USA – CALIFORNIA Law and Practice Contributed by: Jennifer J. McCall, Matthew Perotti and Ashley E. Huh, Pillsbury Winthrop Shaw Pittman LLP
ciaries. Additionally, the trust must be created by the non‑resident more than five years before they become a permanent resident. If properly structured, a foreign trust is generally not subject to US income tax on non‑US source income and will not be included in a US resident’s estate for estate tax purposes. Individuals who are not domiciled in the US are not subject to US transfer taxes (gift, estate, and GST taxes) on their worldwide assets. However, US‑situs assets are subject to these taxes even if the owner is not US‑domiciled. By contrast, persons domiciled in the US are subject to transfer taxes on all worldwide assets. A person living in the US with no present inten- tion of leaving is typically considered US‑domiciled. The determination also considers factors such as length of US residence, ties to other countries, green card status, and lifestyle indicators (eg, voter registra- tion, driver’s licence, and club memberships). For cross‑border scenarios, the Foreign Investment in Real Property Tax Act (FIRPTA) is an important con- sideration. FIRPTA authorises the US to tax non‑resi- dents on dispositions of US real property. Generally, a purchaser acquiring US real property from a non‑resi- dent seller must withhold 15% of the amount realised. Real property taxes in the US are imposed at the state and local levels, not the federal level. Each state and local jurisdiction sets its own property tax rates, which vary significantly. The US provides a federal deduc- tion of up to USD10,000 per year for state and local taxes paid on real property for taxpayers who item- ise in 2025. Dispositions of real property – including sales or exchanges that do not qualify under Section 1031 of the Internal Revenue Code – are subject to taxation for capital gains or, in some cases, ordinary income. Federal taxation of real property dispositions is complex. The US has entered into numerous income tax treaties with other countries to reduce or eliminate double tax- ation. Treaty provisions vary by country. The US also
has estate and/or gift tax treaties with a limited num- ber of jurisdictions, which may increase exemptions, modify situs rules, or provide credits in cross‑border estates. Succession of personal property should also be care- fully considered. State law governs the succession of a decedent’s tangible and intangible personal prop- erty. The key factor is the decedent’s domicile, which is the place they intend to be their permanent home and where they intend to remain indefinitely. An indi- vidual may have only one domicile. If the decedent is domiciled in a state, that state’s succession laws apply. However, if a person has a valid will or living trust, that document generally governs the disposition of assets regardless of state succession laws. The laws of the decedent’s domicile state govern the succession of personal property and any real prop- erty located within that state. Real property situated outside the decedent’s domicile is governed by the laws of the state where the property is located. When a decedent owns real property in a state where they were not domiciled, an “ancillary probate” proceeding in the property’s situs state is usually required. This proceeding disposes of the property either according to the decedent’s will or under that state’s intestacy laws. Conflicts of law issues may arise when determining property characterisation, interpreting a testamenta- ry instrument, or exercising a power of appointment. Courts may apply the “interest analysis” or “signifi- cant interest” theory, evaluating which state has the greater interest in resolving the issue and applying that state’s laws. Many conflicts can be avoided through provisions in the decedent’s will or trust. For example, a will or trust may contain a “choice of law” clause specifying which state’s law will govern its interpreta- tion. Except in certain cases – such as marital property characterisation or matters contrary to public policy – courts generally honour the decedent’s selected state law.
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