(Risk of) inheriting PFICs part 2

I am following up the topic started in July 2017, as referenced in the title.

In 2016 I received the comment from an experienced US/UK tax lawyer that it may be possible to avoid having ownership of PFICS pass to a US citizen beneficiary by disposing of them (after the death) prior to distribution of the estate's assets.  This supports the view of of some previous posters.  However, the problem that I, and others may face is the possibility that the benficiary will not realise that they have a potential problem, and get themselves into a mess without realising it and before they approach a competent advisor.

As mentioned in the previous thread, many UK family solicitors will just sell everything and distribute the proceeds without any realisation of the possible complications.  I have found such professionals to be largely ignorant of international tax law, and if asked, will say that they 'have a department that will research the problem' or something similarly indicating that they don't actually know much about it.  It seems to me that some posters may have got away lightly simply by not coming to the notice of the IRS/US Treasury.  I do not imply dishonesty, but simply lack of awareness.  The services of a specialist, and usually rather more expensive tax advisor is probably well worth the saving of hassle at an emotional time, assuming that one wants to be squeaky clean.

If disposial of PFICS prior to a death is impracticable, I wondered about:
1.  Consolidating smaller PFICS into a few larger ones to simplify matters and reduce administration costs
2.  Specifying particular PFICS in the will to become the property of specific beneficiaries (that could inherit them without problems)
3.  If a charitable donation is to be made out of the estate, specifying that PFICS are to be included in that portion.

If challenged by the fiscal authorities, could it be argued that a 50% distribution of an estate without specifying particular assets means 50% of each asset, or does the executor have discretion to allocate specific items to the value of 50%.

PL

parklane - I am really looking forward to discussing this, but can't quite follow the point you are making. The deceased who is not a US person dies in the UK owning some PFICs. He has 2 children Adam and Eve. Adam is American. Eve is not. From a US perspective the estate is a "foreign" estate. It takes 12 months to get probate.

The Executors are a Cardiff based firm of solicitors. They sell everything (house, shares, PFICs etc) in the 12 months. After the 12 months has passed, they distribute 50% each (after IHT and their fees) to both Adam & to Eve.  Adam only gets cash. Are you saying this is a problem for Adam?

I'm not saying anything, rather I am posing queries to which I would like answers.  Nothing in this post is certain !

I suspect that if a specific bequest of item A is made to benficiary A, then beneficiery B cannot be held to own or control item A, so if it is a PFIC then any problem is avoided.

But if an unspecified share of assets rather than a specific allocation is made, then I don't know at what point the ownership of a PFIC passes under a will.  Does entitlement under the will exist at the point of death - does this also imply ownership at that point.  Then transfer of the asset months later, or even sale for cash before distribution may not mean that you did not own yout share at some point.during the probate period.  So I'm not sure where ADAM stands.

I don't think you get the capital gains step up on a PFIC either.

If the deceased has a UK will, the assets are in the UK, and death is in the UK, has US jurisdiction any part in the probate ?  An advisor I would rate as very competent told me that there is no need to have wills in more than one jurisdiction (UK and US) unless there is real estate involved (perhaps specifically US real estate) regardless of where the other assets are.  Having only one will certainly simplifies things.  This may not apply if the non-US country is not the UK.  But there may be circumstances in which this advice would be wrong ?

I suspect that executorship is also a nasty trap since you then gain signatory authority over everything and hence lots of FATCA trouble.  But I believe one can refuse or be unable to take up appointment as executor.  Does that let you off the hook ?

The biggest problem I face actually, is denial by some relatives that there is a potential problem, and hence obstruction to re-arranging things more advantageously.  It is upsetting to discover how suspicious otherwise amicable people can become.

The bottom line is:  Find and pay for a top-notch tax lawyer, and having paid for top-notch advice, TAKE IT.   If expedient share the advice with executors and beneficiaries so that they know why you are doing this or that.  A good advisor will also be on talking terms with relevant jurisdictional officials and be in a much better position to negotiate a sensible resolution of difficulties.   How do you find such an advisor ?  Well, perhaps through a forum like this or referral by your family solicitor.  But go to meet them personally, being informed and knowing what awkward questions to ask at the initial meeting.  If they don't display off the top of their heads an immediate grasp of your situation by citing relevant  exemption brackets, tax rates, and showing familiarity with fiscal regulations and similar situations they have dealt with, then walk out. 

PS.  I hope this is not a replica post - I was logged out just before I pressed the SEND button.

I suspect that executorship is also a nasty trap since you then gain signatory authority over everything and hence lots of FATCA trouble.  But I believe one can refuse or be unable to take up appointment as executor.  Does that let you off the hook ?

On my wife's side of the family she has a brother who is a lawyer living in England so no problem there. My father had me and my brother named as executors on his will as we are the eldest of 4. I convinced him to re-write his will after my mother died in 1995 and name my 2 sisters instead. They lived close by and are very sensible, plus our brother lives in Australia. I did not want to have to do this from the USA, coordinating with my brother in a timezone 16 hours ahead of me. I became a dual citizen in 1998 and realize now that even if I was back living in the UK when he died in 2009 that I would have all this extra US Treasury reporting if I was an executor.

I think it is a great question. Ultimately, I agree it is a question of legal interpretation. I imagine the moment as to when a beneficiary becomes absolutely entitled to an asset from a deceased asset is different in different legal jurisdictions.  I have done no research on this; a lawyer who handles probate regularly should be able to answer this. Because wills and estates are so often disputed the question must have come to court regularly as well.  Given time; I'd love to learn the answer.