By Anthony Allsopp, Head of Business at Title Research
When a client asks you, “When will the estate be finalised?” it is likely not for the first time, but it is always the hope that with a fair wind, it perhaps might be the last. Every practitioner carrying out administration work on estates will know that there is no end of unforeseeable variables that may cause delay – topical now is how UK banks can be challenging at the pre-grant stage in terms of providing date of death values for a deceased’s account. Equally, we can all agree that the Probate Registry can be slow (although improving in some ways, if you believe the data), and if we mention HMRC, try not to sigh.
Let’s consider cross-border estates and the US equivalent of HMRC, the Internal Revenue Service (IRS). If US assets held in a UK estate exceed $60,000 at the date of death, then it is usual for financial institutions to request a Federal Transfer Certificate (Form 5173) before those assets can be transferred and or liquidated. This particular document is issued by the IRS once it is satisfied that there is no tax liability, and assuming the deceased was never a citizen of the US, there should not be.
Pre-COVID, these certificates were issued in 9 to 12 months from the point of application. The currently advised turnaround is 18 to 24 months, as the IRS is still dealing with a backlog (the US has similar tax treaties in place with at least 20 other jurisdictions).
Preparing the application is quite complex:
The Grant will need to have been issued,
If the UK estate is taxable, the Inheritance Tax (IHT) will also need to be prepared,
Tax affidavit,
Specific US forms where the specific aspect of the treaty that the estate is claiming relief from must be stated.
This part alone can take a few months before we even reach the 18 to 24-month stage. In a best-case scenario, the estate will be staring down the barrel of a two and a half year wait just to obtain the requisite documentation needed to satisfy US financial institutions. But, of course, there will then be the added time to actually administer the assets, which we all know is quick and easy…
Realistically, collecting high-value US assets means the estate should expect to wait around three years, as things stood entering 2025. Surely, it couldn’t get much worse than this... could it?
If you were following international news at the start of the year, you may have been aware that in a drive to improve spending efficiency at the Government level, a large swathe of the Federal workforce in the US was “laid off”. Unfortunately, the IRS was not immune to this, and if rumours are true, it lost two-thirds of its entire workforce, which has directly impacted the team responsible for Tax Treaties.
Formally, the advice remains 18 to 24 months to issue tax clearance. The good news is that at Title Research, we usually have 50 matters ongoing at any one time that involve IRS applications, so we have some pretty reliable data on how long it currently takes. The bad news is that it is taking longer than the advised 18 to 24 months on average.
In our experience, applications are currently being turned around in three years. So, add in the two months to prepare the application and a minimum of four to six months to administer the assets once the IRS has issued Form 5173, and the estate could well be looking at four years to resolve the US aspect.
This is far from ideal, especially in scenarios where the US assets form a significant part of the estate, and even the most patient clients will start to abandon their sensibilities; after all, bereaved families just want to move on. The best advice we can offer is to manage expectations early in the process, as the best coping method can often be foresight and preparation.
Title Research has over 20 years’ experience specialising in cross-border estates, with particular in-house expertise in dealing with US assets. If you want to find out more, get in touch via the form below.