US/UK Estate Planning 2 – Living Trusts (We’re The Brits In America S1:E28)

Do you know enough about living trusts? They’re a tax-neutral and effective tool in the US to avoid probate – BUT they can have severe UK tax implications for UK domiciliaries. Probate can be time-consuming, costly and cumbersome – especially in New York and California – so it makes sense to avoid if you can.

To explore the options Richard is joined once again by Aidan Grant, a senior associate at Collyer Bristow LLP.

The use of a living trust can trigger significant inheritance tax liabilities in the UK. Transferring assets into such a trust can result in an immediate 20% inheritance tax charge on the value exceeding the UK’s nil-rate band (£325,000). It’s definitely something to be aware of.

Plus, practical steps and considerations for domiciles.

We’re the Brits in America is affiliated with Plan First Wealth LLC, an SEC-registered investment advisor. The views and opinions expressed in this program are those of the speakers and do not necessarily reflect the views or positions of Plan First Wealth.

Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Plan First Wealth does not provide any tax and/or legal advice and strongly recommends that listeners seek their own advice in these areas.

About Richard

Richard Taylor is a British expat, dual citizen (UK & US). Originally from Bolton, he now lives in Greenwich, CT, where Plan First Wealth has its head office.

As the firm’s leader, Richard launched Taylor & Taylor, now Plan First Wealth, and continues to fuel the firm’s growth. Richard is a Chartered Financial Planner (UK – CII) in addition to holding the IMC (CFA UK) and Series 65 (US – FINRA).

Connect with Richard on LinkedIn

About Aidan

Aidan Grant is a Senior Associate at Collyer Bristow in London in the Tax & Estate Planning team, specializing in a wide range of private client tax matters and with a particular focus on US/UK cross-border advice.

He also was qualified in September 2016 and became a member of the Society of Tax and Estate Practitioners in 2019.

Connect with Aidan on LinkedIn

Transcript:

Aidan Grant:
[00:00:05 – 00:00:20]
The reason why using a living trust is so useful and good in America is that the whole exercise is an entirely tax neutral exercise. Why wouldn’t you take this swing at avoiding probate when it comes at no tax cost to you?

Richard Taylor:
[00:00:25 – 00:02:05]
Welcome to the we’re the Brits in America podcast, a planned first wealth podcast for Brits in America by Brits in America, dedicated to helping british expats thrive in America. I’m your host, Richard Taylor, and Plan First wealth is the business I founded and run today, and we work with successful british expatriates living across the US to make the most of their opportunity and avoid the expat landmines. However, while Plan First Wealth, LLC is an SEC registered investment advisor, the views and opinions expressed in this program are those of the speakers and do not necessarily reflect the views or positions of planned first wealth. Information presented is for educational purposes only. Now, if you aren’t already receiving our weekly emails, please go to our website, planfirstwealth.com and sign up to wealth Hub. It’s free and you will then be notified every time we drop a new episode and so much more. Alrighty, let’s get back to this week’s show. Okay, welcome back to the we’re Brits in America podcast. I have an ask an expert show today and we are back with Aidan Grant for part two of our UK US estate planning considerations. So in our first episode, we got down and dirty talking about domicile and how that can impact a Brit in America. How they can be still subject to UK inheritance tax and the serious financial repercussions that can result from that, and how maybe it can be avoided. And we ran out of time because it’s that good a topic. So be sure to go back and check that out if you haven’t already. And today we’re going to pick up the conversation and we’re going to get into trusts, living trusts, and when Brits and America need to be talking to a uk attorney in addition to a us attorney. So welcome back, Aidan.

Aidan Grant:
[00:02:05 – 00:02:07]
Thank you so much for having me back. It’s a pleasure to be here.

Richard Taylor:
[00:02:07 – 00:03:16]
Excellent. Well, look, let’s get straight into this. Hopefully whoever’s listening has been back and listened and is just primed and raring to go and wants us to get to the good stuff. So let’s do just that. We had a great chat last time about domicile and we ran out of time, but we needed to cover off trusts. And there’s two sorts of trusts in America, revocable and irrevocable, as far as I’m aware. And one of them is extremely common, even for people who aren’t subject to the us estate tax. You’ve got an estate valued way below the us exemption, which is currently, what, 13 or 26 million if you’re a couple. But living trusts or revocable trusts are still an extremely common estate planning tool for most people because of the want, the desire to avoid probate in America, which, as I understand it, is a expensive, cumbersome and time consuming process. So, to avoid probate, estate planning, lawyers, almost as a matter of routine in many states, just recommend living trusts and you can tell us more about what that means. But I understand that Brits who are still domiciled, or maybe still domiciled in the UK, this can have serious, immediate and potentially long term implications.

Aidan Grant:
[00:03:16 – 00:08:01]
Yes, excellent summary, by the way, of why Americans put in place living trusts. And I have to remind myself and pause, because, as you say, the probate process in a lot of states in America, particularly states like New York and California, is very undesirable. And so, of course, if there is a solution that avoids that process and comes at maybe some professional legal costs, but relatively low administrative cost, why would you not take that approach? And so I certainly don’t begrudge an american attorney for wanting to protect their client and their future estates and beneficiaries from the unwieldy, expensive and sort of time consuming process of us probate. But the issue is, is that the uk tax consequences of these kind of structures does not necessarily reciprocate the us tax treatment. So the reason why using a living trust is so useful and good in America is that the whole exercise is an entirely tax neutral exercise. So if you have assets in the US, you’ve got your home in the US, and you put it into a living trust, that asset is, strictly speaking, no longer held by you. It’s now held by the, let’s call it the Taylor family Trust or something, the revocable Taylor family Trust, that is a different entity to you. It’s now held by the trustees of that trust. But a living trust in the US is known under us tax law as a grantor trust or a grantor trust, if I’m putting the american inflection on it, and those trusts are treated as still belonging to the person who created the trust, what we in the UK would refer to as a settlor, but the Americans refer to as a grantor for income tax purposes and for estate tax purposes. In other words, there is no difference between you, Richard, holding the assets in your name, or you holding the assets in the Taylor family Trust, the revocable Taylor family Trust. And so why wouldn’t you take this swing at avoiding probate when it comes at no tax cost to you? The problem that we have is that the whole premise of putting this arrangement in place relies upon this concept of a grant or trust, which is a particular and unique aspect of the us income tax code. That is, an aspect which does not exist in the UK income tax code, because we don’t have a concept of a grant or trust, and so we don’t get this kind of necessarily simple, easy solution. What happens in the UK is that sometimes we agree with the US approach and sometimes we don’t. Sometimes we think that living trusts are fiscally transparent arrangements. They are merely nominee arrangements between the person who created the trust and the trustees. Sometimes, though, we in the UK will look at the trust, look at the documentation and say, notwithstanding the words used on the page, notwithstanding the Universal trust code, the kind of federal laws relating to trust administration, we in the UK will consider that this document creates a substantive trust. That I’m going to refer to it more like what Americans would think of when they think of an irrevocable trust or a non grantor trust. And so what we have, if we end up in that scenario, is a UK domiciliary, possibly putting assets into a substantive trust, not transferring assets to a fiscally neutral kind of shadow of themselves. And if we have a UK domiciliary, putting assets into a substantive trust, irrespective of whether those assets are us assets or uk assets. And I really, really don’t want uk assets in a living trust, because we don’t need the probate avoidance, because uk assets don’t form part of the us probate process. We have an immediate charge to inheritance tax on assets passing into trust. And that immediate charge is 20% on the value of the assets that exceed the individual’s nil rate. Band 325,000 pounds, as we discussed previously. So, let’s say, for example, you’ve got a $1 million penthouse in New York, and you get a living trust and your us attorney puts it in place for you, and then you decide to transfer the property into the living trust, and you’ve only been in New York for 18 months. If that trust is considered substantive for UK tax purposes, you have just transferred a million dollars of wealth into a trust that we would say generates a UK inheritance tax charge. And at 20% over your nil rate, band, you are looking at several hundred thousand dollars of immediate inheritance tax. That is the problem with living trusts for uk domiciliaries living in America, where we will come on to, or I hope we come onto later, is some of the other ways in which living trusts can be problematic, irrespective of your domicile status, if you are leaving wealth to people in the UK. But certainly, as regards the question that you asked Richard, how is it problematic for people in the US who are UK domiciliaries? Huge red flag.

Richard Taylor:
[00:08:01 – 00:08:03]
And it would apply to investment accounts as well, right?

Aidan Grant:
[00:08:03 – 00:08:04]
Correct.

Richard Taylor:
[00:08:04 – 00:08:23]
Brokerage accounts. Because we see clients putting brokerage accounts in living trust all the time. Let’s just assume there’s no nil rate banned. Just forget the UK nil rate ban for a second. Let’s say it’s been used up. You put transferring in a million dollar property or a million dollar investment account, you’re a UK domicile. You now owe HMRC $200,000.

Aidan Grant:
[00:08:23 – 00:08:24]
Correct.

Richard Taylor:
[00:08:24 – 00:08:30]
Wow. Right. So I’ve got so many questions here. First of all, am I also right in thinking you’re also subject to an ongoing tax?

Aidan Grant:
[00:08:31 – 00:09:13]
Yes, you are exactly right. You could also be subject. So once, if you are a UK domiciliary and you’ve put assets into a substantive trust, the assets in that trust are now treated as what we call relevant property for inheritance tax purposes. And relevant property trusts are subject to a tax at up to 6% of the trust value every ten years. We call it a ten year anniversary charge, and they are also subject to inheritance tax at up to 6% on distributions of principal from the trust. And that 6% charge is as a fraction of however long it’s been since you had the last ten year anniversary charge. So, yeah, absolutely. It is a big problem. And, you know, we’re gonna come onto. So what do we do about it? But that is the problem.

Richard Taylor:
[00:09:13 – 00:09:24]
Just before we get onto what we do about it, let me ask you the question that I know people are thinking. First of all, some people aren’t even aware of the concept of domicile and aren’t aware that they might still be UK domiciled. And if they’re not aware, how are HMRC gonna find out?

Aidan Grant:
[00:09:24 – 00:11:33]
HMRC are going to find out because when you die, your executors are required to file on a self assessment basis. And if you are an executor in the US and you are acting on the estate of an individual who was or may have been a UK domiciliary, you are under a legal obligation under UK law to file appropriately in the UK, and that obligation may only extend to taking appropriate legal advice that says there is nothing here to worry about. But if tax is due, or maybe due, or if there is a material risk that tax is or may be due, then it is usually better and lower cost to take steps to clarify the position rather than leaving that question hanging in the air, possibly over everyone’s heads for a very long time. Because HMRC’s arm is very long and it can grab you from quite a long way into the past. And even sometimes we speak to clients about submitting what we call nil returns. That is, you file a tax return or you send a letter to HMRC which says, for the avoidance of doubt, I have taken appropriate legal advice that no UK tax arises on the estate on a transfer or whatever. However, I am putting you on notice of the fact that we have done this and I’m playing my cards face up on the table. You HMRC, now have to actively decide to inquire into this. And if you miss the standard inquiry opening deadline, which is generally twelve months, you now can’t open an inquiry anymore, provided I have disclosed fully and transparently to you. And so this is why it is always important to take advice at the time, or even better, before you take one of these sorts of actions, because it gives you the maximum possible chance to either not do it or do it in such a way as to minimize that exposure, or at the very least take steps to report it correctly in the most benign way possible, rather than letting it hang in the air.

Richard Taylor:
[00:11:33 – 00:11:46]
I just want to remind everyone, if you’re playing the how will HMRC or how will the IR’s ever find out game, that’s a very dangerous game to be playing. Don’t play that game. I’m sure you’d agree to bear in.

Aidan Grant:
[00:11:46 – 00:11:59]
Mind in this scenario, this is not your game that’s being played. It’s your children’s game. It’s your estate’s game. So you may feel bullish, you may feel confident, but do you want that albatross hanging around the necks of your estate?

Richard Taylor:
[00:11:59 – 00:12:10]
Yeah, that’s a fantastic point. And am I also just taking this extreme, am I right? And thinking not only you’re putting them in a horrible position in general, but also maybe putting them in a position where they might have to perjure themselves?

Aidan Grant:
[00:12:10 – 00:12:38]
The long and the short of it is we never want to let clients get to this position. And the costs of dealing with these issues, the cost of the legal and the tax advice to avoid these issues is going to be orders of magnitude less if the tax applied and are going to orders of magnitude less than the legal advice your estate is going to have to take in the face of an HMRC inquiry investigating these things, it’s always more expensive to glue the vase back together than to make it in the first place.

Richard Taylor:
[00:12:38 – 00:12:40]
It’s better to prepare than it is to repair.

Aidan Grant:
[00:12:40 – 00:12:43]
Oh, I love. I’m definitely using that one.

Richard Taylor:
[00:12:43 – 00:13:12]
I can’t claim credit for that. Mitch, Anthony, thank you. Right, as we talk about solution, fixing this problem, tell me if I’m being overly dramatic here, but I hear all this and I think, look, if you’re a british national, whether you’re now a us citizen or nothing in the US, and you’ve got substantial property that you want to put into a living trust, you’re crazy to do it without getting a domicile opinion from a UK attorney. They don’t have to be expensive, but other situations when it really isn’t necessary, or just as a matter of course, living trust, get a domicile opinion.

Aidan Grant:
[00:13:12 – 00:16:03]
I would say one of two things. A domicile opinion is never going to be a bad thing. If you’ve been in the US for 40 years and do not spend any time in the UK and have no intention of going back to the UK and have a negligible UK estate, then everyone listening to this call can probably take a view as to what they think they’re likely to be in court is if you are someone who’s been in the US for less than ten years, if you’re someone in the US who still has a material UK estate, you’ve still got your UK home, or your kids are in the US. These are the people for whom that question is more up in the air, not the retiree who moved to the US when they were 18 for college, met their sweetheart and are now there 40, 50 years later. So, number one, there’s no bright line test on this, but people will know what a person looks like. They think, yeah, this person is clearly an american. Two, the solution, the legal solution is not necessarily a domicile test because of the reason I made. Secondarily, this is not the only time at which UK tax might arise, because UK tax might also arise if you’ve got beneficiaries, your kids. Let’s say living in the UK. Option one is, yes, great, let’s avoid the inheritance tax on a transfer into a substantive trust. Option two is to say, let’s make sure it’s not a substantive trust because if that arrangement is, if that trust is for UK purposes, on a reciprocal basis, also treated as a transparent arrangement, then the transfer to trust is a nil consequence. For UK tax purposes, there are no consequences. We will mirror what the us consequence is, which is zero. And so what I spend more of my time doing with living trust, and I do this 1520 times a year, is let’s look at the living trust document that the attorney has prepared. Let’s identify those sections that we think if HMRC looked at this, this might give them a handhold on the cliff face. Let’s take away those handholds. Let’s kind of just gently smooth out some of those issues that we think look slightly more problematic, and let’s make the trust look and walk and talk as much like a transparent structure as possible. What that doesn’t mean, surprisingly, overhauling the concept of the trust or how it operates, or how you’ll be able to leave money for your children, or in any way influence how you. You, on a day to day basis will be able to take the money out of and use the money in the trust. It is all about shaving down the words on the page to distance the trust from the idea that this is a structured, substantive entity with trustees taking independent decisions absent the authority of the person who set it up, known as the grantor. And that is what I spend quite a lot of time doing in discussions with attorneys, is saying, can I see the trust document? Would you mind if I made a few changes? And it’s a bit like keyhole surgery, you know, patients unwell, you get in there, you waggle the instrument around and you extract it, and you want, at the end of the day, to have there been no suggestion that anything had changed, but you’ve just improved the life of the patient. That is what I spend most of my time doing, Aidan.

Richard Taylor:
[00:16:03 – 00:16:06]
Why would I do that and not just get a domicile opinion?

Aidan Grant:
[00:16:06 – 00:16:20]
Because if we can be certain that the trust is a bear trust, that’s our phrase for in the UK, a mere transparent nominee arrangement. I now don’t really care about any other future UK tax consequences over this structure.

Richard Taylor:
[00:16:20 – 00:16:22]
So I could even move back to the UK with it.

Aidan Grant:
[00:16:22 – 00:16:30]
You could move back to the UK with it? Yes. I’m not saying that I might not want to have a conversation with you before you come back, but you are in a much better place.

Richard Taylor:
[00:16:30 – 00:16:31]
Got it. It’s just a better solution?

Aidan Grant:
[00:16:31 – 00:17:47]
Yes, it is a better solution. I alluded to you off air when we were discussing this episode that my colleagues and I in this firm have a mantra of the three p’s, which are the three p’s that people should look out for in their US estate planning, which are people, place and property. If any of these apply to your living trust, this is where you’ll want to really make sure that the trust is a bare trust and not a substantive trust. That is, are you under any risk of coming back to the UK? Do you have any uk assets that in any way are at risk of going to this trust? Or do you have people, beneficiaries, who themselves might benefit out of this structure? If any of those are at risk, then you want to have a living trust by all means, as part of the wider estate plan. Let’s check your domicile anyway, because maybe you’re setting up a credit shelter trust, or you’re going to try and use up some of your estate tax allowance, or there are other things that definitely are transfers into irrevocable trusts, or are considered gifts for UK inheritance tax purposes, for which we do want to know the domicile position. But specifically, as regards the exercise of the living trust, I’m more concerned in most instances to make sure that the bear trust assessment is claimable, because that gets you out of more mischiefs than simply doing a domicile assessment.

Richard Taylor:
[00:17:47 – 00:18:06]
This is great, honestly. I’ve just learned something. I assumed it was don’t do a living trust unless you’re absolutely, categorically non domicile. And to conclude that, I think you need a domicile opinion. Oh, and then if you do go back to the UK, or if things change, then you need to unwind it all. But it sounds like there’s a much better solution. It’s still an option.

Aidan Grant:
[00:18:06 – 00:18:32]
It’s worth stating. I, as a UK lawyer, am always going to prefer to not have a living trust in the first place, because that makes the position the clearest. But I have spent enough time talking to us estate planning attorneys who go, that’s not going to work in my books. We need to have a living trust. The costs of probate are just so abhorrent that you need to find a solution that exists within my plan, which is why I spend most of my time reviewing living trusts rather than persuading people not to have living trusts.

Richard Taylor:
[00:18:32 – 00:18:33]
Makes sense.

Aidan Grant:
[00:18:33 – 00:20:39]
It’s worth also pointing out, as part of that living trust exercise, what most estate planning attorneys put in place is a kind of two document process. They have a living trust and they have a will. And what most people do is they take their living trust and they put all their assets into the living trust during their lifetime, and they may only have incidental assets left in their estate at their death. Some people will hold all of their estate in their name. The will will pour over all the assets into the trust. That’s much less common usually. It might. Might just be their tangible personal property. Maybe it’s a bank account. There’s something incidental in the estate. And the pour over will, as it’s called, will pour over the assets into the living trust so that everything in a testamentary way gets dealt with under the trust. The one thing I want to point out, this is a shout out to any us attorneys who are listening to this call. If you are putting in place a pour of a will and a living trust for a client, and you know that client has assets or might have assets outside of the US, doesn’t even have to be the UK, but just outside of the US. Please be very careful how far you extend the scope of that will, because many us wills that I’ve seen purport to deal with an individual’s worldwide estate, that is, it doesn’t limit the scope to only us assets. And if what you have is a will that says, I, John Doe, leave all of my estate into the John Doe revocable trust, that will pick up not just their us assets, but all of their UK assets back home, and I pour them into the trust. So I need you to be very careful about the scoping of your will and check with the uk lawyer that the scoping is correct. Otherwise, the fingers of your estate plan are going to go out and grab the UK assets, and that’s going to be particularly annoying. If your client previously had a UK will that dealt with your clients uk estate assets in a perfectly sensible way, and then you put in place a new us will that overrides and revokes my will, and now my client has no UK will. So be careful. Even though the will is largely vestigial and incidental to the wider planning in the living trust, be very careful about the scope of what that will covers.

Richard Taylor:
[00:20:39 – 00:20:46]
Other than it just being a pain that it overrides the UK will, are there any other negative considerations or complications when you’re dead? Does it become an irrevocable trust?

Aidan Grant:
[00:20:46 – 00:21:41]
It depends on whether you have set it up with your spouse. Sometimes, if you’ve got a co settled grantor trust, it becomes what I think the Californians refer to as an AB trust, where there’s a survivor’s trust and a marital trust, or a family trust. It does depend. If UK assets pour over into living trust, that is going to create a host of administrative and tax complications in the UK, because you’re then back to this relevant property discussion we had previously, you’ve got tax charges floating around where you might not realize it. There can be income tax and capital gains tax consequences for assets in trust. It’s just something that’s worth avoiding. What I would rather have is the UK assets dealt with separately, maybe under a UK will, maybe under a separate clause in the US will. That’s for every client’s particular circumstances to dictate and for the US and the UK lawyers to talk together. But I really don’t want UK assets pouring into a living trust.

Richard Taylor:
[00:21:41 – 00:22:09]
Got it? Noted. Right, should we talk about trust? We see this a lot less but irrevocable trusts. Should we touch on that? Is that something Brits in America need to be concerned about in the same way? If they’ve got beneficiaries or they’re still domiciled? Because we’re saying this, Aidan, and I’m thinking about clients, like, I’m thinking about situations where I need to go and have a conversation with people and find out, because I know, I know. I have clients who have pour over wills that’s picking up their UK stuff. I know it.

Aidan Grant:
[00:22:09 – 00:22:21]
So, yes, irrevocable trust, non grantor trust, completed gift trust, credit shelter trusts, these kind of more substantive, longer term dynastic family trusts that people will try and set up. Yes, they are absolutely a thing we should talk about.

Richard Taylor:
[00:22:21 – 00:22:28]
Well, please tell us what we need to be aware of, what our listeners and their professional financial advisors, like ourselves need to be aware of to spot these in advance of all of the.

Aidan Grant:
[00:22:28 – 00:25:57]
Issues about domicile, putting assets into trust, not putting uk assets, making sure we avoid this immediate inheritance tax charge. All of those things are still going to be relevant here. But where we come across the UK tax consequences of irrevocable trusts more frequently in a US UK context, is where we’ve got uk beneficiaries. So let’s say, for example, we’ve got a us parent who has set up a trust using up their $13 million estate tax allowance, and it’s a non grantor trust, or it’s a defective non grantor trust, so that the grantor still pays the income tax on it every year, but their child is in the UK. What we then have here, at a really high level is a potential problem of the mismatch of taxation. And so often in US and UK tax planning, such that I can’t believe it’s only taken me until now to mention it is we have not the issue of overtaxation in one country where tax didn’t exist in the other, but we have tax being levied in both jurisdictions on different people and or at different times, and you end up paying tax twice without a credit given. So, to take a really common example, if we have a domestic irrevocable, non grantor trust, I’ve always been told by us attorneys that as a general rule, the trustees are going to pay income tax on the trust, income as it arises every year. Nice, simple, easy, convenient. That trust is quite likely to be a foreign trust for UK tax purposes. Trusts in the UK are. Their residency is dictated by where the trustees are, and if the trustees are in America, it’s not going to be a domestic trust for uk purposes, it’s going to be a foreign trust. If that trust has uk resident beneficiaries, the child has moved to the UK, etcetera. There is no UK tax on that trust until a beneficiary inherits out of that trust, at which point the UK has various tax rules that say we are going to tax the beneficiary when they receive money, but the beneficiary is paying the tax in the UK and they do not get a credit for the US tax paid by the trustees when that income arose, let’s say, and so what I get double tax, and so what I spend a lot on and no relief, what I spend a lot of time doing with clients is saying, okay, that’s clearly not good. We don’t want that to happen. So how do we manage the flow of wealth to the child in the UK, or how do we manage the obligations of the trustees to try and align those two tax charges so that we have either the same taxpayer paying this tax in each jurisdiction at the same time? Or at the very least, can we use some of the few exemptions and caveats that exist within the US and the UK’s double double tax treaty to claim a credit for one party? But that with trusts, tends to be more of the issue. It’s less about the issues of nomineeship and bear trust and all those things, because we know none of those are relevant here, because this is a substantive, irrevocable trust. The issue is who is paying tax and when, and what are the risks of being different in each country’s. And exactly as you said, we get this issue of double taxation. That is a thing that has to be watched really carefully. Don’t just assume, because you’ve created a big discretionary pot trust for your children and your child’s moved to the UK and you’ve got another child back in the US, and each of them is to get $100,000 to help pay for university fees or to a deposit on a house, that those two distributions are going to be treated the same because the child that’s in the UK is going to have a very different tax exposure to the one in the US.

Richard Taylor:
[00:25:57 – 00:26:09]
Wow. Yeah. Double taxation without relief. That should keep every wealthy cross border family up at night. And that is important. I’ve read things like that, but hearing you lay it out like that really brought it to life.

Aidan Grant:
[00:26:09 – 00:27:17]
There are solutions here and they are technical and varied, and we wouldn’t have the time to go through all the different things that exist. This is another key example of taking advice before steps are taken. So if there are the trustees of a family trust or the grantor, the parent of this trust knows there is a chance that a child in the UK maybe is going to receive an inheritance or a distribution, or on grandmother’s death, a trust is going to terminate and a child in the UK is automatically going to be entitled to their share. Getting advice on the circumstances before that issue arises is going to leave the family and the person in the UK with the best possible chance of finding an arrangement that makes things more tax efficient. Waiting until the tax has crystallized, even if the beneficiary has not yet actually received the money. But waiting until that tax is crystallized is going to leave you with. With many few options available. And then, effectively, if you go to the accountants or the lawyers at that point, it’s kind of like asking them to fight in a boxing match with one hand high behind the back. You’ve just got less of a chance because you’ve got less at your disposal.

Richard Taylor:
[00:27:17 – 00:27:53]
Yeah, you’ll be kicking yourself. Right, Aidan? So I’m a Brit in the US and I’m thinking about doing some estate planning. My advice as a cross border financial planner, I would just urge every such expat to also speak to someone like you, to engage someone like you in every situation. But let me ask you, in a perfect world, yes, but when are the situations where it’s absolutely imperative? When does a british expatriate living in America, when are they crazy not to engage a UK estate planning attorney such as yourself at the same time as a us estate planning attorney?

Aidan Grant:
[00:27:53 – 00:30:10]
Really good question. I would say in one of four scenarios. So, number one, have you arrived recently in the US? This is not a bright line test. There is no specific cutoff date I can give you going back to the domicile discussion we had first. What I can say is, if you’re within your first three years of coming to the US, then I definitely think you need to take UK advice. I think, practically speaking, if you’re within your first five to ten years, you are still at significant risk of UK tax still being levied on your estate from an inheritance tax perspective. And so within the first ten years, please just be careful and, you know, for the sake of reaching out to a lawyer, it’s worth it. Number two, the other end of the spectrum, are you thinking of coming back to the UK, or do you spend material amounts of time in the UK each year? I’m talking more than, you know, a month’s holiday every year in the UK. Are you spending months back in the UK every year, or are you thinking of coming back to the UK on a more permanent basis? Again, it might be that your affairs or your estate plan needs to be reviewed, possibly amended, before you come back here. Number three, do you have substantive uk wealth more than a small checking account in the UK? Do you have a UK property? Do you have a investment account or cash assets collectively which are going to trigger inheritance tax or are risk of triggering inheritance tax, then you absolutely should be talking to a UK lawyer about your wealth. We haven’t touched on pensions, but if you have a UK pension, then you will, at the very least, want to have at least discussed with the UK accountant what you should be doing with that pension. And fourthly, do you have family in the UK that might benefit from your estate? So, do you have a brother or a sister or a parent, or most commonly a child that is in the UK? Because even if you’re estate planning and all of your wealth is structured beautifully, from an american estate planning perspective, the consequences, as we’ve just discussed with living trusts and with other trusts, can be that the UK can take a different view on your estate planning. And it might be that that UK resident beneficiary is going to have a different tax treatment. And for the sake of reaching out and a bit of tax and legal advice, it will pay dividends in the long run to make sure that it’s your child who doesn’t have the headache.

Richard Taylor:
[00:30:11 – 00:30:31]
Now, rather than you, that is going to catch a lot of people here. So, look, if you’ve been here 30 years, if you have nothing in the UK, or maybe it’s just a tiny checking account, if you have no family in the UK, no kids, no family, no one who’s going to benefit from your estate whatsoever. Maybe you don’t need. Maybe you’re okay.

Aidan Grant:
[00:30:31 – 00:32:43]
So the analogy I draw sometimes, and I can’t remember if I’ve used this analogy with you already before. Think about going to your doctor. If you go to your doctor and you go for your checkup, you go for a five yearly, ten yearly checkup, or whatever you do, and the doctor gives you a clean bill of health, do you come away from that meeting thinking, I feel like I was short changed. I really wanted that doctor to poke holes in me and find all the different ways that I was actually unwell and I have all these different ailments and conditions, because I kind of feel like it’s really worth it to go to the doctor. Or do you want to come away from the doctor with a clean bill of health and him telling you, thanks very much, you know, floss your teeth, don’t come back in ten years time. Of course, we would rather have the second outcome. And it’s the same with a estate planning health check. I would always say to someone, if they have any lingering concerns, reach out and ask. We will tell you quite quickly if it is worth your time engaging. And it might be. All we have is a telephone call or a short letter of advice that says, for the following reasons, we consider that there are no concerns here. It is much better to have that peace of mind than have the issue hanging over you. And I suspect if more people took that approach, more of the people that should reach out would actually get the proper advice. And for those clients who actually didn’t need the advice after all, I get to send them away with a spring on their step. I have spoken to hundreds of Americans living in the UK and Brits living in the US over the last five to ten years. I can count on one hand the number of clients who have come to me and said, this is our estate plan. What do you think? And I say, I couldn’t improve on it. I couldn’t find a way through it. I met an elderly couple once. They were in their eighties, they’ve been married for 50 years. They’re both Americans, both living in the UK. They were leaving everything to each other. And then at their death, they were leaving the money to some charities. And I said, you know what? This is great. You’re going to have a great time with your money, spend as much as you want, keep each other well healed, and at your death, a load of charities are going to benefit I can’t improve on this. And they went away feeling happy, because they felt, well, at least I know the answer now. There isn’t anything I actually needed to do. I like when that happens, because I like to send people away happy. It doesn’t actually happen that much. Well, I still send them away happy, but they sometimes have what they need to do first.

Richard Taylor:
[00:32:43 – 00:33:47]
Let me bring that to life a little bit more. Because people are already reluctant to go and see a us estate planning attorney because they’re thinking thousands of dollars, right? And then I start talking about UK attorney and, you know, they start seeing pound signs and they panic and they don’t do anything, and they may be getting themselves into a pickle. So, unlikely. But best case scenario, maybe you have a quick conversation with them and it’s open and shut, and you just like, off you go crack on. You don’t need us. More likely. And I think this would catch a lot of the people we speak to and we see in our clients on a regular basis. They engage you. We’re talking a few hundred pounds. Not nothing, but not break the bank, right? We’re talking a few hundred pounds, there’s a review, and they go away safe, confident in the knowledge that they’re not walking into a disaster. Or you go through this, you do find that the improvements can be made, that there are landmines that are about to be stepped on, that need to be avoided. And yes, further work is required, but the short term cost is tiny compared to the long term potential costs, financially and emotionally, to your family, etcetera, etcetera.

Aidan Grant:
[00:33:47 – 00:33:57]
The way I try and frame it for people is ultimately, there’s a commercial decision to be taken. It’s your decision as an individual whether to take legal advice. I, of course, always think people should take legal and estate planning advice.

Richard Taylor:
[00:33:58 – 00:33:58]
Same.

Aidan Grant:
[00:33:58 – 00:35:58]
It’s for me to say what I think the cost of my advice is, and it’s for me to indicate what I think the potential risks of not taking that advice are. And it’s for a client to say whether they think that one is worth it for the other. In practice, the cost of my advice is always going to be cents on the dollar, pennies in the pound relative to the potential tax to be saved. But you are right. If there is no material way in which I can be of help to someone, as a regulated UK solicitor, I’m not allowed to start fleecing clients. That’s just not within my practice code, nor is it within my personal ethical code. If someone needs my help, I’m delighted to work with them and I will tell them why I think they should take the advice. But if they don’t need my advice, they’re gonna get sent away with a smile and a plight. Few words from me to say, actually, it’s great. Don’t worry about it. I completely agree with you. I think there is a mental block sometimes about taking professional advice. Whether it’s because the effort it feels, whether it’s because we as lawyers, sometimes cloak ourselves in mist up on the mountaintops, because we like to consider ourselves as, you know, high and mighty, and that sometimes disenfranchises people from us, or just because people think we’re bloody expensive. Either way, we have an obligation to dismiss those preconceptions. And my job is to make sure that people feel the value of what I do and the value of what we do ultimately. And this is going to feel horribly contrite, but the value of our work is peace of mind. Ultimately. End of the day, that is what we are providing people. Because in estate planning, necessarily, you are not going to be here to benefit from it. It’s going to be your family. But the benefit felt by your family will give you peace of mind that things are being dealt with properly. And from my perspective, and I appreciate it’s a highly partisan perspective that is worth some time, effort, and yes, some money to put in place, because there is no substitute for giving you that peace of mind.

Richard Taylor:
[00:35:58 – 00:37:00]
I think it was Seneca who said, we suffer more in our imagination than in reality. And I think when it comes to legal fees, I think people suffer more in their imagination, in reality. So I hope everyone takes that as a call to reach out, you know, and to seek advice. It’s better to prepare than it is to repair. Can’t stress that enough. That has been the theme running through this, and I hope. Well, it certainly feels to me, I’ve learned so much on this, so much, and I already knew a lot. So you have the dubious honor of this, because the first time I’ve had to split a podcast into two, because we just went. We went through so much. So I hope we’ve not overwhelmed everyone. But the picture you’ve painted, I believe, is this is a serious topic. It’s got serious implications and repercussions. But to go back to what you said at the very beginning of that first episode, it doesn’t have to be complicated. You have options. You just have fewer options. But you have options. But the key is, I believe, is to make sure you’re starting from a point of you’ve not created a mess through bad advice or no advice or inertia or whatever it may be. And I hope that message, I hope that’s what people take away from this.

Aidan Grant:
[00:37:00 – 00:37:51]
So I hope so as well. Like I said, just to reiterate what you said at the very beginning, my job is to rock the boat as little as possible. My job is to say, what does this person want to do? How can I get them there, inconveniencing them or their family in as little a way as possible? And if we can go for a nice, simple, straightforward estate plan, then I would be delighted to. It is a simple fact that straddling two different tax jurisdictions, being someone who has both US and UK tax concerns, means you’ve got to have one r on each tax system. And that does leave things slightly more complicated. My job, though, is to make sure that we find those gaps in the middle, those remaining three doors, to cite what I said in the first episode, find those remaining three doors that work for this client and explain to the clients why those ones are worth doing. That is a conversation I have with lots of clients, and it’s a conversation with clients I hope to have with for many more years to come.

Richard Taylor:
[00:37:51 – 00:38:40]
You know, Aidan, when you sit down and you think about it, we know the US is a particularly complicated place. Even when you just discount that for a second, when you sit down, you think about it, you’re in the US, but you still got foot in the UK, and you need people who understand the US, the UK and the interaction between the two. You need experts in your life. And people, once they sit down and think about it, they realise it. And part of this podcast is aiming to shine a light on these issues. So people become more of aware of the need to employ professionals, cross border and otherwise, because otherwise they just go and see the local people, and the local people don’t have this level of expertise, and this is how they get themselves into a pickle. I find people can sometimes react quite badly. They don’t want to have to, no one wants to have to employ a bevy of expensive professionals. But we came to the US, the land of opportunity. But there are obligations on us as a result of that. So it’s been a fantastic two podcasts. Thank you. Where can people find you?

Aidan Grant:
[00:38:40 – 00:39:04]
So, for those that have forgotten, my name is Aidan Grant. I am a senior associate at Collyer Bristow LLP. That’s Collyer with a Y. I have a podcast that looks at US and UK tax and estate planning. It is entitled very, very creatively UK, USA, and I’m sure much like this episode we’re on all the various places. You can also find it at our website. If you search for Collyer Bristow, you will find us quite easily. I’d be delighted to talk to any.

Richard Taylor:
[00:39:04 – 00:39:12]
Of the listeners go finding people. Aidan, thank you so much. This has been great and if things change, you’ve got to come back on and update us.

Aidan Grant:
[00:39:12 – 00:39:14]
I’ll be delighted to come back and do the tax changes.

Richard Taylor:
[00:39:14 – 00:40:21]
Great. Well, we’ll see you soon. All right, folks, that’s another episode of we’re the Brits in America under our belts. Thank you for listening. I appreciate it and I appreciate you. If you’re enjoying the show and would like to support the mission, which is to help brits thrive in America, I’d ask you to subscribe to the podcast wherever you listen and also consider leaving a rating and a review. This stuff really does matter. Please help us get this information to the people who need it. That is your fellow brits living in America. Just a quick reminder that this show is brought to you by plan first, wealth. We are a US based US UK cross border financial planning and wealth management firm and we help successful british expatriates living across the US to make the most of their opportunity and ultimately to retire Appia. So if you’re a british expat living in America and you’d like to know more about what we do for people like you, you can find us at our website, planfirstwealth.com. or you can look me up on LinkedIn. Do get in touch. We’d love to hear from you. As always, thank you to the podcast guys for their help producing this episode and the entire show. See you next time.