Shopper Comparability Information – Household and Marriage

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1 Legal framework

1.1 Which legal provisions regulate private customer matters in your jurisdiction?

Many different law enforcement agencies work together to regulate consumer affairs in the United States. Some of these laws are promulgated at the federal level, while others are promulgated at the state or local level. At the federal level, the Internal Revenue Code sets the foundations of the US tax system. States and municipalities also levy taxes, which in many cases are modeled on federal law. At the state level, a mixture of general and statutory law governs wills and estate planning, marriage matters and the establishment and administration of trusts, and the possession and acquisition of property in general. The municipalities also legislate on property and property purchases under their jurisdiction.

1.2 Do special regulations apply to certain people (e.g. foreigners, temporary residents)?

US federal tax laws apply differently to US citizens and residents than to non-residents. See question 2.1.

1.3 Which bilateral, multilateral and supranational instruments in your country are relevant in the private customer area?

In order to split tax revenues and avoid double taxation, the United States has bilateral income tax treaties with 65 countries (Australia, Austria, Azerbaijan, Bangladesh, Barbados, Belarus, Belgium, Bulgaria, Canada, China, Cyprus, Czech Republic, Denmark, Egypt), Estonia, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan, Korea, Kyrgyzstan, Latvia, Lithuania, Luxembourg, Malta, Mexico, Moldova, Morocco, Netherlands, New Zealand, Norway, Pakistan, Philippines, Poland, Portugal, Romania, Russia, Slovak Republic, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Tajikistan, Thailand, Trinidad, Tunisia, Turkey, Turkmenistan, Ukraine, Great Britain, Uzbekistan and Venezuela).

The United States has bilateral agreements with 15 countries (Australia, Austria, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, the Netherlands, Norway, South Africa, Switzerland and the United Kingdom) on inheritance, donation and / or intergenerational transfer taxes. In addition, the U.S.-Canada income tax treaty addresses U.S. inheritance tax and Canadian capital gains tax on death (Canada does not levy inheritance tax). These treaties aim to prevent double taxation of asset transfers by assigning primary tax jurisdiction to a country based on either the residence of the transferor or the location of the transferred assets.

2 taxation

2.1 On what basis are natural persons liable for tax in your country (e.g. place of residence / domicile / nationality)? How is this determined?

US citizens and residents are taxed differently from non-residents; the definition of a “resident” varies for income tax purposes as opposed to transfer taxes (ie inheritance, gift, and generation skipping transfer taxes (GST)).

For US income tax purposes, US residents and residents are taxed on worldwide income and capital gains, while non-residents are taxed only on certain US source or income related to a US trade or business are. A person is considered a US citizen regardless of residence and is a resident if they:

  • is a lawful permanent resident (ie a “green card” holder); or
  • fulfills the "essential presence test" determined by the following formula:

    • Days (including partial) in the United States in the current tax year (which must be at least 31); plus
    • days in the previous tax year divided by three; plus
    • Days in the United States in the second year preceding the current year divided by six.

Non-residents (that is, those who are not U.S. citizens or legal permanent residents and who fail the essential attendance test) are generally only subject to U.S. income tax on:

  • Income from the sale of US real estate;
  • Income from any US trade or business; and
  • most interest, dividend, rental, and royalty income from US sources (although interest on US bank deposits for non-residents is not subject to income tax).

For US transfer tax purposes, US citizens or residents are also taxed differently than non-residents, but the definition of "residence" is different. A “Resident” is an individual who is resident in the United States. A person becomes resident in the United States by living there for even a short period of time with no specific intention to leave later. U.S. citizens and residents are subject to taxation on the value of their worldwide estate and gifts (regardless of the physical location of the gifted property) while non-residents (i.e. those who are not U.S. citizens and are not resident in the United States) will generally be subject to inheritance or gift tax only on property believed to be in the United States at the time of death or gift. GST tax is generally only levied on transfers that are subject to inheritance or gift tax (or resulting from transfers that are subject to gift or inheritance tax).

Tax treaties between the United States and certain countries can mitigate the impact of US taxes on non-residents, dual citizens, and dual residents.

2.2 When does the personal tax year start and end in your country?

In general, individuals and most trusts are required to use the calendar year as their tax year, although certain self-employed people can assume a tax year (i.e. every 12 consecutive months ending on the last day of every month except December 31) when they access their books and records the basis of the decided financial year. Estate (and qualifying revocable trusts after the settlor's death and while the settlor's estate is being administered) may set a tax year as the tax year.

2.3 In relation to income: (a) What taxes are there and what are the rates? (b) How is the tax base determined? (c) What are the requirements for the tax return? and (d) What exemptions, deductions, and other reliefs are available?

(a) What taxes are levied and what are the rates?

The United States has a state income tax on individuals. In addition, 42 states (all but Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming), the District of Columbia, and many localities all have individual income taxes. State and local taxes and regulations vary by jurisdiction, although many are based on federal concepts and definitions.

State income tax rates vary based on the taxpayer's reporting status (single, separate, joint marriage, or head of household). Head of household status is only available to individuals who are considered unmarried and who have a qualified dependent they support, e.g. B. a child or an elderly parent. For 2021, the individual tax rates for ordinary income are 10%, 12%, 22%, 24%, 32%, 35% and 37%. The income tax brackets to which these rates apply vary depending on the taxpayer's registration status.

US income tax also applies to estates and trusts, with some changes. Tax rates on estates and trusts are very low, with the highest tax rate of 37% applying to all taxable income from trusts and estates in excess of $ 13,050 (compared to $ 523,600 for a single parent or $ 628,300 for married couples submitting jointly).

(b) How is the tax base determined?

The federal income tax base is generally composed of any income from sources not specifically excluded from the Internal Revenue Code. Therefore, as a rule, a person's income includes:

  • Wages and allowances;
  • Income from running a business;
  • Profits from the sale of real estate; and
  • other investment income (e.g. interest, rents, license fees and dividends).

(c) What are the requirements for the tax return?

Individuals file annual tax returns on Form 1040 (or Form 1040-NR for non-residents). Trusts and estates file annual tax returns on Form 1041. Typically, tax returns for taxpayers in the calendar year are on April 15th and for taxpayers for tax years on the 15th day of the fourth month following the close of the taxpayer's tax year (although a six-month extension to the deadline for filing a Form 1040 and a five-month extension to the deadline for submission of a Form 1041 is automatically granted upon request).

(d) What exemptions, deductions and other reliefs are there?

The items specifically excluded from gross income are listed in Sections 101–140 of the Internal Revenue Code. Some of the main exclusions apply to:

  • the receipt of life insurance proceeds;
  • the receipt of gifts and inheritances;
  • Interest on government and municipal bonds;
  • Amounts an employer pays for an employee for accident and health insurance; and
  • Profits from the sale of a primary residence (up to certain thresholds).

Individuals will automatically receive deductions for certain items, including:

  • Trade and business expenses (although these are very limited if the taxpayer is employed as an employee); and
  • certain contributions to qualified retirement plans.

In addition, individuals can choose to:

  • apply an inflation-adjusted “standard deduction”; or
  • to add various "individual" deductions and to take their total as a deduction.

The standard deduction for 2021 is:

  • $ 12,550 for single taxpayers and married taxpayers filing separately;
  • $ 18,800 for head of household taxpayers; and
  • $ 25,100 for married taxpayers filing together.

The most important individual prints include prints for:

  • Donation contribution;
  • certain interest expenses;
  • state and local taxes;
  • Doctor and dentist costs; and
  • Loss and theft damage.

(For tax years prior to 2026, individual state and local income or sales tax and property tax deductions are capped at $ 10,000 or $ 5,000 for taxpayers who are separately married.)

2.4 In relation to capital gains: (a) What taxes are levied and what are the rates? (b) How is the tax base determined? (c) What are the requirements for the tax return? and (d) What exemptions, deductions, and other reliefs are available?

(a) What taxes are levied and what are the rates?

Capital gains may be made on the sale of certain types of assets. Income from long-term capital gains is typically taxed at lower rates than other income. A capital gain is generally considered long-term if the taxpayer held the asset for more than a year prior to its sale. If the taxpayer held the property for a year or less, any capital gain is subject to the ordinary income tax rates described above.

Long-term profits are usually subject to a maximum rate of 20%; however, provided the taxpayer's taxable income does not exceed certain thresholds, long-term gains may be subject to a tax rate of 0% or 15%. Certain long-term gains from the sale of real estate are subject to a rate of 25%; and certain other long-term profits (e.g., profits from the sale of collectibles, including jewelry, antiques and works of art) are subject to a rate of 28%.

(b) How is the tax base determined?

In general, capital gains tax applies to assets held for investment or business purposes, although gains from the sale of personal effects such as a car or home are also subject to capital gains treatment. Certain assets are generally not subject to capital gains treatment, such as:

  • Business inventory and property held for sale to customers; and
  • certain property created by the taxpayer's personal endeavors or acquired as a gift from someone whose personal endeavors created the property (including copyrights, literary or musical compositions, letters, memorandums, and other similar assets; although the taxpayer may make a choice, To treat musical compositions and copyright in musical works as an object of capital gains treatment).

In general, losses on the sale of assets subject to capital gains treatment may be deducted from the profits of that property to determine the taxpayer's net capital gains (although no deduction is possible for losses on the sale of property or personal assets, those not for business or investment purposes). If losses exceed profits, the excess of $ 3,000 per year can be deducted from ordinary income and any excess can be carried forward indefinitely to offset future capital gains.

(c) What are the requirements for the tax return?

Capital gains are reported on Form 1040 (or Form 1040-NR for non-residents) and Form 1041 for trusts and estates.

(d) What exemptions, deductions and other reliefs are there?

Capital gains are taxed within the framework of general income tax, so there are no capital gain-specific exemptions, deductions or reliefs.

2.5 With regard to inheritance: (a) What taxes are levied and what are the rates? (b) How is the tax base determined? (c) What are the requirements for the tax return? and (d) What exemptions, deductions, and other reliefs are available?

(a) What taxes are levied and what are the rates?

The United States has no federal inheritance tax (although six states do – Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania). Instead, the United States levies transfer taxes on capital transfers. The US transfer tax system is three-pronged:

  • There is a gift tax on certain transfers during your lifetime;
  • Inheritance tax is payable on certain transfers that take effect at the time of death; and
  • A GST tax is levied on certain transfers during lifetime or death (or at the time of distribution in the case of a transfer from a trust) to an individual (a “skip person”) who is more than one generation below the transferor.

Twelve states (Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington) and the District of Columbia all have inheritance taxes. Only one state (Connecticut) currently has a gift tax on transfers during lifetime.

US gift tax is levied at a flat rate of 40% on cumulative taxable gifts (excluding annual discount gifts, described in question 2.5 (d)) in excess of the gift tax exemption (which is adjusted annually for inflation and expires in 2021 11, $ 7 million). ). There is no gift tax exemption for non-residents unless otherwise provided by contract.

U.S. Inheritance Tax is levied at a flat rate of 40% on a taxable estate in excess of the Inheritance Tax Exemption (which is the same amount as the Gift Tax Exemption for U.S. residents and residents and which is reduced by accumulated lifetime taxable gifts).

The United States levies a GST tax on:

  • direct transfers to skip persons (including trusts where all beneficiaries are skip persons);
  • Distributions from certain trusts to skip persons; and
  • the assets of a trust in which all other beneficiaries are skip persons after the death of the last beneficiary who was not a skip person (collectively “GST transfers”).

In addition to the U.S. inheritance or gift tax applicable to the transfer, a flat-rate 40% U.S. GST tax will be levied on cumulative GST transfers above the GST exemption amount (which is the same amount as the gift and inheritance tax exemptions). .

Special rules apply to certain non-residents who have previously emigrated from the United States (either by renouncing U.S. citizenship or by renouncing long-term legal permanent residence status).

(b) How is the tax base determined?

The United States levies a gift tax on all donation transfers from a U.S. citizen or resident. Gift tax is also levied on non-residents in relation to transfers of real estate and tangible personal effects located in the United States.

The United States levies inheritance tax on any U.S. citizen or resident's entire property, regardless of where the property is located. This property is valued on the date of death of the deceased (or earlier at the time of the sale of the assets or at the time which is six months after the date of death if the choice of this "alternative valuation date" means a reduction in inheritance tax). Non-residents are also subject to US inheritance tax on certain US Situus properties in the event of death. U.S. situation property of a non-resident includes:

  • real or tangible personal property physically located in the United States;
  • Shares of a US company;
  • Notes issued by a US citizen, resident or US government agency;
  • deferred compensation to a US citizen or resident; and
  • Annuity contracts of a US debtor.

Bank deposits and life insurance proceeds (while the deceased was alive) are not considered US non-resident property.

GST is generally only levied on transfers that are subject to inheritance or gift tax (or resulting from transfers that are subject to gift or inheritance tax).

(c) What are the requirements for the tax return?

Individuals file Form 709 for gift and GST tax, and estates file for Form 706 for inheritance tax. Form 709 is due April 15 of the year following the donation (although a six-month extension is automatically granted upon request). Form 706 is due nine months after the testator's death (although a six-month extension is automatically granted upon request).

(d) What exemptions, deductions and other reliefs are there?

For 2021, the inheritance, gift, and GST tax exemption is $ 11.7 million per person for U.S. residents and residents. A deceased spouse's unused allowance can be carried over to their surviving spouse (through a concept known as "portability") to avoid wasting the inheritance tax exemption of the pre-deceased spouse. Portability is not available in relation to the unused GST exemption of a deceased spouse.

Inheritance tax exemption of only $ 60,000 is available for a non-resident's taxable estate. There is no gift tax exemption for non-residents.

“Annual exclusion gifts” are excluded from the gift tax assessment base. They are gifts:

  • a US citizen or resident's current interest in a recipient who is not a US citizen spouse or charity; and
  • which will not exceed $ 15,000 (for 2021) per gift recipient (or $ 30,000 per gift recipient if made by a married donor whose spouse agrees on a U.S. gift tax return that such gifts are treated as half their own become).

Direct gifts are considered gifts of current interest. Fiduciary gifts can be gifts of current interest if certain revocation or termination provisions are in place in the trust assets; the absence of such entitlements will result in a fiduciary gift not qualifying as an annual barring gift. Gifts to a non-US citizen spouse that do not exceed $ 159,000 in 2021 will qualify for annual gift tax exclusion. Also excluded from the gift tax assessment base are certain transfers for the education or health care of a recipient. In addition, a number of deductions apply for gift tax purposes, the most important of which are the unrestricted marriage deduction on transfers to a U.S. citizenship spouse and the unrestricted charitable deduction on transfers to qualified charities.

The inheritance tax base is reduced by several:

  • Deductions (e.g., government death grants, debt, administrative expenses, and qualifying distributions to or to benefit a surviving spouse or charity with U.S. residents); and
  • Credits (e.g. the credit for foreign death tax).

As with gift tax, the most important deductions from inheritance tax are:

  • the unlimited marriage allowance for transfers to a US citizen spouse; and
  • Unlimited charity deduction for transfers to qualified charities.

Transfers to a non-civic spouse are only entitled to unlimited marriage deduction if the transfer is made to a trust that meets certain requirements (so-called “QDOT”).

2.6 In relation to investment income: (a) What taxes are levied and what are the rates? (b) How is the tax base determined? (c) What are the requirements for the tax return? and (d) What exemptions, deductions, and other reliefs are available?

(a) What taxes are levied and what are the rates?

In addition to the capital gains taxes described above, the United States levies a 3.8% tax on the net property income of citizens and residents, but only to the extent that the taxpayer's income exceeds certain thresholds (generally $ 200,000 for a single taxpayer and $ 250,000 for married couple).

(b) How is the tax base determined?

For the purposes of this tax, the definition of "net investment" includes without limitation:

  • Interest, dividends, certain annuities, royalties and rents (unless they come from a trade or corporation that is not subject to net capital gains tax);
  • Income from a trade or company in which the taxpayer does not have a material interest or which involves trading in financial instruments or goods; and
  • Net profits from the sale of real estate (insofar as it constitutes income), with the exception of real estate held in connection with a commercial or business activity to which the net capital gains tax does not apply.

(c) What are the requirements for the tax return?

Net investment income is reported on Form 1040 and Form 1041 for trusts and estates. Non-residents are not subject to net capital gains tax.

(d) What exemptions, deductions and other reliefs are there?

As described in question 2.6 (b), net capital gains tax only applies to certain income and only to the extent that the taxpayer's income exceeds certain thresholds.

2.7 In relation to real estate: (a) What taxes are there and what are the applicable rates? (b) How is the tax base determined? (c) What are the requirements for the tax return? and (d) What exemptions, deductions, and other reliefs are available?

(a) What taxes are levied and what are the rates?

The United States does not impose federal taxes on real estate (although many states and municipalities impose taxes on buying and holding real estate).

(b) How is the tax base determined?

State and local governments use a variety of methods to calculate their property tax base. A tax jurisdiction typically assesses property value by estimating the property's market value. Some jurisdictions base their valuation on the property's last sale price; others consider the most valuable use of the property (e.g. an empty lot that could be converted into a residential complex); and others base the valuation solely on the size or physical characteristics (e.g. location) of the property. There are also differences in the timing of valuations, with some jurisdictions evaluating property values ​​annually and others less frequently.

(c) What are the requirements for the tax return?

These requirements are country-specific.

(d) What exemptions, deductions and other reliefs are there?

State and local governments often use limits, exemptions, deductions, and credits to reduce property tax liabilities. These forms of relief are country or location-specific.

2.8 In relation to all other direct taxes levied in your country: (a) What taxes are levied and what are the applicable rates? (b) How is the tax base determined? (c) What are the requirements for the tax return? and (d) What exemptions, deductions, and other reliefs are available?

(a) What are they and what are the applicable tariffs?

Many states and municipalities impose taxes on personal property (e.g., automobiles, boats, equipment, and machines) in addition to real estate.

(b) How is the tax base determined?

In general, these taxes are based on the value of the personal property on which they are levied. Because all wealth taxes are state or municipal, each jurisdiction can include different types of property in its tax assessment.

(c) What are the requirements for the tax return?

These requirements are country-specific.

(d) What exemptions, deductions and other reliefs are there?

These forms of relief are country and location-specific.

2.9 With regard to indirect taxes levied in your country: (a) What taxes are levied and what are the applicable rates? (b) How is the tax base determined? (c) What are the requirements for the tax return? and (d) What exemptions, deductions, and other reliefs are available?

(a) What are they and what are the applicable tariffs?

Most states and many places impose sales tax on goods or services purchased or provided in the jurisdiction (which is in addition to the listed price for the goods or services). Many states also impose a use tax on goods or services purchased outside of the state when they are later brought into the state for use (although there are often credits for sales / use taxes paid in other countries).

The United States and some states impose excise taxes on certain goods such as gasoline, tobacco, alcohol, and airline tickets. The United States also levies customs duties on goods imported into the United States, subject to certain personal allowances / exemptions.

(b) How is the tax base determined?

Sales and use taxes are usually based on the sales price of the taxable item.

Excise duties can be:

  • a tax per unit (e.g., a specified tax per gallon of gasoline); or
  • a percentage of the price (e.g. a percentage of the price of a plane ticket).

Likewise, duties can be imposed either as a specific cost per unit or as a percentage of value.

(c) What are the requirements for the tax return?

These requirements are country-specific.

(d) What exemptions, deductions and other reliefs are there?

These requirements are country or location specific.

3 succession

3.1 Which laws regulate succession in your jurisdiction? Can the succession be subject to the laws of another jurisdiction?

Succession arrangements in the United States are determined at the state, not the federal level. Two main factors determine which state the inheritance or inheritance laws govern the disposition of a testator's estate:

  • the property classification or type of each property; and
  • the state of residence of a person at the time of death.

There are basically three types of real estate:

  • Property;
  • intangible personal property (e.g., cash and stocks); and
  • tangible personal property.

“Residence” is the geographic location of an individual's permanent legal residence. A person's place of residence is the place they want to use as their place of residence for an indefinite period of time. It is the place that the person wants to return to. A person's intention to reside is determined by their actions, e.g. B. Where they vote and pay state income taxes. A person can only have one place of residence at a time.

The law of a person's place of residence generally determines the disposition of intangible and tangible personal property, even if they are located in different states. However, disposition over directly held real estate is controlled by the jurisdiction in which it is physically located. Accordingly, a supplementary estate or estate administration is required if a testator dies with direct ownership of real estate outside his country of residence.

3.2 How are legal conflicts resolved?

The renvoi doctrine is a legal doctrine according to which a court adopts the rules of a foreign jurisdiction with regard to legal conflicts that arise. The United States does not accept the Renvoi Doctrine. Rather, the United States treats the choice of law in inheritance matters based on the place and residence of the testator. For real estate, the law at the location of the real estate applies. The law at the place of residence of the deceased applies to immaterial and material things.

Some states have extensive choice of law laws that address issues such as the revocation and interpretation of testamentary dispositions and the exercise of powers of appointment. The conflict of laws principles provide guidelines for determining whether a court within the jurisdiction of the court will apply its own laws or the laws of another jurisdiction.

States without choice of law laws use an adequacy or fundamental fairness analysis, which typically involves analyzing factors such as length of stay, physical location of assets, place of residence, and intent. The traditional conflict of laws approach turns to the law of residence and the law of property law for the determination of the succession of immovable and material assets. A choice of law analysis requires the court to weigh and weigh the guidelines of the competing legal systems and the interests that those legal systems have in the application of their respective laws at issue.

3.3 Are there any rules on forced inheritance in your jurisdiction?

In almost every state, a person is free to choose the beneficiaries of their estate by making a will (or an executor) listing their wishes. However, almost all segregated property states (Georgia is the exception) have a voter turnout law that prohibits disinheritance of a spouse and instead requires that part of a person's estate (usually around a third) be passed to their surviving spouse. Seven jointly owned states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin) generally provide protection for surviving spouses from disinheritance by using the income and property acquired during the marriage as a Handle property – Half of each spouse. Louisiana is the only forced inheritance state that requires that part of a person's estate be given to their children if those children are under the age of 24 or are permanently unable to care for them. (In Louisiana, the forced part is usually:

  • a quarter of the estate if there is only one forced heir; and
  • half of the estate if there are two or more forced heirs.

However, the proportion may be smaller if the testator has five or more children and only one or two of them are under 24 years of age or are otherwise forced heirs, as well as in certain cases where disabled grandchildren are forced heirs.)

3.4 Do the inheritance rules apply if the deceased is legally binding?

If a person dies without a will (i.e. in inheritance law), the division of his estate is subject to the inheritance laws of the state in which he is domiciled (with the exception of real estate, the disposition of which in inheritance law is determined by the laws of the jurisdiction in which the property is located is located). Each state has its own laws on inheritance, but the surviving spouse and children are generally preferred.

3.5 Can the succession regulations be challenged? If so, how?

No.

4 wills and bequests

4.1 Which laws regulate wills in your jurisdiction? Can a will be subject to the laws of another jurisdiction?

The inheritance or administration takes place in the state in which the testator was domiciled at the time of his death, as well as in all states in which the testator owned material or material personal property. In principle, the law of the state in which the deceased was domiciled at the time of his death applies to the disposal of intangible property. However, the disposal of material or material personal property is subject to the law of the state in which this property is located.

If such property is located in more than one state, a supplementary estate or administrative obligation may be required. Most states have provisions that allow the inheritance of a will when it has been validly carried out under the laws of any of the following:

  • this state;
  • the jurisdiction in which the will was carried out; or
  • Jurisdiction in which the testator was domiciled at the time of death.

4.2 How are legal conflicts resolved?

See question 3.2.

4.3 Are foreign wills recognized in your jurisdiction? If so, how is this being done?

Most states have provisions that allow the bequest of a will when it is validly carried out under the laws of the jurisdiction in which the will was made. As explained above, the law of the state in which the deceased was domiciled generally governs the disposal of intangible property. However, the disposal of material or material personal property is subject to the law of the state in which this property is located.

4.4 In addition to the questions of succession discussed in Question 3, are there any other restrictions on the freedom of testament?

The rule against perpetuity is a common law rule, which generally provides that all interests created in a will (or by some other instrument such as a trust deed) are retained no later than 21 years after a certain lifetime Origin of interests must be transferred (ie in the case of a will upon the death of the testator). Many states have changed this rule and some have abolished it altogether.

4.5 Which formal requirements must be observed when drawing up a will?

The formal requirements applicable to US wills generally apply to their execution, not to their drafting. These rules differ from state to state, but in general, to be validly executed, a will must be in writing and signed by the testator in the presence of disinterested witnesses.

4.6 What best practices should be followed when drawing up a will to ensure its validity?

See question 4.5.

4.7 Can a will be changed after the testator's death?

Generally no.

4.8 How are wills challenged in your jurisdiction?

The laws that regulate competitions of will are country-specific. In principle, only those persons who are related to the testator and would have received the testator's estate without the will or who were named in an earlier will can be challenged. In most cases, to set aside a will, participants will need to prove:

  • the testator was coerced or cheated into signing the will or had reduced mental capacity at the time of signing; or
  • the will was improperly executed.

4.9 Which rules of intestacy apply in your jurisdiction? Can these rules be challenged?

Intestacy rules cannot be challenged. See question 3.4 for a discussion of inheritance laws.

5 trusts

5.1 Which laws regulate trusts or equivalent instruments in your jurisdiction? Can trusts be subject to the laws of another jurisdiction?

The laws governing the establishment, interpretation and administration of trusts are country-specific. Trusts may be subject to the laws of another jurisdiction if so stated in the document governing the trust (subject to the public policy restriction discussed in question 5.2).

5.2 How are legal conflicts resolved?

In general, the document governing a trust may order that the law of a jurisdiction applies to the trust, and this governing law clause will take effect unless it conflicts with the “strong public order” of the jurisdiction with the most significant relationship on the matter in question.

5.3 What different types of structures are there and what are the advantages and disadvantages of each from the private customer's point of view?

Trusts can be either revocable or irrevocable. The main advantage of the revocable trust is that the assets in the trust remain fully under the control of the trustee – he can change or revoke the trust at any time and thus return the trust assets to his personal property. For this reason, revocable trusts are often used as substitutes for wills. The main disadvantage of the revocable trust is that the settlor is still treated as the owner of the trust for U.S. income and transfer tax purposes and therefore revocable trusts are not effective tax minimization tools during the settlor's lifetime (although once they become irrevocable) upon the death of the settler, they become tax planning tools and are often used as such).

The main benefit of irrevocable trusts is that they can be used for lifelong tax planning (e.g., to effectively take advantage of a taxpayer's gift, inheritance and / or GST exemptions; to minimize transfer taxes due on the taxpayer's death ; and enable income tax planning). The main disadvantage of irrevocable trusts is that the taxpayer must give up control of the trust's assets in order to be considered irrevocable for tax purposes.

5.4 Are foreign trusts recognized in your jurisdiction? If so, how is this being done?

Foreign trusts are recognized for US income tax and transfer tax purposes. For US income tax purposes, a "foreign trust" is defined as a trust through which either:

  • no US court has primary jurisdiction; or
  • no US citizen or resident has the power to control all material decisions.

Transfers to overseas trusts are subject to transfer tax to the same extent as any other transfer. Income from foreign trusts is taxable with the settlor if:

  • the settler is a US citizen or resident; and
  • the trust has or could have at least one beneficiary who is a US citizen or resident.

Foreign trusts that are not taxable with a U.S. settlor are taxed only on certain U.S. source income and income related to any U.S. trade or business. However, U.S. citizens or residents who receive distributions from overseas trusts are responsible for paying U.S. income tax on the current year's trust income included in the distribution and may be subject to additional tax plus interest on the prior year's trust income included in the distribution . Calculating the beneficiary's tax in these situations requires a complicated process; accordingly, a tax advisor should be consulted whenever a US citizen or resident receives a distribution from a foreign trust.

5.5 How are trusts created and managed in your jurisdiction?

The laws governing the formation and administration of trusts are state-specific (although 34 states have adopted a version of a uniform model law known as the Uniform Trust Code). In general, the following must be given in order to create a trust:

  • Intention of the settlor to set up a trust;
  • identifiable beneficiaries who can enforce the trust; and
  • certain assets held in trust.

If the trust is a will or will hold real estate, the trust must generally be in writing in order to comply with legal requirements relating to wills and property transfers; Lifetime trusts that hold personal property can generally be formed orally (although it is not advisable).

5.6 What are the legal obligations of trustees in your jurisdiction?

The legal duties placed on trustees are country-specific, but some of the main fiduciary duties placed on trustees in general are:

  • the duty of loyalty (ie the duty to manage the trust solely in the interests of the beneficiaries);
  • the duty of impartiality (ie the duty to act impartially in the investment, management and distribution of the trust assets, with due regard to the respective interests of the beneficiaries);
  • due diligence (which imposes an objective standard of care on the trustee so that the trustee is required to manage the trust like a prudent person); and
  • other duties related to due diligence, such as:

    • the duty to collect and protect trust assets and to separate the trust assets from the trustee's own funds;
    • the obligation to keep adequate administrative records;
    • the duty to assert and defend against claims; and
    • the information and accountability to the beneficiaries.

5.7 Which tax regulations apply to trusts in your country? How does this affect settlers, trustees and beneficiaries?

The Internal Revenue Code, like many state laws, contains income and transfer tax regulations that apply to trusts. For income tax purposes, certain trusts (called grantor trusts) are taxed entirely by their trustees, while others are taxed according to a hybrid structure in which some trust income is taxed at the trust level while other income is taxed by the beneficiaries. The distinction between grantor and non-grantor trusts depends on the following factors:

  • the identity of the trustee;
  • the trustee's marketing authorization; and
  • the powers that the settlor retains over the trust.

In addition, many states impose income taxes on trusts and beneficiaries, which can be levied based on factors such as:

  • the residence of the settler;
  • the residence of the trustee;
  • the residence of the beneficiaries; and or
  • the location of the trust assets.

Therefore, both state and state income taxes must be considered in establishing and running a trust.

When establishing a trust, transfer taxes must be taken into account (as these transfer taxes are imposed on the settlor or the estate of the settlor in the case of transfers in the event of death); and transfer taxes must also be taken into account when distributing trusts, as certain distributions may be subject to cross-generational transfer tax on the beneficiary receiving the distribution.

See question 5.4 for a general discussion of tax rules for foreign trusts.

5.8 What reporting requirements apply to trusts in your jurisdiction?

The tax reporting requirements for trusts are state-specific. In addition, many irrevocable trusts are required to file Form 1041 to report their income annually. Grantor trusts tax items are generally reported on the settlor's Form 1040. Foreign trusts report their US income on Form 1040-NR.

Testament trusts may be required to report regularly to the probate court that administers the estate for which the trust was established.

With respect to foreign trusts, a U.S. citizen or resident who establishes or transfers money or property to a foreign trust, or who loans a foreign trust, receives distributions from a foreign trust who receives gratuitous use of the property of a foreign trust Loans received from a foreign trust or treated as the US owner of a foreign trust must file an annual disclosure statement on Form 3520. Additionally, overseas trusts treated as owned by US Citizens or Residents (ie, overseas grantor trusts) must submit an annual information return on Form 3520-A.

5.9 What are the best practices for establishing and managing trusts?

The rules governing the establishment of trusts should be followed and trustees should be extremely vigilant in performing their fiduciary duties. In addition, clients and advisors should carefully consider the selection of trustees and the tax consequences of establishing and managing trusts in certain jurisdictions (discussed in question 5.7).

6 trends and predictions

6.1 How would you describe the current private customer landscape and the prevailing trends in your country? Are there any new developments to be expected in the next 12 months, including proposed legislative reforms?

From a transfer tax perspective, the current landscape is possibly the most legislatively favorable one that has existed since the US federal transfer taxes were introduced about 100 years ago because:

  • the high allowances (which, according to current law, should be reduced significantly after 2025); and
  • the fact that tax rates are lower than in the past.

Income tax rates are also lower than in recent years.

Under the new Biden administration, greater emphasis could be placed on raising tax rates and reforming the tax system to make it more progressive. At the time of this writing, a number of tax proposals have been submitted to the US Congress, but it remains to be seen whether any of them will gain the traction needed to be lawful.

7 tips and traps

7.1 What are your most important tips for effective wealth management for private clients in your jurisdiction and which potential sticking points would you highlight?

The US tax and escrow systems are complex, with a patchwork of different laws across the country and many pitfalls for the unwary. When analyzing tax considerations and planning trust structures, it is very important to hire a professional who is familiar with the laws of the particular state or locality you are considering and qualified to act under them. For individuals considering settling in the United States, substantial planning may be made in advance of income during the period in which the individual is considered a US resident for income and / or gift purposes – and inheritance tax is considered to shield you from taxation. Establishing specialized trusts prior to entering the United States, purchasing private placement life insurance, and transferring assets to individuals who remain outside of the U.S. tax network are all possible avenues that you will consider in your talks with a knowledgeable advisor Should consider.

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