Your estate is generally exempt from Fed estate tax if it's under $13.61M single (presuming the survivor of your marriage is the the one person owning all assets going to heirs); if it's over that your estate pays estate taxes to the IRS regardless of citizenship of heirs. After estate taxes and all other debts/income is settled by the executor, the residual value of the estate goes to your heirs as determined in your will. This excludes beneficiary designations and trust accounts that bypass the will and its associated court probate; those go straight to whoever you designated (or per the instructions of the trust). Then there is the matter of State-level estate tax, which varies widely by state as one my guess, the state where the last survivor of your marriage was resident is the estate rule that will apply.My wife and I are U.S. residents/citizens. Our daughter, who is a UK citizen, would receive half our estate after our deaths, while the other half would go to our son, a US citizen. What are the estate tax implications in this situation - from a US and UK tax points of view? Thanks.
Your son under US rules will generally owe no estate taxes, which were paid by the estate's executor (both Fed & State) before distribution to heirs, or the estate was small enough to be under the estate tax exemption. If your son inherits Taxable account assets with a basis, that basis will be stepped up to the market value on the date of death. If your son inherits Tax-Deferred account assets (e.g., Trad IRA), he will have 10 years, beginning the year after the year of death, to empty those accounts and will pay ordinary income tax at his then marginal rate. If your son inherits Tax-Free account assets (e.g., Roth IRA), the 10-year rule still applies, but withdrawals are tax-free.
Your daughter's situation is less clear, although gov.uk says "Your executor might be able to reclaim tax through a double-taxation treaty if Inheritance Tax is charged on the same assets by the UK and the country where you lived." That same UK gov't page also says "[Inheritance tax is] not paid on ‘excluded assets’ like: foreign currency accounts with a bank or the Post Office; overseas pensions; and holdings in authorised unit trusts and open-ended investment companies"
It's probably best to consult an estate attorney that is familiar with the specific inheritance of foreign assets by a UK citizen (e.g., your daughter inheriting your foreign [US] assets), because the inheritance tax threshold in the UK is only £325K ($425K USD). That might be an attorney in the UK rather than in the US.
We had a similar query for our estate attorney as our kids are Canadian citizens. Our attorney's initial suggestion of a trust to avoid probate and get the assets to our kids quickly and with minimum fuss was turned around 180 degrees when it was discovered that Canadians inheriting from a US Trust account have their assets treated as fully taxable income (no basis step up, no recognition of tax-free accounts, no break of any kind), but inheriting plain Taxable and IRA accounts through a will was a non-taxable event. So we're using a will and our kids will have to wait a year or more for probate on the Taxable account, but that will minimize the Canada Revenue Agency's bite out of their inheritance. The IRAs have beneficiaries and go directly to them without probate, but we're still figuring out how they claim since they can't just open an account with Vanguard as they live outside the US (but that's what Vanguard asks beneficiaries to do; create an online account).
Statistics: Posted by bonesly — Tue Sep 10, 2024 5:44 pm — Replies 1 — Views 72