Seeking to Secure UK Family Home Inheritance for US-Residing Son: What are the Required Steps?
Rewritten Article:
Navigating Complexities: A UK-based single mom needs a strategy to ensure her autistic son can inherit from his British grandmother
Sally, a mom of an autistic four-year-old son who is both a UK and US citizen, comes to us with a unique issue. She's living in the US, while her son's father resides in the UK. The estate, which includes properties worth approximately £3.5 million, is in her mother's name. Sally wishes her son to inherit the family house somehow, but the inheritance tax bill is an obstacle they can't afford.
With thoughtful planning, we aim to provide some guidance for Sally to establish the best possible future for her son.
As Harvey Dorset, of This is Money, explains, this case isn't straightforward. The involvement of two separate countries creates intricate pitfalls, making it essential to explore options carefully.
One such option is the establishment of a Vulnerable Person's Trust, suggested by Jessica Cook, of AES International. This trust type is specifically designed to protect the interests of disabled individuals under the UK law, prioritizing asset preservation, means-tested benefits safeguarding, and favorable inheritance tax treatment to facilitate the long-term well-being of disabled beneficiaries, like Sally's son.
A Vulnerous Person's Trust has several tax advantages: gifts into the trust are treated as Potentially Exempt Transfers (PETs) – thereby avoiding the immediate 20% lifetime tax charge – and death taxes may be waived, albeit it's not guaranteed and could be subject to taper relief over time. Additionally, such a trust keeps its special status as long as it mainly benefits the child, with small amounts allowed for others.
Non-resident, disabled individuals, even if they cannot claim UK benefits, may also meet the requirements for Vulnerable Person's Trust eligibility based on their circumstances, medical evidence, and support received. It's essential to understand that the trust's structure must be tailored carefully to minimize potential US tax and reporting issues due to Sally's son's dual citizenship.
With the estate containing various assets like the family home, shops, and flats, some of them may qualify for business relief, potentially removing their value from inheritance tax calculations if the company is actively trading rather than being a property investment firm. Ultimately, the family home and other flats will remain in the UK inheritance tax net as UK-situs assets. It may be more tax-efficient to place a qualifying business asset into a Vulnerable Person's Trust than the family home.
Consulting a UK solicitor or adviser who specializes in trusts for vulnerable beneficiaries and cross-border planning is vital to navigating this complex situation. Comprehensive planning steps initiated now can pave the way to a more secure future for Sally's son.
Geraint Davies cautions against attempting to handle this intricate case alone, as the presence of trusts, beneficiaries, and guardians in multiple countries can create complexities. He recommends a family meeting to discuss everyone's objectives, especially since the grandmother is making estate planning revisions at present. Moreover, Geraint suggests discussing financial strategies like paying the inheritance tax installments in the UK, as well as investigating double taxation treaties between the UK and USA to avoid double taxation.
Taking professional advice promptly, before the grandmother's estate planning revisions are finalized, is of utmost importance. All parties must be prepared to modify their expectations based on the prevailing rules and circumstances to ensure that the estate is optimally planned for the security and well-being of the young autistic boy.
- To secure the best possible future for her son, Sally might consider establishing a Vulnerable Person's Trust, as it offers protection for disabled individuals under UK law, with advantages such as favorable inheritance tax treatment, asset preservation, and means-tested benefits safeguarding.
- Navigating this complex case requires careful consideration, given Sally's son's dual citizenship and the estate's diversified assets, including properties, shops, and flats. A UK solicitor or adviser who specializes in trusts for vulnerable beneficiaries and cross-border planning should be consulted.
- It's essential for Sally to understand that various financial strategies can be employed, such as paying inheritance tax installments in the UK and investigating double taxation treaties between the UK and USA to avoid double taxation. A family meeting to discuss everyone's objectives, especially with the grandmother's estate planning revisions, is also advised.
