership (LLLP) is another structure used to limit liability. Restrictions on the transfer of ownership interests in the entity may further enhance the protection.

For owners of privately held businesses, succession planning is designed to ensure that ownership and control transition smoothly while preserving the long-term success of the enterprise. Effective planning requires balancing tax efficiency with governance, creditor protection and the founder’s desire to retain an appropriate level of control during life. Some succession plans do not rely on a single technique but contain a variety of approaches tailored to the family’s objectives.

Entities

The first step is often to separate economic ownership from voting control. Family businesses are commonly held through LLCs, family limited partnerships (FLPs) or corporations that permit voting and non-voting equity interests. Dividing voting and non-voting interests allows the senior generation to retain voting control while transferring equity to younger generations (or trusts for their benefit). Non-voting equity interests may be eligible for valuation discounts under US gift and estate tax laws, so using such interests to engage in wealth transfer may save significant taxes.

Private Trust Company (PTC)

For ultra high net worth families with significant assets with more complex needs and a multitude of trusts, the formation of a PTC might be an attractive option as compared to utilising an individual trustee or a corporate trustee. A PTC is a trust company administered by the family that will serve as trustee of several family trusts, allowing the family to provide for continuous fiduciary services while maintaining family control of the wealth. A PTC requires careful navigation of applicable US income and transfer tax laws to avoid causing the trust assets to be taxable to the family members.

Family Office

Ultra high net worth US families with asset levels in the nine figures approaching and exceeding USD1 billion may consider utilising a single-family office as part of their wealth preservation and succession planning strategy to provide the most tax-efficient and centralised management of wealth and family governance. A single-family office can be leanly staffed and focus on investments, or can be fully staffed and handle all aspects of accounting, legal, tax, investment and charitable efforts across generations. The family office structure helps reduce potential conflict among family members (especially differing generations) by providing more transparency around the family assets and entities. Multi-family offices are popular among ultra high net worth families, allowing them to provide family office services to a small number of families but maximise their in-house service offerings by working with multiple families. The tax and regulatory landscape in the US makes it an attractive jurisdiction for establishing family offices.

When interests in private assets and interests in private companies are transferred for gift and estate tax purposes, a qualified appraisal is required to report the value on an applicable gift or estate tax return to the extent values are not established in the public market. When partial interests in these private assets are transferred, the fair market value of the interest for transfer tax purposes includes all applicable discounts, such as those for lack of control and lack of marketability.

As the US baby boomer generation ages, the greatest wealth transfer in the history of the US is underway. This wealth transfer involves the transfer of wealth through trusts created by baby boomers and prior generations during lifetime, which are transitioning to younger generations, either outright or in further trust, and the devise of assets at death. With greater wealth being transferred, those who are disinherited may be more inclined to commence litigation to dispute the estate plans of their elders.

Wealth disputes are driven both by the desire to shift wealth transfers from one beneficiary to another and the desire to control the administration and ultimate disposition of wealth. In terrorem clauses may be used in wills and trusts to disincentivise challenges to estate planning documents. Enforcement of such clauses varies from state to state, but in some states probable cause for the dispute may overcome the effectiveness of such a clause. Therefore, choice of law is an important factor in the employment of such clauses. Certain jurisdictions allow the commencement of a pre-mortem probate action that permits estate planning documents to be validated while the creator is still living.

Generally, a probate contest requires a showing of incapacity or undue influence. Capacity to create testamentary documents generally requires an individual to understand the nature and extent of the individual’s assets and the natural objects of the individual’s bounty and to be able to relate those two things together to formulate an estate plan. Undue influence typically involves a showing that the individual was in a weakened or dependent state such that the undue influencer had the ability to cause the individual to deviate from what would otherwise have been the individual’s desired plan of disposition.

In the US, damages or settlement payments in wealth disputes may take the form of distributions from trusts, payments from individuals, and even more broadly reformation or modification of estate planning documents. Care should be taken to analyse the potential income and wealth transfer tax consequences of the resolution of any dispute.

The courts’ goal in determining damages is typically to restore all parties to the position in which they would have been absent any wrongdoing.

Service by corporate and institutional trustees is common in the US, when representing high net worth families who have concerns about the capacity of beneficiaries to manage wealth, long-term administration of assets and complex asset management. Corporate fiduciaries may serve in multiple capacities, including as trustees of private trusts and as administrators of an estate. 

Generally, corporate and professional trustees are held to a higher standard of care than their non-professional counterparts. Corporate and professional trustees are deemed to possess specialised skills, judgment and expertise, and are expected to use those skills in executing their fiduciary services. A corporate or professional fiduciary is generally evaluated pursuant to an elevated standard of care based upon a reasonable or prudent professional in the field, as opposed to the standard of care imposed on a non-professional counterpart.

A fiduciary is generally not liable for the obligations of the trust, estate or entity for which the fiduciary is acting, absent malfeasance. Fiduciaries have custodial duties and are expected to act in good faith and in the best interests of the beneficiaries. Where a fiduciary acts in contravention to the best interests of the beneficiaries, whether it be by self-dealing, a breach of a duty of loyalty, or not exercising reasonable care, such fiduciary may be held responsible for any resulting losses.

Trust instruments or other entity documents often contain exculpatory provisions to protect fiduciaries from liability. It is generally not possible to waive the obligation to act in good faith. Fiduciaries may delegate certain responsibilities, such as investment management, tax and legal compliance, real estate management and the like, to third-party professionals. In the case of a delegation, the fiduciary is obligated to select the agent prudently, properly define the scope of such delegation, and monitor the agent periodically.

Fiduciaries are expected to invest and manage trust assets with care, skill and caution, and balance both risk and return in accordance with the purpose of the governing documents. Fiduciaries are generally expected to diversify assets unless the fiduciary reasonably believes that a failure to do so is consistent with the purposes of the controlling instrument. Even if the obligation to diversify assets is exonerated in the governing instrument, a fiduciary may be obligated to apply to court for a variance, if following that direction is detrimental to the overall performance of the assets. Fiduciaries have a duty to act impartially, which requires balancing the interests of current beneficiaries against those of future beneficiaries.

In the US, the prudent investor rule is the standard by which fiduciary investment of assets is evaluated. The prudent investor rule differs from modern portfolio theory in that it is a legal standard rather than an investing theory. The prudent investor rule borrows some of the concepts of modern portfolio theory in that it encourages optimisation of risk and return, investment efficiency and diversification, and total portfolio construction and return. The more important concept is process. The prudent fiduciary would gather relevant information, consider the needs of beneficiaries, both current and future, contemplate diversification, monitor the portfolio, and document decisions, all while avoiding conflicts of interest and breaches of the duty of loyalty. Diversification is generally required; a prudent fiduciary may reasonably decide that, based upon the terms of the instrument and the best interests of the beneficiaries, diversification is not advisable. Generally, enabling language in the governing instrument would be required to exonerate the duty to diversify and the prudent investor rule.

Domicile, residency and citizenship each carry distinct legal and tax implications under US law. To establish domicile in a US state, an individual must demonstrate an intention to reside there permanently with no present intention of removing therefrom. Actions that indicate such an intention include acquiring a primary residence, registering to vote, obtaining a driver’s licence, and using an in-state address for tax and legal purposes. Severing ties with a prior domicile is important to avoid conflicting claims.

Residency for US income 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 be treated as US tax residents if they are physically present in the US for sufficient 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 US 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.

Expedited Naturalisation

Outside 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.

US law provides a variety of planning mechanisms for minors and individuals with disabilities, including trusts and custodial arrangements that may protect assets, facilitate long-term care planning, and preserve eligibility for means-based public assistance programmes like Supplemental Security Income (SSI) and Medicaid.

Special Needs Trusts (SNTs)

SNT, known in many jurisdictions as a supplemental needs trust, is a commonly used planning vehicle that allows assets to be held for the benefit of an individual with a disability without jeopardising the beneficiary’s eligibility for means-tested government programmes, like Medicaid and Supplemental Security Income (SSI). To preserve eligibility for these benefits, the SNT must be structured so that trust distributions supplement, rather than supplant, government-provided assistance and are typically limited to goods and services that enhance the beneficiary’s quality of life and are not treated as countable income or resources under applicable programme rules.

Uniform Transfers to Minors Act (UTMA)

For minors, UTMA permits assets to be transferred to a custodian who manages the property for the benefit of the minor until the age specified under applicable state law. In most jurisdictions, custodianship terminates when the beneficiary reaches age 18 or 21. While UTMA accounts are relatively simple and inexpensive to establish and administer, they provide unfettered access to the funds at a young age. For substantial gifts or more sophisticated planning objectives, irrevocable trusts which extend beyond the age of majority are often preferred.

Under recent federal legislation, the annual federal limit on tax-free withdrawals from Section 529 plans for qualified K–12 education expenses increased from USD10,000 to USD20,000 per student, and the definition of qualified K–12 expenses has been significantly expanded.

Families planning for individuals with disabilities should consider ABLE (Achieving a Better Life Experience) accounts, which continue to offer tax-advantaged savings without adversely affecting eligibility for some public benefits. Beginning in 2026, the annual contribution limit is generally USD20,000, subject to certain additional contributions available under the ABLE-to-Work rules for eligible employed beneficiaries. The age-of-onset requirement for ABLE eligibility has expanded, allowing individuals whose disability began before age 46 to qualify for an account.

The appointment of a guardian, conservator or similar fiduciary in the US is governed by state law and generally requires a court order. To address jurisdictional issues that arise when an individual has connections to multiple states, some states have adopted the Uniform Adult Guardianship and Protective Proceedings Jurisdiction Act (UAGPPJA) or substantially similar legislation.

Guardianship

A guardianship proceeding is typically initiated for a minor or an adult who is determined to be unable to manage personal affairs or make informed decisions regarding their health, safety or welfare. The process generally involves the filing of a petition, medical evaluations, notice to interested parties and a judicial determination regarding capacity. Once appointed, a guardian is responsible for making decisions within the scope of authority granted by the court and remains subject to ongoing court supervision.

Conservatorship

A conservatorship is generally used when an individual is unable to manage property, financial affairs or other assets. The conservator is appointed by the court and would be responsible for protecting and managing the individual’s property. 

Durable Powers of Attorney, Health Care Proxies and Living Wills

To reduce the likelihood of court intervention, individuals frequently execute durable powers of attorney, health care proxies and living wills. These documents permit individuals to appoint trusted agents to manage financial and medical matters in the event of incapacity, generally without the need for ongoing judicial supervision.

In the US, planning for incapacity is primarily accomplished through advance directives, including durable powers of attorney for financial matters, health care proxies, living wills and revocable trusts. Revocable trusts are frequently used as part of incapacity planning because a successor trustee may assume responsibility for trust assets upon the settlor’s incapacity without the need for court appointment.

These planning mechanisms are widely used because they promote continuity of decision-making, preserve privacy, reduce administrative burdens, and may avoid the need for a court-appointed guardian or conservator.

Financial Wellness Programmes

With Americans living longer, greater emphasis is being placed on financial wellness programmes designed to help individuals prepare for longer retirement periods and associated health care needs.

Retirement planning involves the use of tax-advantaged savings vehicles, including employer-sponsored retirement plans, traditional and Roth individual retirement accounts (IRAs) and health savings accounts (HSAs).

Financial planning incorporates sophisticated forecasting tools and retirement income analyses to evaluate expected expenses, projected investment returns, inflation, longevity risk and tax considerations. An important objective of financial wellness planning is to prepare for the transition from employment income to retirement income while maintaining financial independence and flexibility. Planning includes establishing emergency reserves, preserving adequate liquidity, and developing strategies to address potential health care and long-term care costs.

Flexible Retirement Options

Longer life expectancies and an ageing workforce have contributed to increased interest in flexible retirement arrangements. Many individuals elect to continue working beyond traditional retirement age or transition gradually into retirement.

Comprehensive ageing-related planning may include long-term care funding strategies and insurance evaluations, housing considerations, incapacity planning, and co-ordination with community-based support services.

In the US, children born out of wedlock, adopted children, surrogate children and posthumously conceived children may inherit and be included in a class of beneficiaries. The extent to which such individuals are recognised as beneficiaries or heirs is governed by state law. The focus is on legal parentage as opposed to circumstances of birth. There is no national standard.

If born within a marriage, children are recognised as descendants of both their biological mother and father. If born out of wedlock, a child is considered a descendant only of their biological mother, unless paternity is also established. Given that adoption generally requires the parental rights of biological parents to be terminated, subject to state-specific exceptions like step-parent adoption, adopted children are treated as descendants of their adoptive parents, and not of their biological parents.

Posthumously conceived children may be considered descendants for inheritance purposes. The extent of such inclusion varies by state. Additional considerations include whether the decedent consented to the posthumous conception and acknowledged parentage, the language of any testamentary documents, and timing.

Surrogacy is generally permitted throughout the US, but is not uniformly permissible, and laws vary significantly by state. The more common arrangement, gestational surrogacy, where the surrogate is generally not genetically related to the child, typically relies on courts recognising the intended parents as the legal parents. Traditional surrogacy, where the surrogate is genetically related to the child, is often more complicated, and often requires the termination of the surrogate’s parental rights.

Practitioners typically address the class of descendants who may inherit from a decedent or such decedent’s descendants by carefully and clearly defining children and descendants, eliminating ambiguity.

Pursuant to the 2015 decision of the US Supreme Court in Obergefell v Hodges, the US recognises same-sex marriage in the same fashion as opposite-sex marriages. The recognition of marriage and the recognition of parentage are separate legal questions. The determination of parentage through assisted reproduction, donor sperm or eggs, and surrogacy are determined by state law.

In the US, unmarried couples, including cohabitating partners, generally do not have the same rights as married couples for tax and succession purposes. Absent a recognisable contractual arrangement or other estate planning documentation, unmarried couples typically have no right of inheritance and no authority to make financial or healthcare decisions for an incapacitated partner. In some jurisdictions, constructs like common law marriage and/or domestic partnerships may be recognised. Acknowledgement, statutory requirements, and rights vary significantly by state. For example, whereas domestic partners in some states may qualify for certain healthcare rights, visitation, authority to make healthcare decisions, employment benefits, and state law property or support rights, they cannot file joint federal income tax returns, do not qualify for the unlimited federal gift and estate tax marital deductions, and may have limited or no inheritance rights.

Some states recognise the rights of cohabitating partners either through palimony laws or through cohabitation agreements or similar arrangements. These arrangements are often contractually defined and are more limited even when available.

For purposes of succession and decision-making during incapacity, it is imperative that unmarried couples consider all-inclusive estate planning, like wills, revocable trusts, healthcare advance directives/living wills, durable powers of attorney, declarations naming pre-need guardians, beneficiary designations, and business succession documents. These instruments aim to ensure that the intent of the unmarried couple is respected and entitlements are fixed in the event of death or incapacity and avoid ambiguity in the absence of statutory rights or in the case of controversy.

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

Cash Contributions and Non-Cash Contributions

For income tax purposes, individuals generally may deduct cash contributions to qualifying public charities up to 60% of adjusted gross income (AGI). Contributions of appreciated capital gain property, like publicly traded securities held for more than one year, generally are deductible at fair market value, subject to a 30% AGI limitation. Contributions to private foundations are deductible, although lower percentage limitations generally apply. Cash contributions to most private foundations are generally deductible up to 30% of AGI, while contributions of appreciated property are generally limited to 20% of AGI.

Beginning in 2026, individual taxpayers who itemise deductions may deduct charitable contributions only to the extent such contributions exceed 0.5% of AGI. Taxpayers subject to the highest federal income tax rate generally receive a reduced tax benefit from itemised deductions because of the new 35% limitation on the value of such deductions. Taxpayers who do not itemise deductions may claim a limited deduction for certain cash contributions made directly to qualifying public charities. Contributions to donor-advised funds, supporting organisations and most private foundations generally do not qualify for this deduction.

Common Charitable Vehicles

For estate tax purposes, transfers to qualifying charitable organisations generally qualify for an unlimited charitable deduction, removing the donated assets from the taxable estate and potentially reducing or eliminating federal estate tax liability.

Common charitable planning vehicles include CLTs and CRTs, which allow donors to combine philanthropic objectives with tax and wealth transfer planning. DAFs and private foundations likewise provide structured mechanisms for long-term charitable giving. They differ significantly with respect to donor control, administration and regulatory requirements.

501(c)(3) Public Charities

Section 501(c)(3) public charities are charitable organisations that receive broad public support or qualify as inherently charitable organisations, like churches, educational institutions and hospitals. As they are not typically controlled by a single donor or family, contributions to public charities receive the most favourable income tax treatment, including a 60% AGI limitation for cash gifts and a 30% AGI limitation for gifts of appreciated capital gain property.

Public charities generally face fewer regulatory restrictions than private foundations and serve as the sponsoring organisations for donor-advised funds.

Private Foundations

Private foundations are typically funded and controlled by a single individual, family or small group of donors. They provide substantial control over investment and grant-making decisions and may be used to promote family philanthropy across generations. Private foundations are subject to extensive regulatory requirements, including annual distribution obligations, self-dealing rules, excise taxes, and restrictions on excess business holdings. Charitable deduction limitations are less favourable than those applicable to public charities.

Supporting Organisations

Supporting organisations are a specialised category of Section 501(c)(3) public charity established to support one or more public charities. They may provide a middle ground between the control associated with private foundations and the favourable tax treatment afforded to public charities.

Although supporting organisations are subject to complex organisational and operational requirements, they may offer planning advantages when holding certain illiquid assets, including closely held business interests, real estate or partnership interests. Compared with private foundations, supporting organisations may be subject to less restrictive rules in certain circumstances; specialised restrictions and anti-abuse provisions apply.

DAFs

DAFs are charitable giving accounts maintained by public charities. Donors make irrevocable contributions, receive an immediate charitable income tax deduction, and may thereafter recommend grants to qualifying charitable organisations. DAFs are relatively inexpensive and easy to administer and offer a high degree of flexibility and privacy. Ultimate legal control over contributed assets resides with the sponsoring charity, and donor recommendations are not legally binding.

For 2026 and later years, DAF planning should be factored in considering the new non-itemiser charitable deduction. While cash gifts made directly to qualifying public charities may qualify for the deduction available to non-itemisers, contributions to donor-advised funds generally do not.

CLTs

A CLT provides payments to one or more charitable beneficiaries for a specified term, after which the remaining trust assets pass to non-charitable beneficiaries, often family members. Properly structured, a CLT may reduce gift and estate taxes while benefiting charitable organisations during the trust term.

CRTs

In a CRT, the trust pays an income stream to the donor or other designated beneficiaries for a specified period, with the remaining assets ultimately passing to charity. CRTs may provide an immediate charitable deduction and permit the sale of appreciated assets within the trust without immediate recognition of capital gain. CRTs are irrevocable and require ongoing administration and compliance.