I am advising a UK domiciled client who is living and working in the USA (California). The client has substantial assets in the US (in excess of £5m) and has been advised to establish a Living Trust into which all her US assets will be transferred.
This type of trust is widely used for estate planning in the US and one of the motivators is that it avoids the need to apply for Probate in the US on death, which is costly and time consuming. The trust provides that the client is the Settlor and sole trustee but includes dispositive provisions following her death. In our world, the trust is a mix of a lifetime trust and a Will.
The question is whether or not the trust qualifies as bare trust (which it purports to be for US purposes) for UK taxation or whether it is treated as a “Settlement” and is therefore an immediate chargeable transfer. I have found helpful commentary on the subject from Ian Watson and James Kessler on the subject but was looking for any direct experience of such arrangements.
s15800 of the California Probate Code (which is akin with s603 of the American Uniform Code) appears to apply to this case - the revocable trust not give enforceable rights to any beneficiary during the lifetime of the grantor. The client is the sole trustee and only she is entitled to the income and capital during her lifetime. Therefore, for UK purposes, it would seem that there are no “rights” at all.
If the conclusion is that the trust will qualify as a bare trust for UK tax purposes, is there any reporting required to HMRC or do we simply not report it because our view is that it is not an immediate chargeable transfer?
Catriona Attride
Gateley plc