Why You Need A U.S. Will

By: James R. LaVigne, LLM International of London, Juris Doctorate University of Florida

I am often asked the question why do I need a U.S.A. will. I already have a United Kingdom will and I have taken care of my family with the will that I have in the United Kingdom.

This may be well and good if you do not own any property in Florida. But the moment you have bought your holiday home or villa in Florida, then you have created a need to have a separate will for your U.S.A. property.

Unfortunately for the non-resident alien who does not have a green card and does not have U.S. citizenship, ownership of property owned by persons outside of the U.S. is treated much differently under the U.S. estate and gift tax laws.

Under United States estate and gift tax laws, only $60,000 of U.S.A. based property is exempt for U.S. estate and gift taxation.

This is the equivalent of a thirteen thousand dollar credit for taxes due upon death for property owned in the U.S.

As an overview, both the United States and the United Kingdom have lifetime tax transfers and transfer tax on death. In the U.S. we call this the estate tax. The United Kingdom has a single tax known as an inheritance tax for both life transfers and transfers upon death while the U.S. has a separate gift tax, a generation-skipping tax, and an estate tax.

The United Kingdom also has separate capital gains tax while the U.S. charges capital gain to the income tax.

There is a major difference in the treatment of estate tax in the U.S. compared with the United Kingdom inheritance tax. While generally both countries impose an estate tax on assets located within their territories, the similarity ends there. U.S. taxes it’s a citizens and permanent residents on a world wide basis both for estate tax and income tax purposes. The basic rule in the United Kingdom is that an inheritance tax is collected on assets owned world wide. However, this is subject to the exception that the foreign domiciliary is liable to an inheritance tax in the U.K. only on the assets located in the U.K. Assets located outside the U.K. including assets held in trust created by an individual domiciliary outside the U.K. for inheritance tax purposes at the time he created the trust are generally outside the scope of inheritance tax even though the beneficiaries are U.K. domiciliaries. This is not withstanding the fact that the settlor of the trust subsequently becomes domiciliary on the U.K.

However, in the United States, the U.S. approach is less favorable to nonresident aliens. The U.S. taxes nonresident aliens on all their real properties and does not give the nonresident alien the benefit of the tax credits that it gives to U.S.A. citizens which may be up to two million dollars. As I have stated above, the maximum exception for people who are not U.S.A. citizens is $60,000.

That means that non U.S.A. citizens owning property in the U.S. would be subject to the maximum estate tax.

For the year 2011 the maximum estate tax is 55%. The exemption amount allowed for Americans is five million dollars. This does not apply to citizens of the U.K. owning Florida residences or villa properties in the U.S. Although there will be no estate tax for the year 2010, the estate tax return will return in 2011 at a maximum 55% rate.

Fortunately, there is an estate and gift tax treaty between the United States and the United Kingdom. The benefit of this treaty is that nonresident aliens may take advantage of the maximum allowable exceptions provided that they have a qualified domestic trust prepared. This can be done in a qualified domestic trust will. This is the major reason you need a will in Florida if you own property in Florida.

Many couples come to Florida and buy property in their joint names. Jointly held properties are still subject to an estate tax when one of the spouses dies. If a nonresident alien deceases and his spouse acquired U.S. property with no third party as joint tenants, or has tenancy by the entirety, the deceased spouses estate includes the full value of the property unless it can be established to the U.S. tax authorities that the other spouse also contributed his/her share towards the purchase price. This is often difficult to prove.

A way to avoid this is to have a qualified domestic trust will signed by both husband and wife who own property in Florida. The effect of a qualified domestic trust will allows the surviving spouse to defer the payment of taxes until his/her death. It does also allow for up to a two million dollar deduction.

Although some types of personal property including intangible property may not be subject to United States tax, generally speaking any property which is located in the U.S. is subject to the United States estate tax.

So if you don’t already have a will in the United States you should seriously consider having one. The one with the best tax treatment is the Qualified Domestic Trust Will (QDOT for short).

In addition to the severe estate tax consequence, a will in the U.S. can expedite probate and assure the decedent’s property and assets go to the beneficiaries listed in the will in the U.S.

Dying without a will either in the U.K. or the U.S. in the State of Florida will allow the State to decide who can inherit from you. You want to avoid this by proper estate planning.

Although Florida does allow the probate of foreign wills in Florida, the wills must comply with Florida law.

So if you don’t have a Florida will and you own a house and/or have other assets in Florida please see a qualified Florida lawyer for proper estate tax and will planning.

This article is not intended to be a comprehensive review or overview of the United States estate and gift tax laws as it may relate to your case. We suggest that you obtain appropriate competent legal and estate planning advice when you buy your properties in Florida.

Biographical Information

Mr. James R. LaVigne is a Florida Board certified international lawyer who is based in Orlando, FL with South Milhausen, P. A. Mr. LaVigne has a master of law in international law from London and is a member of the American Bar, Florida Bar, Orange County Bar, the International Bar (London) and the American Immigration Lawyers Association. He has been practicing in Orlando for over 35 years. A substantial portion of his practice concerns United Kingdom citizens who own and buy properties in Florida. You may contact Mr. Lavigne at jlavigne@southmilhausen.com, phone: 407-539-1638.