What are the inheritance rules in the USA for succession and tax?
The inheritance rules in the USA are different to the UK, or most European countries – and it can be easy forget these issues when you’ve a million and one things to sort! However, it’s crucial to plan ahead, particularly if you’re purchasing property. Laws differ from state to state, and even within states, so do make sure to inquire with your lawyer to check for your circumstances – we have a form below to submit your requirements.
What is the process of drawing up a will in the US?
Your will usually will typically be drawn up by an attorney after meeting a client. As well as a lawyer, you’ll usually need to involve a notary to get signatures on the will and accompanying documents authorised.
What are the fees for a will?
Fees really depend on the individual situation, but could be around $1,000 to draft a complete will.
What are the default inheritance rules in the USA?
These rules change between different states, but we’ll look at the rules in Florida, as one of the most popular places for overseas buyers.
What are the intestate rules?
In Florida, as elsewhere, if you don’t have a will, then you’re considered to have passed away ‘intestate’, and the following happens to your estate.
If you have no children, grandchildren, great-grandchildren and so on, your estate passes to your surviving spouse. If there are surviving children, grandchildren, etc, and they’re the children of both you and your surviving spouse, and neither of you have children from other relationships, then the estate still goes to your spouse.
If you do have children from other relationships, it’s split between them and your surviving spouse.
From then on, if there’s no surviving spouse, the estate passes to children, grandchildren and so on. If there are no descendants, it goes back up to parents, grandparents, siblings, aunts, uncles…
How much can I change these rules in my will?
In the UK, it’s generally easy to change inheritance at will. In Florida, 30% of the estate must go to the surviving spouse – they can’t be disinherited. Nor can minor children, but adults can be left out. Equally, you can leave your estate to anyone else you wish.
What is the usual process to challenge a will in the USA?
A personal must file a lawsuit in court to contest a will. There are generally four grounds for contesting:
- The will wasn’t signed with the proper legal formalities
- The deceased lacked the mental capacity to make a will
- The deceased was unduly influenced into making a will
- The will was procured by fraud.
What are the taxation inheritance rules in the USA?
Even if some states, like Florida, don’t have estate tax, you may still owe the federal estate tax. This kicks in at $11.18 million in 2018. The federal estate tax exemption is portable for married couples: if a married couple takes the right legal steps, which your lawyer can advise you on, they can have an exemption of up to $22.36 million after both spouses have passed away. If the estate exceeds that amount, the top tax rate is 40% (the lowest is 18%).
What are the rules surrounding gifts? Do they need to be made with a certain time limit? Any thresholds or upper limits?
Again, some states, like Florida, have no gift tax. However, the federal government enforces one.
Everyone has an annual gift tax exclusion. This is the amount you can transfer to any individual without paying taxes. That level is $15,000 for 2018 and 2019. This applies per person, per year. So, you can give your son, daughter and nephew a gift of $15,000 each in 2018 and 2019 without
worrying about any gift taxes.
But even if you go over that limit for one particular person, it doesn’t mean you’d have to pay a gift tax with money out of your own pocket. However, you’d have to report the gift under IRS Form 709: the United States Gift (and Generation-Skipping Transfer) Tax Return.
The IRS (Internal Revenue Service) requires this to keep track of how you use up your lifetime gift and estate tax exemption. For 2018 the lifetime gift and estate tax exemption is $11.18 million for and for 2019 is $11.40.
Is it possible to set up a trust to minimise taxation? Is it possible to have trustees or beneficiaries who are not resident in the US?
The trust inheritance rules in the USA vary from state to state and by individual circumstance, so it’s best to get advice from a qualified lawyer.
What are the special considerations about inheritance rules in the USA if you’re from overseas?
You’ve got a number of key areas to consider.
If you’re not domiciled in the US, do you have different tax rules?
Individuals who aren’t domiciled in the USA can be subject to US estate tax. However, their estates are subject to estate tax only on their US assets – not worldwide assets. That does mean, however, that their exemption is not $11.18 million, but $60,000.
Individuals domiciled in the US have significant advantages over residents of other countries due to the favourable provisions of the UK and USA’s tax treaty. This provides that the estate tax imposed in the US on a domiciliary of the UK shall be limited to the estate tax that would have been imposed if the deceased had been domiciled in the US immediately before his death. For example, if the worldwide estate of the UK resident was valued at $11.18 million or less at the date of death, the US estate tax would be zero – regardless of the value of the US assets in relation to the value of assets outside the US.
Do you need to file a tax return for estate tax?
Yes, even if no tax is due, an estate tax return is required if the value of assets in the US exceeds $60,000 at the date of death.
We discuss inheritance tax and how it might affect you when you purchase property in the USA.
When you have a million and one jobs to tackle prior to your exciting move, it’s easy to forget issues like succession laws, inheritance tax, and how they can affect you once you’ve made the move or completed on a purchase.
How these issues will affect you depends upon your individual circumstances. As it’s vitally important that you know where you stand and that you take the right steps to protect the interests of your loved ones, we recommend consulting both an independent lawyer, and a financial advisor.
How these issues will affect you depends upon your individual circumstances.
UK Inheritance Tax
The amount of inheritance tax that will be charged on the assets will depend on where the deceased was domiciled. For tax purposes ‘domiciled’ means the country that you call home on a permanent basis. Therefore:
- If you’ve purchased property in the US but you only use it for holidays, you will be considered domiciled in the UK
- If you move to the US, but plan to return to the UK at some stage, you will remain domiciled in the UK
- If you are considered domiciled overseas, inheritance tax will only be charged on your UK assets
- If you are living abroad, but are considered ‘domiciled’ in the UK, UK inheritance tax will be charged on your worldwide assets
Download your free copy of the USA Property Guide for a more exhaustive guide of how things work today.
Inheritance Tax thresholds
Inheritance tax is charged at 40% on the amount you leave behind over the value £325,000 if you are single/divorced, and over £650,000 if you are married, in a civil partnership, or are widowed. This threshold will remain frozen until 2019.
Transfers between spouses
Should both spouses be considered domiciled in the UK, transfers between them are exempt from inheritance tax. If one partner is not domiciled in the UK, but the other is, there is a limit of £55,000 on the amount that can be transferred between the pair tax-free.
Ensuring your assets go to the right people
To ensure complete peace of mind that your assets will go to the right people should you pass away, you need to draw up a will in the United States. You should do this as soon as you arrive. Get in touch with our recommended lawyer here.
There are certain steps that you can take to maximise the value of the estate that has been left to you.
Maximise the value of your estate through currency planning
Although there isn’t anything you can do to avoid being taxed on your inheritance, there are certain steps that you can take to maximise the value of the estate that has been left to you. A currency exchange specialist could secure you a favourable exchange rate, and help you avoid banking fees and charges on your international transfers. To learn more about how Smart Currency Exchange can help you save money on your inheritance, get in touch today.