USA – NEW YORK Law and Practice Contributed by: John M Teitler, Nancy A Murphy and Constance E Shields, Teitler & Teitler LLP
3. Trusts, Foundations and Similar Entities 3.1 Types of Trusts, Foundations or Similar Entities New York and most other states recognise revoca - ble 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 fam - ily trusts. Further, New Hampshire and Wyoming have laws permitting the use of civil law-style foundations. 3.2 Recognition of Trusts Trusts are routinely used in the United States, par - ticularly 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. 3.3 Taxation of Trusts, Foundations and Similar Entities Located in Other Jurisdictions Both the United States and New York have exten - sive 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. 3.4 Tax Consequences of Fiduciary and Beneficiary Roles 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
bate 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. 2.4 Marital Property New York is an equitable distribution state and equita - bly distributes marital property in the event of divorce. In general, marital property is property acquired dur - ing marriage and prior to the filing of divorce that is not “separate property.” In general, separate prop - erty 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 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. 2.6 Transfer of Assets: Vehicle and Planning Mechanisms 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. 2.7 Transfer of Assets: Digital Assets 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. and passive nature of each. 2.5 Transfer of Property
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