US pension contributions

[djj37]

My son, who died recently, worked in the US for 8 years and made some 401k pension contributions there. His main estate was in the UK and a grant of probate has been granted here. His US pension holders are refusing to recognise the UK grant and are requiring us to obtain the US equivalent before we can even find out how much is at stake there. The pension contributions are the only US part of the estate. The UK legal fees for winding up the estate are significant and I don't want to pay more, this time in dollars for an unknown return! Has anyone any experience of this problem?

[Lootman]

Firstly, my sympathies. A good friend of mind died far too young working in the US and his parents, also my friends, were understandably devastated. My comments here reflect their experiences and not mine. I'm not a lawyer and there may be others with experience in this field who know better. That said:

What you are being told is probably correct, and the problem is that your son is considered a US person from the perspective of a US entity. Moreover, probate in the US is an expensive and convoluted process, as you might expect from a nation that has 70% of the world's lawyers.

And it may be worse than that, because the US has a nasty habit of taxing anyone whom it considers to be a US person. If that is the case then there may be US tax returns and liabilities to be considered, depending on what basis your son was in the US.

What I can do is estimate for you the value of the 401K account, and then you can decide whether it is even worth pursuing, or better just to write it off. The current annual 401K contribution limit is $18,000 but how much he actually contributed in 8 years would depend on what period this was for - the limit has gradually increased over the years. It also depends on whether he contributed the maximum (most people who can afford to will do this because of the tax deduction). It will also depend on the corporate "matching contributions" which, typically, might be on a dollar-for-dollar basis up to a limit, maybe 3% or 4% of salary.

This link shows the contribution limits by year:

https://dqydj.com/the-complete-history- ... ion-limit/

Assuming his stay was recent and he contributed the maximum, then the contribution value might be $120,000 or so, plus the value of the employer matching. That matching you can perhaps be able to estimate if you look up the benefits section of the website for his employer. Also, even if the 401K provider will not disclose the valuation, the employer's HR department may be willing to disclose his payroll deductions.

In the US it is possible to designate a beneficiary. This is somewhat similar to a joint account here in that the value of the account passes automatically to the named beneficiary without going through probate. It's worth checking if your son made such a designation. Again, the employer may know that if the 401K manager won't reveal.

Then you should factor in the gain in the underlying portfolio which could be estimated from the general return of investments during the elapsed time.

So a very crude estimate might be that the value is as much as $200,000. Based on that I'd say it's worth contacting a US probate lawyer. For a retainer they may be able to get access to the valuation and, on that basis, you can make a more informed decision as to whether it is worth the hassle, stress and cost.

Finally there is a Lemon here called TedSwippet who seems to know a lot about this kind of thing. If he doesn't comment here, PM him.

[TedSwippet]

djj37, so sorry to hear of the situation you find yourself in here. Bureaucratic hassles with the US will be the last thing you should have to deal with at this time.

I do not have much to add beyond lootman's suggestions. One thing that might make a difference is in which country your son died, and his US immigration status. The US might treat him as domiciled there and so covered by US estate taxes, or they might not. This could make a difference to the approach you would need.

On the occasion I dealt with most closely, the person who died holding a 401k was now living back in the UK. The broker, in this case Fidelity, was relatively helpful to his widow. The process for getting the funds released was to file a full US 'non-resident alien' estate tax return, form 706-NA, with the IRS, who then gave Fidelity the permission they needed to distribute the money.

It was a bit long-winded and frustrating, but in no case was anything other than certified copies of UK probate, UK inheritance tax returns, and UK death certificate required. We were able to complete it without involving any expensive cross-border accountants or lawyers. The main blocker appears to be that brokers will not (perhaps cannot) release funds of deceased people without a nod from the IRS that all the US estate tax boxes have been correctly ticked.

The US and the UK have a specific estate tax treaty which might help if you can read through the legalese here. I have only passing familiarity with a couple of bits of it that I have had to refer to over the years, but specific items of note might be the parts covering inheriting spouse and the exemptions and credits for US estate tax (non-treaty nations get a mere $60k, but for those with an estate tax treaty this rises to over $5mm). As you will quickly see from this treaty, your son's domicile could be an important aspect of unravelling this.

Finally, I strongly second lootman's idea of liaising with your son's employer here. They are very likely to be sympathetic to your situation, and particularly if they are a large-ish employer may have a reasonable degree of leverage with their 401k provider. Again in my experiences of this, the employers involved bent over backwards to help out wherever they could.

Again then, so sorry to hear of your experience here. I hope you find a successful resolution. I am not a lawyer, just another amateur at this, so please treat the above with that in mind.

[Clitheroekid]

I am not a lawyer, just another amateur at this, so please treat the above with that in mind.

Maybe not, but the advice from both yourself and Lootman was a damn sight better than I or any other lawyer on here could have given.

[9873210]

1. In the US inheritance is a matter of state law. If you contact a lawyer in the US you want one in the correct state, probably either where the company was head quartered or where the son lived. In some states probate is easy and cheap, in others, notably California, it is not. Think of this as "it's different in Scotland" x 50.

2. A 401(k) with a designated beneficiary does not go through probate. Indeed, a designated beneficiary overrides anything in a will. Providing proof to the custodian that the account holder is dead and ID for the beneficiary does it for a US inheritor. For non-US persons there are tax forms and similar, but that's not probate. It's an entirely different hassle and happens after the custodian acknowledges you're the beneficiary. Many employers make it quite hard not to designate a beneficiary. If there are a few likely candidates it's worth having each of them contact the custodian saying "xxx had an account and died, I believe I was the beneficiary". If one of them was the beneficiary the custodian should acknowledge it and provide instructions. If no beneficiary was named to the 401(k) it becomes part of the decedent's estate and it's back to probate.

3. There should be regular account statements. Usually quarterly giving investment values. Often once a year a further reminder of who the beneficiary is. Has the sons mail / email been forwarded?

[djj37]

Thanks a lot for all the replies to my query. It is very good of you all to take the time to help. Thank you also also for your condolences.
I didn't know how often the 401k statements appeared so it's good to know they are quarterly. However in almost a year since his death I've had no statement from the holder so I guess the mail just isn't getting to me - he had too many US addresses (in several states) during his time in the IT business! He had returned to the UK about 18 months before and worked here before going back on holiday to the US to see friends and he died there. I'll follow up the leads you've all given so kindly, especially when I eventually get a 401k statement to see if it's likely to be worthwhile! He was certainly well paid so it might be, but I'm not even sure if all his employers required him to make 401k contributions - or is it a standard US requirement?

[Lootman]

I didn't know how often the 401k statements appeared so it's good to know they are quarterly.

Any quarterly statement may have been delivered electronically, or even just held on the site for a user to retrieve. But I believe that the annual year-end statements are sent out by post because it includes a document that may be needed for tax purposes. That would be in January as the tax year in the US is the calendar year so something may arrive next month to whatever address the 401K provider has on file.

I'm not even sure if all his employers required him to make 401k contributions - or is it a standard US requirement?

It's not required - purely optional. Most well paid people would do it, however, because of the tax benefits and, typically, matching contributions from the employer. However it is possible that someone who intends to leave the US in the future might not bother.

[djj37]

It sounds as though I've drawn the short straw as he worked both in Florida and the dreaded California, so 9873210 tells me I've two lots of convincing to do. I thought it was "just" the 401k contributions to recover but I've just discovered in a roundabout way there was a current US bank account!
The problems of winding up an estate, even without the US complications, have encouraged me to close down the various bank and building society accounts with just a few pounds in them that I have personally while I'm still compos. I encourage readers to do the same as they go along. Notice of our demise is rarely long and it will save a lot of subsequent work and expense. Even in the UK there is an enormous variation in how the institutions treat enquiries/requests from executors and the US organisations I/my solicitor have dealt with are even less inclined to help 'foreigners'. I've also made sure a "trusty" knows the passwords to my e-mail accounts - another problem I've had. I've learned a lot in last few months. Thanks again for all the advice readers have given me. If I ever get anywhere I'll post the news.

[Lootman]

It sounds as though I've drawn the short straw as he worked both in Florida and the dreaded California, so 9873210 tells me I've two lots of convincing to do. I thought it was "just" the 401k contributions to recover but I've just discovered in a roundabout way there was a current US bank account!

Assuming that is two different employers then it may not necessarily be too bad. When someone changes job in the US then there are typically four options for the 401-K at the job you are leaving:

1) Cash it out and pay the taxes and a 10% penalty - most people don't do that.
2) Leave it in situ - in which case here there may well be two 401-K plans here
3) Roll over the old 401-K into the new employer's 401-K, in which case only the new employer and its 401-K plan provider are relevant here
4) Roll over the old 401-K into an individual retirement plan (IRA), in which case there is the current 401-K and an IRA.

The good news is that neither California nor Florida have a state estate tax, and the US federal tax only applies if the estate is worth over $5 million or so.

The main providers of 401-K and IRA plans are large national institutions like Fidelity, Vanguard and Schwab, so you may find it easier to deal with their national offices, once you have standing of course. But again, I'd start with those two employers.

[9873210]

For a nonresident alien* the US estate tax starts at $60,000 in US sited assets. The $5.45 million mentioned above is for world wide assets for a US citizen or (US) resident alien.

But as above the first issue is to find out what assets exist and if they have designated beneficiaries. Inquiries to the employers and custodians are the place to start. Phones calls should work, and the time difference works in your favour. Once you figure out where the money is and where it will be going it will be time enough to worry about taxes.

*a term of art in US tax code which means "the rest of the world" and would include a non-US citizen living in the UK.

[Lootman]

For a nonresident alien* the US estate tax starts at $60,000 in US sited assets. The $5.45 million mentioned above is for world wide assets for a US citizen or (US) resident alien.

Good point. but someone who has worked in the US for 8 years may well be regarded as a US person. For instance, the H1-B program, which is how many IT and other professional workers are admitted to the US, has a limit of 6 years, I believe. So someone working there for 8 years could imply a green card AKA "resident alien"

It would be useful to know what immigration status applied here.

[TedSwippet]

For a nonresident alien* the US estate tax starts at $60,000 in US sited assets. The $5.45 million mentioned above is for world wide assets for a US citizen or (US) resident alien.

Assuming assets are below $5.45mm there should be no US estate tax issues here whether or not the OP's son was a 'non-resident alien'. The UK has an estate tax treaty with the US that negates this $60k limit otherwise imposed on 'non-resident aliens'.

From Article 8:

This article also provides that where property of a U.K. national, who was not a U.S. national or domiciliary, is subject to U.S. estate taxation, the U.S. tax on that property will not be greater than the U.S. tax which would have been imposed on the decedent's worldwide assets if he had been a U.S. domiciliary at his death.