Securing the Transference of UK Property to Your American Heir: Steps to Guarantee Succession
Her four-year-old son is autistic, and she wants to ensure he can inherit from his UK grandmother's estate. However, they're dealing with a complex situation involving multiple countries and checkpoints, as well as her son's special needs.
The estate consists of a house worth £1.3million, a storefront with a flat above it valued at £1.1million, and two flats worth £1million together. The mother resides in the US, but her son is a dual citizen of both the UK and US. The estate is in her mother's name, who is currently revising her estate planning.
The storefront and flat above it are under a limited company fully owned by the ex-mother-in-law, further complicating the situation. The question is whether the UK provides protections for disabled individuals in estate planning, and if the mother can find a way to secure her son's future.
Jessica Cook, a private client adviser at AES International, offers some insights. She suggests a Vulnerable Person's Trust (VPT) could be a helpful solution for safeguarding her son's long-term needs. This type of trust offers asset protection, preserves entitlement to means-tested benefits, and provides favorable inheritance tax (IHT) treatment.
In a Vulnerable Person's Trust, gifts are treated as Potentially Exempt Transfers (PETs), thus avoiding an immediate 20% lifetime tax charge. The trust mainly benefits the son, allowing it to maintain its special status, and upon his death, assets in the trust may attract IHT.
However, it's crucial to set up the trust carefully to avoid unexpected US tax or reporting issues due to her son's dual citizenship. Additionally, the family home and additional flats will always remain within the UK IHT net as UK-situs assets. To minimize IHT, it may be more tax-efficient to place a qualifying business asset into a Vulnerable Person's Trust instead of the family home.
It's essential to seek advice from a UK solicitor or adviser who specializes in trusts for vulnerable beneficiaries and cross-border planning before making any decisions. Geraint Davies, managing director and financial adviser at Montfort International, emphasizes that this is not a do-it-yourself case and recommends a family meeting to discuss their overall strategy, factoring in the rules of all involved countries.
A successful estate plan will accommodate various needs, ensure legal compliance, and provide long-lasting care for the son. By combining a Vulnerable Person's Trust, optimization of the Residence Nil-Rate Band (RNRB), and professional cross-border guidance, the mother can ensure compliance and care continuity for her autistic child.
- Given her son's special needs and the complexity of the estate, which consists of properties worth over £3.5 million in Dorset, it's essential to find a financial solution that safeguards his future.
- A Vulnerable Person's Trust (VPT) could be a viable option for protecting her son's long-term needs, offering asset protection, benefit preservation, and beneficial inheritance tax treatment.
- In a VPT, gifts are treated as Potentially Exempt Transfers (PETs), allowing the trust to maintain its special status while avoiding an immediate 20% lifetime tax charge.
- However, due to her son's dual citizenship, setting up the trust carefully is crucial to avoid any unexpected US tax or reporting issues.
- The family home and additional flats will always remain within the UK IHT net as UK-situs assets. To minimize IHT, it may be more tax-efficient to place a qualifying business asset into a VPT instead of the family home.
- Seeking advice from a UK solicitor or adviser who specializes in trusts for vulnerable beneficiaries and cross-border planning is crucial before making any decisions. Combining a VPT, optimization of the Residence Nil-Rate Band (RNRB), and professional cross-border guidance can ensure compliance and care continuity for the autistic child.
