USA – CALIFORNIA Law and Practice Contributed by: Jennifer J. McCall, Matthew Perotti and Ashley E. Huh, Pillsbury Winthrop Shaw Pittman LLP
Thus, one planning strategy is to establish a non‑gran- tor trust in one of these states to avoid state‑level income taxation. However, care must be taken to avoid inadvertently creating tax exposure in another state. For example, appointing a trustee who resides in California may cause California to impose its own state income tax on the trust due to the presence of a California‑resident trustee. 11. Planning for Non-Traditional Families 11.1 Succession Rights and Estate Taxes for Non-Traditional Families Same-sex spouses are treated the same as opposite- sex spouses for inheritance and transfer‑tax purposes (see Obergefell v Hodges , 576 US 644 (2015)). Unmarried partners generally do not receive spousal intestacy rights or spousal tax benefits by default, such as the unlimited marital deduction from gift and estate tax. Any rights for unmarried partners typi- cally arise only through estate‑planning documents (eg, wills, trusts, or beneficiary designations) or, in some states, through registered domestic partnership regimes. These regimes and the rights they provide vary significantly by state. Inheritance rights for non-marital children depend on establishing a legal parent‑child relationship under state law. Adopted children are generally treated the same as biological children for purposes of intestacy and class gifts. Parentage for children born through surrogacy is primarily governed by state parentage laws, and legal parent‑child relationships are usually based on the type of surrogacy arrangement. Parental rights in these cases are often established by court order before the child’s birth. The inheritance rights of children conceived posthu- mously vary by state and depend on specific statu- tory requirements and the circumstances under which conception occurred. 11.2 Conflicts and Divergent Laws Conflicts can arise in US succession planning when family status is defined differently across jurisdictions
– whether between US states, between US law and foreign law, or between state‑law rules and federal classification standards. These inconsistencies mat- ter because inheritance rights, the definition of ben- eficiary classes, and fiduciary decision‑making often depend on state‑law determinations of marriage and parent–child relationships, while federal tax outcomes may hinge on separate federal recognition criteria. In practice, these conflicts are usually managed by relying on formal court orders – such as parentage judgments – which typically receive strong interstate recognition. Succession planning documents also help mitigate inconsistencies by explicitly defining beneficiary classes and clearly stating intended suc- cession outcomes. Additional efforts to promote uniformity are being advanced through model‑law reforms, including the Uniform Parentage Act, which aims to reduce varia- tion in how jurisdictions define and recognise family relationships. 12. Cross-Border Succession Planning 12.1 Taxation of Cross-Border Estates and Transfers Succession planning for cross‑border interests must take into account federal transfer taxes, federal income taxes, and any applicable treaty relief. US succession and tax consequences often depend on an individual’s domicile or residence and the situs of their assets. US permanent residents (ie, green card holders) are subject to US income taxes and US transfer taxes in the same manner as US citizens. To avoid the appli- cation of these taxes on certain assets, individuals considering US residency may transfer assets to a “foreign trust” before becoming US residents. A “for- eign trust” is a trust that is not classified as a domes- tic trust, meaning either a US court cannot exercise primary supervision over its administration or one or more non‑US persons control the trust’s “substantial decisions”. Individuals who control the substantial decisions of a trust may include trustees, trust advis- ers, and, in some cases, trust protectors or benefi-
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