USA – CALIFORNIA Law and Practice Contributed by: Jennifer J. McCall, Matthew Perotti and Ashley E. Huh, Pillsbury Winthrop Shaw Pittman LLP
governance and transfer rules are defined by both the applicable state statute and the entity’s govern- ing documents. Generally, operating agreements, partnership agreements, and shareholder agreements determine who controls the business, what interests can be transferred, and what approvals are required. These state‑law constraints are often used intention- ally to separate control interests (voting or managing interests) from economic interests (non-voting inter- ests). However, even when an entity is properly formed and valid under state law, federal transfer tax rules may still apply. Under IRC, Section 2036, the transferred interest can be pulled back into the transferor’s tax- able estate if the transferor retains certain rights or powers associated with that interest. 9. Trusts, Foundations and Related Entities 9.1 Choice of Planning Vehicle The most commonly used structures for US residents (and frequently for non‑residents with US connec- tions) include the following. Revocable living trusts are used to centralise the management of assets during the trustor’s lifetime, maintain privacy, and facilitate the transfer of assets outside of probate at death. Trust law is primarily state‑based, though many states follow the Uniform Trust Code. A revocable trust allows the trustor con- tinued access to assets during life and provides for the disposition of those assets upon the trustor’s death. Irrevocable trusts are used to implement long‑term governance of assets and to shift value out of the taxable estate. Common irrevocable trust structures include IDGTs, ILITs, GRATs, SLATs, and directed trusts. Philanthropic structures are typically established through private foundations (generally Section 501 (c)(3) entities classified as private foundations unless they qualify as public charities) or donor‑advised funds maintained by a sponsoring Section 501 (c)(3) organisation.
Qualified Domestic Trusts (QDOTs) may be used when the surviving spouse is not a US citizen, enabling preservation of the marital deduction deferral if statu- tory requirements are met. Non‑US persons with US assets may use US trusts and entities to manage US situs holdings and admin- istration. These vehicles are typically selected to address con- siderations related to control and governance, tax efficiency (estate, gift, GST, and income tax), asset protection, privacy, and – particularly for cross‑border families – jurisdictional co-ordination (including situs, trustee selection, treaty interactions, and differing succession regimes). 9.2 Recent Developments Affecting Planning Vehicles The One, Big, Beautiful Bill Act introduced sever- al changes that affect US estate planning. The Act increases the basic exclusion amount to USD15 mil- lion starting in 2026, makes this increase permanent, and indexes the amount for inflation going forward. As a result, fewer estates are expected to be subject to federal estate taxes, allowing more wealth to pass to beneficiaries without triggering transfer tax liabilities. The Act also raises the Qualified Small Business Stock (QSBS) exclusion cap to the greater of USD15 million or ten times the investor’s stock basis, and increases the gross asset threshold to USD75 million. These changes expand access to QSBS benefits and incen- tivise investment in qualifying businesses. In addition, the Act broadens the excise tax regime that applies to tax‑exempt organisations, extending it more widely to current and former non-profit employ- ees. This expansion may create operational chal- lenges for larger tax‑exempt institutions. The Act also replaces the previous 1.4% flat excise tax on the net investment income of private colleges and universities (with assets of at least USD500,000 per student) with a tiered excise tax system. The new structure applies only to institutions with at least 3,000 tuition‑paying students.
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