Asking as I was thinking about "less than legal" options if it came down to it......
I like your thinking!
IHT tax free amounts in the UK can range from £325,000 to £1,000,000, so by US terms, a very low threshold. If I understand the treaty correctly, any IHT tax paid to the UK can be offset on a US return if the deceased is a UKC or deemed resident for UK IHT (17 years resident?), so there appears to be no problem with US tax due for us average folk. But, as I see it, problems can arise if there is an NRA spouse.
Upon the death of a USC there would 2 IRS returns due - the final year and an estate return. Like the US, in the UK the assets can be transferred to the surviving spouse tax free if the will is so structured, along with their tax free allowance. The problem, especially with an NRA spouse, is the time required to close the estate (probate).
For example, if there is a home, and that home is in London, there is the possibility of cap gains. When are the cap gains declared? On the final tax return of the deceased? On the estate return? Or, is there a third return when the NRA spouse dies (unlikely?)? And, under UK IHT rules and the transfer of assets, does the IRS need to know about this?
If, during probate, it is known the deceased was a USC, would the executor use a UK tax advisor to sort this out? If so, the tax advisor is required by UK codes of practice to settle all tax estate matters worldwide - including the IRS. If the executor is a solicitor, are they bound by similar codes of practice? If the executor is a friend or family, they are bound by the rules of probate, but they may be less than forthcoming. Assuming IHT is handled like normal US returns, there is no credit or assets below a threshold until a return is filed.
Then there are US assets. If the USC has US Social Security, the SSA needs to be notified. It may well be advantageous for the surviving NRA spouse to be sure to do this since their benefit may increase substantially. Does the SSA, or the London Embassy, notify the IRS of the death? If the US Embassy is involved, would they almost certainly notify all US agencies including the IRS? For those with other US assets (homes, bank accounts, pensions) notification of the death will be required. According to the website, the US Embassy (Department of State ?) needs to issue verified US acceptable death certificates (they'll do 20) to be sent to US entities.
How long does all the cross filing within probate take if IRS rules come into play? It's for this reason a substantial joint bank account with the NRA spouse might be desirable - they may need funds for at least 18 months to survive while assets are tied up in probate due to sorting the US side.
Of course, US IHT thresholds have a way of going both up and down, at any time, and often retroactively. Add in variable exchange rates....
So many unknowns for us average folk without a structured will that includes all these possibilities.
