# Inheritance issues - US citizen off the radar for 20 years



## susiesan

I'm asking a question on behalf of my sister:
She is a US citizen, living legally in the UK for the last 20 years. She is not married, has lived with her significant other who is British, and they have 2 daughters born in England. Both of my nieces have British and US passports. My sister has been off the IRS radar for 20 years; she has never filed a tax return or reported anything to the IRS. She has no intention of ever coming back to the US to live.

Our mother is in the last stages of Alzheimers and may die within the next 12 months. My sister is due to inherit approximately $200K. She was wanting to put it in bank accounts in her daughters' names in the US that were opened last year when the family was here on vacation to avoid UK inheritance taxes. I am the custodian on my nieces bank accounts as they are minors. 

If my nieces each end up with $100k in a US bank account, or if my sister ends up with the $200K in a US account, is she going to be in trouble for not reporting all these years? As the trustee on my mother's estate do I have to report this transaction? Is she going to have to report this inheritance to the IRS?


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## Bevdeforges

I don't know anything about UK inheritance taxes, but generally inheritance taxes are levied against the estate, and not against the heirs. 

That said, once the $200,000 is in US bank accounts, any and all interest paid on the account(s) will definitely be reported to the IRS in the US - so either your nieces or your sister will pop up on the IRS radar, at least as far as having a 1099 (statement of interest payments) turned into the IRS each year.

If your sister can justify having income less than the reporting threshold, no problem. Or, she can file three years back (claiming the FEIE and/or foreign tax credits as appropriate) to show that she owes no US taxes and be off the hook. The filing threshold for a single taxpayer under age 65 is something more than $9000. In the case of your nieces, it's probably the case that even with $100K in the bank, they wouldn't have enough income in their own names to be expected to file a return.
Cheers,
Bev


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## robnw

> If my nieces each end up with $100k in a US bank account, or if my sister ends up with the $200K in a US account, is she going to be in trouble for not reporting all these years? 

USA Income and Gains Tax: yes, of course, and as Bev says they'll want their 10-40s submitted for her for outstanding years.
UK Income and Gains Tax: probably there is no need to put in a Return if her only income is a UK State pension (but yes if she also gets USA Soc Sec as well)
USA Gift Tax: Gift is below the exemption but she'll need to keep a record
UK IHT: Gift is a Potentially Exempt Transfer, taxable if she dies within 7 years 
Nieces: Will need to submit 10-40s from now on

>As the trustee on my mother's estate do I have to report this transaction? 
No. You complete the UK return to HMRC for the estate. What she does with the money is not your concern.

>Is she going to have to report this inheritance to the IRS?
No. See above what she does have to report. If she has avoided reporting before, you might warn her that both the HMRC and the IRS get irritated by people being wilfully ignorant about their obligations and that's not the line to take with them. 

You might also point out that she doesn't get the UK spousal marital exemption for estate tax when her partner dies either. Sit her down and say she can achieve what she wants to legally and without fear if she just takes advice and works through the options slowly.

Hope this helps


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## susiesan

robnw said:


> > If my nieces each end up with $100k in a US bank account, or if my sister ends up with the $200K in a US account, is she going to be in trouble for not reporting all these years?
> 
> USA Income and Gains Tax: yes, of course, and as Bev says they'll want their 10-40s submitted for her for outstanding years.
> UK Income and Gains Tax: probably there is no need to put in a Return if her only income is a UK State pension (but yes if she also gets USA Soc Sec as well)
> USA Gift Tax: Gift is below the exemption but she'll need to keep a record
> UK IHT: Gift is a Potentially Exempt Transfer, taxable if she dies within 7 years
> Nieces: Will need to submit 10-40s from now on
> 
> >As the trustee on my mother's estate do I have to report this transaction?
> No. You complete the UK return to HMRC for the estate. What she does with the money is not your concern.
> 
> >Is she going to have to report this inheritance to the IRS?
> No. See above what she does have to report. If she has avoided reporting before, you might warn her that both the HMRC and the IRS get irritated by people being wilfully ignorant about their obligations and that's not the line to take with them.
> 
> You might also point out that she doesn't get the UK spousal marital exemption for estate tax when her partner dies either. Sit her down and say she can achieve what she wants to legally and without fear if she just takes advice and works through the options slowly.
> 
> Hope this helps


As far as I know, my sister never worked in the US after finishing college and living in England, so I doubt she'll qualify for social security. All these years she lived in the UK she didn't work much, nor does her baby daddy. They have rental property/income, and I don't think they report and pay taxes in the UK either.

I am NOT going to prepare and send a return to HMRC for her share of my mother's estate. It is not my problem. She can do it she wants to. I've been sending her articles to read about all the changes coming, especially with the FATCA reporting requirements on Americans with overseas bank accounts. She may not be able to find a UK bank that would even take the $200K deposit. She may want to think about renouncing, for herself and my nieces. She may finally decide it would be better to be married to her significant other from a tax point of view.


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## Midlifer

If your sister has identified her minor children as US citizens I don't believe she can renounce on their behalf, they would each have to make that decision at age af majority (18).

Renouncing one's citizenship does not vacate the tax liability and the IRS will go all out to collect all amounts past due plus interest and penalties. They are also not very motivated to negotiate at that point either.


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## susiesan

Midlifer said:


> If your sister has identified her minor children as US citizens I don't believe she can renounce on their behalf, they would each have to make that decision at age af majority (18).
> 
> Renouncing one's citizenship does not vacate the tax liability and the IRS will go all out to collect all amounts past due plus interest and penalties. They are also not very motivated to negotiate at that point either.


When my nieces turn 18 they should be able to renounce without taxes due as they won't ever have had income. Their renouncing should be relatively easy. My sister is going to have a problem. She is joint owner with her partner of numerous homes in London that they rent out. They live on the rental income from their properties. She also is on joint bank accounts with her British partner.

Would an inheritance be considered income, if it goes to my nieces before they turn 18? Is it taxable to them when they receive it? In the US, one is not subject to inheritance taxes. If death taxes are due, they are paid by the estate before money is distributed, Recipients don't have to pay any taxes. I'm nut sure what the rules are for British citizens being the recipient of and American inheritance.


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