ISAs- Taxation when American Spouses inherit them?

I have a general question about stocks and shares ISAs.   I am a US citizen.  I am retired after working about 25 years in the UK.  My wife is a UK citizen and also retired.  I file in the US as married/separately with my wife declared as NRA.

My wife has an ISA stocks and shares portfolio.  If she passes before me, the portfolio (and the bulk of her estate) will pass to me through our Wills.  Typically for the surviving spouse, I understand the UK taxation of the value of the portfolio is covered by the surviving spouse receiving an inherited ISA allowance.   

However, as an American, I do not want to hold a UK Stocks and Shares ISA due to the PFIC liabilities.  Therefore, her  portfolio would be liquidated and put back into the estate pot as cash which would then be distributed.

My question is what are the current UK and US taxation requirements for a surviving American spouse inheriting cash from the estate of his/her spouse some of which was generated from the sale of the deceased spouse’s stocks and shares ISA portfolio?

Thanks.

As far as I know your wife’s estate is only taxable under UK law and when you receive the assets they will come tax free, but as you say, you need to be sure that the stocks and shares ISAs are liquidated before distribution to you.

I agree with durhamlad. The estate inherits the ISAs. The estate is a "foreign estate" (in US tax jargon). The estate sells the funds before it is finalised. The estate distributes you cash.  You never own the funds at all.