Case Study – Michelmores advising US clients

Michelmores provides estate planning advice for a number of clients who have connections with the US. A common scenario involves a married couple where one spouse is a US citizen and the other a non-US citizen. 

We recently advised a wealthy couple in this situation who had drafted Wills some time ago without any US/UK joined up estate planning. The Wills left all assets to the surviving spouse outright with gifts in substitution to children at the age of 25, with potentially disastrous tax implications. As matters stood, although there would have been no charge to UK inheritance tax on the first death, there could have been a charge to US Estate Duty. This situation would have led to the full use of the US citizen spouse's Estate and Gift Exempt Amount of €5.45m when the assets were transferred to the surviving spouse, together with a charge to US Estate Duty on the value of the balance. This is extremely unattractive because there would be no ability to offset the US taxes against UK taxes under the relevant double tax treaty, and then there would have been a further exposure to UK inheritance tax on the surviving spouse's subsequent death.

We therefore worked closely with US advisors to incorporate provisions into the US citizen spouse's Will, in order to defer any charges to US tax until the death of the survivor of them and thereby avoiding any form of double taxation.

Our advice also dealt with potentially adverse tax consequences for the US spouse in respect of any future sale of the matrimonial home, and how this exposure could be eliminated so that there would be no charge to either US or UK capital gains tax on any future sale of the property.