Inherited annuity

SunnysideBeach

[Deleted User] said:

SunnysideBeach said:

[Deleted User] said:

If the annuity comes from, say, a US pension scheme, it may be worth pointing your solicitor to this if they have not already seen it.

If the scheme provider can choose which type of death benefit to pay and the member cannot make a binding nomination of all the different possible death benefits, the death benefits will not treated as part of the member’s estate on death.

Thanks. There are certain options not open to me as a non U.S. citizen, don’t think that is enough though for the scheme provider to have a choice..
why would they have a choice though or in what situation would a scheme provider chose not to pay the beneficiary if the deceased had named people? They also wont disclose to me if there are other beneficiaries. I assume for confidentiality reasons. And how would I know of the scheme provider can chose? Thanks and I will point out your info to the solicitor. 

I don't know the answer to this and it's not my area. My first question is whether US assets would be in the scope of IHT for the individual who died. They might be. But if this person was, for example, just visiting the UK on holiday and died, they would not be. 

Let's pretend the estate is in the scope of UK IHT so the question is whether it is an asset in that individual's estate. If they own a £10 note then it clearly is.  If they were just holding on to someone else's £10 note while they nipped to the loo then it is not in the deceased's estate as it's not theirs. 

There is another situation which doesn't come up very often and that is where the deceased is holding someone else's £10 note but they can make sure that it ends up in your hands because they have some kind of general power that allows them to dispose of the £10 as they see fit.  In this strange case the IHT rules pretend that the £10 note is in their estate. 

A common situation like this is that a home is given to the kids but the surviving spouse can live in it until they die. Here the value of the whole house is included in the estate even though it does not belong to the surviving spouse.

With UK pensions, it's normally up to the trustee of the pension scheme who gets the cash (and they will normally, but not always, what the deceased pension scheme members asked).  US schemes don't usually work this way though. If the member made things such a that you must get the value then it is in their estate for UK IHT purposes.  But if there is some discretion (eg lump sum vs annuity) then it may be the case that it is not in the deceased's estate. That's a question for a professional tax adviser with a full understanding of the facts. 

One way of knowing if there is a choice is to ask the administrator what choices are available.  If they say we must pay you £x on Tuesday then there is no choice. If they say we can pay a lump sum to you, an annuity to you or a lump sum to your kids then you know that there is a lot of choice. If they say we can't do something unless you are a US citizen then that suggests that they have choice but US law or complex admin prevents them doing that. That may indicate choice (or rather the absence of a general power) or not depending on the wider facts. 

Thanks that’s really helpful. It’s obvious that there is subtlety around this. The relative was very astute so hope it’s been done in tax sensible way. 

xylophone

You refer to this as an "annuity".

Is it actually a disbursement from some sort of Trust?

sandsy

You should check out Article 17 of the UK-USA double taxation treaty which might be relevant, especially if the annuity was purchased with pension monies originally:

https://assets.publishing.service.gov.uk/media/5a81972ce5274a2e8ab54ce7/usa-consolidated_-_in_force.pdf

This thread from another forum might also be relevant:

https://www.expatforum.com/threads/uk-citizen-inheriting-annuity-from-american-relative-us-federal-tax-implications.1526542/

SunnysideBeach

xylophone said:

You refer to this as an "annuity".

Is it actually a disbursement from some sort of Trust?

It is described as an annuity on the paperwork but whether an annuity means the same in usa as uk is beyond me due to the subtleties. 

xylophone

Is this a pension policy where the "Trustees" have the ultimate control over whether or not the nominated beneficiaries receive the benefits?

If so, the deceased relative cannot leave the policy as a bequest in his will so it cannot be said to form part of his estate?

If it is not part of his estate then it cannot be subject to IHT?

Is the solicitor the executor of the deceased's estate?

It was he who advised the American (insurer?) of the death of the policy holder?

Is the insurer(?) now in direct contact with the beneficiaries?

https://en.wikipedia.org/wiki/Annuities_in_the_United_States

LHW99

I know nothing of this subject, but wonder if @Bostonerimus1 could make any comment. I believe he/she is US based (sorry if I have that wrong).