The United States and New York impose an annual income tax on resident individuals, trusts and estates.  For US federal tax purposes, an individual’s residence is based on citizenship, holding a “Green Card”, or a pure day count.  For New York purposes, residence is generally determined based on an individual’s domicile/permanent abode.  An estate is a New York resident if the decedent was domiciled in New York at the time of death.  A trust is generally deemed to be a New York resident trust if the trust consists of property of a person domiciled in New York at the time of transfer, or if the creator of the trust was domiciled in New York at the time the trust became irrevocable, or when a trust in a last will was created by a person who was domiciled in New York at the time of death.

US and New York residents are taxed on worldwide income.  Non-resident individuals, trusts and estates are taxed on New York-sourced income only.  Importantly, a resident trust may not be subject to New York income tax if:

• all trustees are domiciled outside of New York;
• all the trust corpus is located outside of New York; and
• there is no New York-sourced income.

An individual who is a resident of New York at the individual’s death is subject to New York estate tax.  While New York does not impose a gift tax on lifetime gifts, it does add back to the gross estate the aggregate amount of taxable gifts (as defined under the federal internal revenue code) made three years prior to the decedent’s death to the extent such gifts are not included in the individual’s federal gross estate.  Certain gifts may not be added back to the gross estate, including gifts made while the decedent was a non-resident, or gifts of real or tangible personal property located outside of New York when the gift was made.

A non-resident decedent may be subject to estate tax on real or tangible personal property located in New York.

The United States and New York permit a marital deduction and exempt property passing to a surviving spouse who is a United States citizen from estate tax.  A marital deduction is not allowed for property passing to a noncitizen surviving spouse, unless such property is held in a trust that qualifies as a qualified domestic trust (QDOT).

The New York estate tax exclusion amount is currently around USD7 million. However, it is important to note that the exemption is effectively phased out for estates that exceed this amount by more than 5%. This means that if an estate exceeds approximately USD7 million, the entire estate will be subject to New York estate tax. Additionally, New York does not permit spousal portability of the unused estate tax exemption. The estate tax rate in New York is graduated and ranges from approximately 3% to 12%.

New York’s treatment of its basic estate tax exclusion amount differs drastically from the federal system. The current federal exclusion amount is approximately USD15 million, and the federal government allows a credit for the full exclusion amount regardless of the value of the decedent’s estate. In addition, the federal estate tax system includes the concept of “portability”, by which any unused federal estate tax exemption at the first spouse’s death may be transferred to the surviving spouse to shelter additional assets from gift and estate tax. If the first spouse to pass away has a taxable estate of USD10 million, the unused federal estate tax exemption of about USD5 million can be transferred to the surviving spouse. In most cases, this allows the surviving spouse to use the combined exemption to shelter approximately USD20 million from gift and estate taxes.

There are various income tax planning opportunities in the United States, particularly in New York, that should be considered. For example, private placement life insurance can be an effective way to shelter income tax as well as Section 1031 like/kind exchanges of real property. There are also other techniques that clients should assess, including various trust types. Notably, the US and NY combined tax rates can be over 55%.

Pre-immigration or exit planning opportunities are generally governed by US federal law and not state laws.

Pre-Immigration

There are a number of planning strategies that may be considered before moving to the US.

• Drop off trust – for someone who may come to the US more than five years in the future, trusts commonly called “drop-off trusts” may be used. These are created by a non-citizen who is non-resident in the US and funded with non-US assets. The trust must be an irrevocable trust. Because the transfer to the trust is irrevocable and completed as a non-resident, the assets are outside of the reach of US taxes. However, if the settlor becomes a US tax resident within five years of funding the trust, under the US Internal Revenue Code (IRC) §679 it may become a grantor trust and the trust income would become taxable in the US.
• Realising capital gains – a non-resident is generally not subject to US taxes on most foreign capital gains. Therefore, it is common to consider selling appreciated foreign securities before becoming resident in the US.
• Accelerating foreign income – any foreign income received before becoming a US tax resident is not taxable in the US.
• Altering investments – many non-US mutual funds become passive foreign investment companies (PFICs) under the US tax rules which have onerous reporting and punitive tax consequences. Where possible, it is recommended to get out of any investments that would be treated as PFICs before coming to the US.

Exit Planning

Planning for an exit from the US depends on whether a person is a US citizen, green card holder or a US resident for tax purposes.

• Individuals who are merely tax residents in the US should:
1. consider deferring income and bonus payments until after they leave the US; and
2. consider delaying asset sales until residency is terminated.
• Green card holders:
1. long-term green card holders (generally eight of the last 15 years) can become subject to expatriation rules when they surrender permanent residency. The expatriation regime can trigger a deemed sale of worldwide assets if an individual’s net worth is over USD2 million.
• US citizen:
1. simply moving out of the US does not terminate US taxation. US citizens are taxed on their worldwide assets; and
2. to terminate US taxation, citizens need to expatriate which, similar to green card holders, can trigger a deemed sale of worldwide assets and an immediate tax.

Tax and other financial and non-financial considerations in all relevant jurisdictions should be considered with professionals to ensure proper planning well in advance of either immigrating to, or exiting from, the US.

A US/NY non-resident is generally subject to US/NY income, US gift, and US/NY estate tax on real and certain tangible personal property located in New York.  The applicable income tax rates for both jurisdictions are between approximately 30% and 55%.

The US and NY tax rates are somewhat stable; however, these rates may change depending on the fiscal philosophy of any incoming administration. Given the impact of COVID-19, these rates could increase significantly as the federal and New York governments seek additional funds to cover governmental spending. Effective 1 January 2026, the “One Big Beautiful Bill Act” set the gift and estate tax exemption at USD15 million per person, or USD30 million for a married couple. This exemption amount will be indexed for inflation in future years. For amounts transferred that exceed the exemption, there is a federal tax at 40%. There is no state level gift tax imposed except in Connecticut.

The United States and New York have an increased focus on transparency and reporting.  The Corporate Transparency Act (CTA) came into effect on 1 January 2024. The CTA is a federal reporting requirement for owners and managers of a majority of US entities to report to FinCen, among other things, the entities’ information, including any beneficial owners. There are many exceptions to the reporting requirement available on the FinCen website. As of 26 March 2025, entities created in the United States and their beneficial owners are now exempt from the requirement to report beneficial ownership information to FinCen. Foreign financial companies remain subject to the CTA. New York has adopted a similar reporting regime called the LLC Transparency Act that applies to LLCs formed or authorised to do business in New York. Entities in existence before 1 January 2024 had until 31 December 2024 to comply with federal and New York reporting requirements. Entities created after 31 December 2024 have to comply soon after creation. These reporting requirements are evolving.

In the United States, particularly in New York, there is a growing trend among older generations to establish significant trust structures for their children and future generations. Importantly, clients are forming unregulated private trust companies in New Hampshire and other states to further their estate planning goals and ensure their governance views for the coming generations.

There is an increasing trend for multi-national families to obtain US/NY tax advice as well as advice in other non-US jurisdictions. Importantly, such advice is often inconsistent and requires lead tax counsel to co-ordinate tax advisers across a number of countries.

In New York, while there are no explicit forced heirship laws, a decedent who is married at the time of death cannot disinherit their surviving spouse unless there is a prior agreement to do so. If a decedent dies with a will, the surviving spouse has an elective share to receive one-third of the deceased spouse’s net estate (generally, gross estate less debts and administration expenses). The surviving spouse has the right to assert the spouse’s elective share, in lieu of taking under the deceased spouse’s will. The elective share is an outright pecuniary amount, and various testamentary substitutes passing outright to the surviving spouse, such as property held with rights of survivorship, count towards satisfying the elective share. Importantly, if a spouse asserts the elective share, such spouse does not take under the decedent’s will.

If a decedent dies without a will and is married without children, 100% of the decedent’s probate estate passes by intestacy law to the surviving spouse. If a decedent dies without a will and with children, 50% of the decedent’s probate estate passes to the surviving spouse by intestacy, and the other 50% of the probate estate passes by intestacy law to the decedent’s children.

By an acknowledged agreement of both parties, New York permits a waiver of estate and inheritance rights. It is common in New York for parties to enter into pre-nuptial or post-nuptial agreements to modify or waive a party’s estate and inheritance rights.

New York is an equitable distribution state and equitably distributes marital property in the event of divorce. In general, marital property is property acquired during marriage and prior to the filing of divorce that is not “separate property.” In general, separate property is property owned prior to marriage and property acquired by a party during marriage by inheritance, a gift from third parties or distribution from a trust. There is extensive guidance under New York law regarding marital property and separate property, and the active and passive nature of each.

The transfer of property during life by gift has a carry-over basis. Generally, at death, there is a step up in basis to the value of the property at the date of the decedent’s death.

There are various gift and estate planning techniques to ameliorate the impact of the US and NY gift and estate tax. Some of the more common techniques include:

• an insurance trust;
• a grantor retained annuity trust;
• an intentionally defective grantor trust; or
• a spousal lifetime access trust.

Under US/NY law, digital assets are considered a property right. Accordingly, they pass as part of a decedent’s estate. However, some providers have restrictions on the transferability or access of accounts at death, so it may be necessary to contact various providers if an individual wishes to ensure rights after death.

New York and most other states recognise revocable and irrevocable trusts, foundations and charitable organisations. There are also trust distinctions for tax purposes, such as grantor and non-grantor trusts. There are certain states, such as New Hampshire, Nevada, South Dakota, and Wyoming, that permit the creation of private trust companies to administer family trusts. Further, New Hampshire and Wyoming have laws permitting the use of civil law-style foundations.

Trusts are routinely used in the United States, particularly in New York. Properly structured, they can be very efficient estate planning vehicles. Additionally, non-US trusts may be recognised in New York and the United States.

Both the United States and New York have extensive reporting requirements. The tax implications are generally similar to those for US-based trusts, except regarding accumulated income and gains, which are subject to punitive taxation. In general, the US taxes US situs trust assets and foreign trusts are not taxed based on the citizenship or residency of the fiduciary. Each state enacts its own income tax reporting regime, and the citizenship or residency of the fiduciary may be relevant. For New York income tax purposes, there may be tax planning options by looking at removing New York resident beneficiaries or fiduciaries.

If a beneficiary or donor of a trust also serves as a fiduciary, commonly a trustee, the tax consequences depend on the power the fiduciary holds and whether those powers cause the individual to be treated as the owner of the trust.

Under US federal law, there are a number of powers in the IRC §§ 671 – 679, which if held by the donor or their spouse, will cause the donor to pay income tax as the owner of the trust. Where the donor gives property away to a trust but is still taxed on the trust income, the trust is commonly called a “grantor trust”.

A beneficiary may also have certain powers that could cause a trust to be taxable in their estate. Under IRC § 2041, if a beneficiary possesses a “general power of appointment”, meaning that if the beneficiary can distribute trust assets to themselves without an objective standard limiting their distribution power, those assets may be included in the beneficiary’s taxable estate. To avoid this result, trusts commonly limit distribution by using an ascertainable standard such as distributing all income annually, or limiting distributions to health, education, maintenance and support (HEMS). If broad distribution discretion is needed, then an independent trustee, someone who is not a beneficiary or closely related to the grantor or beneficiary (as defined in IRC § 672(c)) should be appointed.

For foundations, a donor is generally permitted to serve as a fiduciary, however, there are restrictions on self-dealing transactions, compensation and conflicts of interest. A foundation is an independent legal entity; therefore, the IRS imposes excise taxes to ensure the funds are used properly. Below are certain tax issues that foundations need to consider.

• Self-dealing – under IRC § 4941, donors, substantial contributors and related parties (“Disqualified Persons”) are prohibited from engaging in financial transactions with the foundation. This includes selling and leasing property to the foundation. Violations carry an initial 10% penalty and can escalate up to 200% if they are not corrected.
• Failure to distribute income – under IRC § 4942, foundations are legally required to distribute 5% of their net assets annually for charitable purposes. Failure to distribute at least 5% annually triggers a 30% excise tax on the undistributed amount.
• Taxable expenditures – under IRC § 4945, foundations are not permitted to distribute funds for political campaigns, lobbying or directly to individuals without approved steps to track and supervise the use of funds. Violations trigger a 20% tax on the foundation.

New York

Under New York law, the income tax classification of trusts follows the federal rules, but there are some state specific rules for residency and source of income.

Resident trust rules

Under New York tax laws, a resident trust is income taxable in New York and is generally created by a donor who is domiciled in New York when the trust becomes irrevocable. However, resident trusts may qualify for an exemption from New York income tax if certain conditions are fulfilled, including:

• all the trustees are located outside New York;
• all trust property is located outside New York; and
• the trust has no New York source income.

Accordingly, the appointment of a New York resident trustee may affect the taxation of a trust.

The mere fact that a beneficiary or donor also serves as a fiduciary does not, by itself, create adverse tax consequences under either federal or New York law. Rather, tax consequences arise from the scope of the fiduciary’s powers, the degree of retained control, and, for New York purposes, factors such as trustee residency, trust situs and New York source income. In practice, these issues are addressed through careful trust drafting, use of ascertainable standards or independent trustees where appropriate, and ongoing careful administration.

A number of jurisdictions in the United States have expressly adopted broad asset protection rules for trusts, albeit New York is not one of those jurisdictions. That being said, there are other asset protection vehicles, such as limited liability companies, which can be quite effective.

Several techniques can help family businesses transfer wealth to the next generation. One method involves utilising discounts for gift and estate tax planning, which typically requires the engagement of a professional valuation specialist. Other options include establishing family limited partnerships and implementing buy-sell agreements.

A discount is usually applied to the fair market value of the transfer of a partial interest in an entity. This is a technique commonly used by US estate planners.

Disputes arise from a wide variety of issues, including:

• testator/donor capacity;
• interpretation/language construction of instruments;
• implementation/administration of a trust/estate;
• management of corpus; and
• guardianship proceedings, among many others.

Disputes may be between and among fiduciaries, beneficiaries, third-party creditors, and/or governmental taxing authorities or law enforcement agencies. Recent trends include:

• increasingly aggressive enforcement proceedings by federal and state tax authorities against high net worth individuals and trusts;
• divorce-related litigation against trustees, grantor-spouses and/or beneficiary-spouses; and
• “know-your-customer” and related fiduciary risks associated with connections to sanctioned individuals.

The remedies available to claimants are extremely wide-ranging and include money damages, declarative judgments, rescission, trust reformation, injunctive and other equitable relief, and appointment of a guardian (over person and/or property), among other forms of relief.

Corporate fiduciaries are often used. There is no higher standard of conduct, as all trustees are held to a fiduciary duty. Fees can be high but are subject to negotiation.

A fiduciary owes a duty of care and prudence and may be personally liable for a breach of fiduciary duty. A fiduciary cannot be exculpated from acting in bad faith, but provisions can be included in the operative instrument to limit exposure to the fiduciary, such as an express provision that a fiduciary will not incur liability in the absence of bad faith and indemnification of the trustee by the trust.

In the United States, particularly in New York, fiduciaries are required to use prudent judgment to invest trust assets. Typically, trustees contract with third-party advisers to make investment decisions.

It is common for the trust or similar legal document to grant a fiduciary broad authority over the investment of trust assets, while also explicitly excluding any requirement to diversify those investments. Additionally, a trust may hold ownership of a closely held business, as specified by the terms outlined in the trust instrument.

A person can have only one domicile at a given time, and it is generally considered to be the place with which a person has a sufficient degree of permanent contacts and to which a person intends to return and/or has a permanent home. Indicia of domicile can include a driver’s license, voter’s registration, and vehicle registration, as well as club memberships and affiliations with religious houses of worship, among other things.

Residence is a place of abode, and an individual can have multiple residences. An individual is considered a New York resident for tax purposes if New York is the individual’s domicile or the individual’s permanent place of abode is in New York and the individual spends 184 days or more there.

Even if an individual is considered a non-resident, the individual may remain subject to income tax on New York-sourced income.

There are no expeditious means for an individual to obtain citizenship in the United States.

For minors or adults with special needs, a common planning mechanism is a special needs or supplemental needs trust. The intent of the special needs or supplemental needs trust is to supplement and not diminish federal or state benefits.

In the event of a party’s incapacity, the court would have to be petitioned to appoint a guardian for the person and/or property. Various planning mechanisms can be put in place to minimise the need or scope of a guardianship proceeding, such as:

• a revocable trust;
• a durable power of attorney;
• a health care proxy; and
• a living will.

If it is desired to have a non-US resident or citizen appointed as a guardian, specialised planning may be required.

Planning for mental incapacity is generally governed by state law.

There are a number of mechanisms available to plan for mental incapacity in New York and similar options are available in other states.

• Revocable trusts – a revocable trust provides a vehicle for the management of assets in the event the grantor becomes incapacitated. A trustee (other than the grantor) can manage the assets during the grantor’s incapacity and has discretion to distribute the trust assets to or for the benefit of the grantor as needed. A revocable trust may also provide that the trustee has discretion to distribute trust assets to benefit the spouse of the grantor and make gifts in order to take advantage of annual exclusions from gift tax and other tax exemptions and deductions. While it is fairly common for the grantor to be a trustee, this could be problematic should the grantor become incapacitated. To address this, a revocable trust usually sets forth the standards for determining incapacity and who makes such determination, such as a doctor, and that upon such determination the grantor will cease to act as a trustee. A revocable trust is a disregarded entity for tax purposes and during the grantor’s lifetime, including during the grantor’s incapacity, the grantor is deemed the owner for income taxes and reports the income of the trust on the grantor’s income tax returns.
• Durable power of attorney – a durable power of attorney is a common and powerful tool to plan for mental incapacity, especially in conjunction with a revocable trust. A power of attorney allows one (referred to as the “principal”) to designate a person or institution (referred to as the “agent”) to make financial decisions and manage assets on behalf of the principal. In the event of loss of mental capacity, by using a durable power of attorney, any assets not transferred to a previously created revocable trust can be transferred by the agent to the trust, where the assets can then be managed by the trustee. Even though the Durable Power of Attorney is generally intended to only be used in the event of the principal’s incapacity, it goes into effect immediately upon signing. It is important for the principal to name trustworthy agent(s) and to safeguard that the power of attorney is not improperly used. While New York does permit a “springing” power of attorney that sets forth the conditions for the power of attorney to go into effect, it is far more common to use the durable power of attorney to avoid disputes that may arise as to the effectiveness of a “springing” power of attorney.

• Health care proxy and living will – a health care proxy is a legal document that provides for an appointment of a health care agent to make health care decision on your behalf and does not go into effect until you are unable to make your own health care decisions. The living will is a legal document expressing your wishes that no extraordinary measures, such as life support or a feeding tube, be used in the event of an incurable condition and death is imminent. New York and many other states have enacted laws that encourage physicians and hospitals to follow the wishes of a terminally ill patient who has signed a living will.

The above tools should minimise having to petition the court to appoint a guardian in the event of a party’s incapacity.

There is no applicable information in this jurisdiction.

Generally, a non-marital child is the child of his or her mother, and a non-marital child is the child of his or her father if a court during the father’s lifetime makes an order of filiation or the father has signed an instrument acknowledging paternity. A non-marital child may also be deemed a child of the father if parentage is shown by clear and convincing evidence, such as openly acknowledging the child as his own.

New York recently legalised gestational surrogacy agreements in which the surrogate has not contributed the egg used in conception. A child born under such a surrogacy agreement, assuming it complies with New York law, is a child of each intended parent. To ensure a surrogacy agreement is lawful in New York, several requirements must be met by the surrogate or intended parent, including United States citizenship or lawful permanent residence status and New York residence. In addition, if the proposed surrogate has a spouse, such spouse may have to provide informed consent.

Traditional surrogacy agreements (ie, the surrogate contributes the egg) remain unenforceable in New York.

Notwithstanding the rules under the law regarding the definition of a child, a testator may exclude any child from taking any share of the testator’s estate.

New York and the federal government recognise same-sex marriage.

Under federal and New York laws, unmarried couples, including co-habiting couples, are treated as two distinct individuals and their couple status is irrelevant for purposes of taxes and estate rights. They each have to file individual income tax returns and each is responsible for reporting their respective income and paying the associated taxes thereon. There is no joint tax filing for unmarried couples and in general there is no tax benefit to unmarried couples under federal or New York law.

Gifts between married couples are not subject to tax so long as the recipient spouse is a US citizen. However, gifts between unmarried couples (in excess of the annual gift tax exclusion, which is currently USD19,000) are taxable gifts and will use an individual’s lifetime gift tax exemption. There is no estate tax on assets passing to a US citizen surviving spouse of a married couple. There is no such exemption for assets passing to the survivor of a non-married couple. The US estate and lifetime gift tax exemptions are unified so any gift exemption used during lifetime reduces the amount of the estate tax exemption available at death. Unlike for married couples, there is no concept of “portability” for an unmarried couple. For example, if the first partner of the unmarried couple to pass away has a taxable estate of USD10 million, none of the USD5 million exemption can be transferred to the surviving partner and the exemption is lost. As a further example, if the first partner of the unmarried couple to pass away has a taxable estate of USD30 million, estate taxes will be paid on USD15 million, and the assets that pass to the surviving partner will be taxed at such survivor’s death, resulting in double estate taxes when a couple is unmarried.

While New York follows the federal rule that transfers at death to a surviving spouse of a married couple are not subject to estate tax, New York’s treatment of its basic estate tax exclusion amount differs drastically from the federal system and is beyond the scope of this article. The take away is that, in general, the New York exemption is effectively phased out for estates that currently exceed approximately USD7.717 million, meaning that for an unmarried couple, the entire estate is effectively subject to New York estate tax. The New York estate tax rate is graduated and ranges from approximately 3% to 12%. While New York does not impose a gift tax on lifetime gifts, certain gifts made within three years prior to the decedent’s death may be added back to the gross estate.

In New York, in general, claims between non-married couples based upon mere cohabitation or romantic relationship are relatively uncommon. New York claimants have pursued claims based upon a variety of theories, such as breach of contract, constructive trust, equitable accounting, partnership, and joint venture. The risk of a successful claim can be reduced by entering into a written agreement memorialising financial consequences (if any) of the parties’ relationship/cohabitation.

In contrast, in New York, absent an agreement otherwise (such as a pre-marital or post-marital agreement or spousal elective share waiver), the surviving spouse has the right to approximately one-third of the deceased spouses’ net estate (and if the deceased spouse dies without a will, the surviving spouse has the right to approximately 50% of the deceased spouse’s intestate estate).

The United States and New York provide a number of charitable giving opportunities, including tax incentives. They are complex and require careful consideration. Giving to qualified charities will usually reduce income and estate taxes, subject to certain limitations.

Typically, US/NY lawyers use several charitable giving techniques, including charitable lead trusts, donor-advised funds and private foundations. While creating a charitable structure may have income and estate tax benefits, often, there is a reduction in control and use of the assets.