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03 December 2001
Changing a foreign will
I have a client whose husband has recently died leaving about US$500,000 in his will. After various bequests, the balance of about US$320,000 goes to my client. The husband was resident, ordinarily resident and domiciled in the United States whereas my client and her children are decidedly English.
I have a client whose husband has recently died leaving about US$500,000 in his will. After various bequests, the balance of about US$320,000 goes to my client. The husband was resident, ordinarily resident and domiciled in the United States whereas my client and her children are decidedly English.
Changing a foreign will
I have a client whose husband has recently died leaving about US$500,000 in his will. After various bequests, the balance of about US$320,000 goes to my client. The husband was resident, ordinarily resident and domiciled in the United States whereas my client and her children are decidedly English.
My client wishes to make a deed of variation to transfer this amount to her two children (both adults) as her estate will fill up the nil rate band of inheritance tax and this additional amount will become a potentially exempt transfer if given by her. She is in her late seventies and does not wish to saddle the children with inheritance tax should she not survive the seven years.
Do readers know if there is an equivalent action that can be taken to change a United States will in a similar way to a deed of variation in the United Kingdom? Or is there an alternative way of dealing with this so as to be effective for United Kingdom inheritance tax purposes in relation to my client?
(Query T15,921) – Gara.
'Gara's' client is clearly domiciled in the United Kingdom and as such is liable to inheritance tax on her world-wide assets. (Since 1 January 1974 under the Domicile and Matrimonial Proceedings Act 1973 a married woman can have a domicile independent from her husband's.)
It is not a question of finding 'an equivalent action that can be taken to change a United States will'. The husband was apparently non-domiciled with assets outside the United Kingdom and therefore these assets were excluded property under section 48, Inheritance Tax Act 1984, i.e. not liable to inheritance tax.
The widow can just do a standard deed of variation under section 142, Inheritance Tax Act 1984 (and also for capital gains tax under section 62, Taxation of Chargeable Gains Act 1992) whereby the inheritance tax excluded property is redirected down to the children – as if the deceased had done this in his will.
After all, this is similar to what happened in Marshall v Kerr [1994] STC 638. In order to avoid a risk of capital gains tax liability as settlor, for example under sections 77, 78 and 86, Taxation of Chargeable Gains Act 1992, the variation should be by way of absolute redirection, and not via trusts: this seems to be what is intended in any case.
The requirements of sections 142 and 62 should be carefully observed, for example the two-year period and giving notices to the Capital Taxes Office and the appropriate tax district within six months. – Piece O'Cake.
'Gara' wishes to know if there is anything in the United States legal structure that equates to the English 'deed of variation'.
'Gara' must first determine which State jurisdiction governs the will in question – there is no United States (federal) law dealing with the interpretation and administration of wills – rather each of the fifty states has its own law. (Virtually all state statutes are available on the Web.)
Generally, the individual states do not allow a beneficiary under a will to 'restructure' the provisions of a will. However, most state statutes allow beneficiaries to 'disclaim' a benefit under a will. If a benefit is 'disclaimed', the beneficiary is generally treated as having 'predeceased' the testator. The benefits then pass under the will based on this assumption. If the disclaimed interest is part of a 'residuary' interest, the disclaimed interest will normally pass under the relevant state's intestate statutes. The disclaimer statutes normally require the disclaimer to be filed within a specified time period – normally nine months.
As readers may know, the United States imposes a transfer tax (the Estate and Gift Tax) on lifetime gifts and transfers of property at death. The United States rules are very broadly speaking similar to the United Kingdom's inheritance tax. For purposes of the United States transfer tax system, a 'disclaimed' transfer is not treated as a 'gift' by the disclaimant and thus no transfer tax is due. However, a transfer of property under a 'deed of variation' may be considered similar to a transfer under a general power of appointment and subject the transferor to United States transfer tax. (There are considerable lifetime exemptions available to transfers by United States citizens and residents, so that a specific transfer may not actually result in a tax obligation. However, these rules do not generally apply to gifts of United States property by non-resident aliens. Each case should be reviewed.) – Andrew.
Extract from reply by 'Robin Hood':
The matter can be made entirely one of United Kingdom tax by ensuring that what happens is outside the territorial limits of United States tax and explicitly inside the territorial limits of United Kingdom tax. The estate of the United States deceased is not really involved in what is going to happen. Underneath it all, the widow, a United Kingdom domiciliary presumably, will be making a gift of US$320,000 to her children. If the combination of United Kingdom domicile and US$320,000 would have any impact on her in the United States, then presumably she should simply bring the US$320,000 out of the United States and/or into the United Kingdom. The client can simply proceed with a deed of variation for United Kingdom tax purposes and forget any United States considerations. Underneath it all, it will be her gift unconnected with the estate.
I have a client whose husband has recently died leaving about US$500,000 in his will. After various bequests, the balance of about US$320,000 goes to my client. The husband was resident, ordinarily resident and domiciled in the United States whereas my client and her children are decidedly English.
My client wishes to make a deed of variation to transfer this amount to her two children (both adults) as her estate will fill up the nil rate band of inheritance tax and this additional amount will become a potentially exempt transfer if given by her. She is in her late seventies and does not wish to saddle the children with inheritance tax should she not survive the seven years.
Do readers know if there is an equivalent action that can be taken to change a United States will in a similar way to a deed of variation in the United Kingdom? Or is there an alternative way of dealing with this so as to be effective for United Kingdom inheritance tax purposes in relation to my client?
(Query T15,921) – Gara.
'Gara's' client is clearly domiciled in the United Kingdom and as such is liable to inheritance tax on her world-wide assets. (Since 1 January 1974 under the Domicile and Matrimonial Proceedings Act 1973 a married woman can have a domicile independent from her husband's.)
It is not a question of finding 'an equivalent action that can be taken to change a United States will'. The husband was apparently non-domiciled with assets outside the United Kingdom and therefore these assets were excluded property under section 48, Inheritance Tax Act 1984, i.e. not liable to inheritance tax.
The widow can just do a standard deed of variation under section 142, Inheritance Tax Act 1984 (and also for capital gains tax under section 62, Taxation of Chargeable Gains Act 1992) whereby the inheritance tax excluded property is redirected down to the children – as if the deceased had done this in his will.
After all, this is similar to what happened in Marshall v Kerr [1994] STC 638. In order to avoid a risk of capital gains tax liability as settlor, for example under sections 77, 78 and 86, Taxation of Chargeable Gains Act 1992, the variation should be by way of absolute redirection, and not via trusts: this seems to be what is intended in any case.
The requirements of sections 142 and 62 should be carefully observed, for example the two-year period and giving notices to the Capital Taxes Office and the appropriate tax district within six months. – Piece O'Cake.
'Gara' wishes to know if there is anything in the United States legal structure that equates to the English 'deed of variation'.
'Gara' must first determine which State jurisdiction governs the will in question – there is no United States (federal) law dealing with the interpretation and administration of wills – rather each of the fifty states has its own law. (Virtually all state statutes are available on the Web.)
Generally, the individual states do not allow a beneficiary under a will to 'restructure' the provisions of a will. However, most state statutes allow beneficiaries to 'disclaim' a benefit under a will. If a benefit is 'disclaimed', the beneficiary is generally treated as having 'predeceased' the testator. The benefits then pass under the will based on this assumption. If the disclaimed interest is part of a 'residuary' interest, the disclaimed interest will normally pass under the relevant state's intestate statutes. The disclaimer statutes normally require the disclaimer to be filed within a specified time period – normally nine months.
As readers may know, the United States imposes a transfer tax (the Estate and Gift Tax) on lifetime gifts and transfers of property at death. The United States rules are very broadly speaking similar to the United Kingdom's inheritance tax. For purposes of the United States transfer tax system, a 'disclaimed' transfer is not treated as a 'gift' by the disclaimant and thus no transfer tax is due. However, a transfer of property under a 'deed of variation' may be considered similar to a transfer under a general power of appointment and subject the transferor to United States transfer tax. (There are considerable lifetime exemptions available to transfers by United States citizens and residents, so that a specific transfer may not actually result in a tax obligation. However, these rules do not generally apply to gifts of United States property by non-resident aliens. Each case should be reviewed.) – Andrew.
Extract from reply by 'Robin Hood':
The matter can be made entirely one of United Kingdom tax by ensuring that what happens is outside the territorial limits of United States tax and explicitly inside the territorial limits of United Kingdom tax. The estate of the United States deceased is not really involved in what is going to happen. Underneath it all, the widow, a United Kingdom domiciliary presumably, will be making a gift of US$320,000 to her children. If the combination of United Kingdom domicile and US$320,000 would have any impact on her in the United States, then presumably she should simply bring the US$320,000 out of the United States and/or into the United Kingdom. The client can simply proceed with a deed of variation for United Kingdom tax purposes and forget any United States considerations. Underneath it all, it will be her gift unconnected with the estate.
