Michelmores has significant expertise when it comes to estate planning and drafting Wills for individuals with connections to both the UK and the US. This is a complex area due not only to the very different tax regimes that operate in the UK and the US, but also the contrasting approach to estate planning generally.
It is very common for individuals with assets in the US to establish a lifetime revocable grantor trust as the cornerstone of their estate planning. This trust is created in place of a Will, and bypasses the need to obtain probate in the US, saving both time and money.
Whilst effective from a US planning perspective, care needs to be taken by individuals who have a UK element to their affairs, as illustrated by the case study below.
Mrs Smith was a British ex-pat who had been living in San Francisco for many years. She made a US revocable grantor trust over her US assets in 2010. Over a decade later, and three months prior to her death, the trust was amended by her US adviser and re-stated to include her UK assets, which consisted of a property and a bank account. UK advice was not taken. If it had been, Mrs Smith would have been strongly encouraged not to add her UK assets to her US revocable grantor trust.
Following Mrs Smith’s death, UK advice was finally sought. It was then necessary to establish whether the US revocable trust was a settlement or a bare trust for UK tax purposes. If it was held to be a settlement, it would be subject to UK Inheritance Tax reporting requirements, which had not been met. If it was a bare trust, the question arose as to whether the trust deed (as amended) could be treated as a testamentary document under English law and be submitted for probate in the ordinary way.
Mrs Smith had not made a Will and, therefore, if the trust deed was not regarded as a testamentary document, she would be regarded to have died intestate in relation to her UK property. Californian succession law would dictate the position in relation to her moveable assets (including her UK bank account), but English law would apply to her UK immoveable assets. This would have resulted in the wrong people inheriting under the UK intestacy rules, and not who the deceased wanted to benefit as provided for in the trust deed.
Fortunately, in this case, the US revocable trust was found to be both a bare trust and could be treated as a testamentary document. We are currently in the process of obtaining probate to it, but things could have worked out very differently if, for example, the re-stated trust had not been signed in the presence of two independent witnesses.
This case highlights how important it is to obtain proper advice at the outset. If you have any concerns about an existing revocable grantor trust, or if you are looking at putting one in place, please contact James Frampton. For queries in relation to obtaining UK Probate for US testamentary documents to enable the UK estates of US citizens to be administered and collected in, please contact Caroline Alexander.
