Last Updated on 2, May 2014
A Singaporean who is a non-resident non-US Citizen and invests in US assets like ETFs are subjected to US government estate duty. This is often overlooked. I have talk to many individuals and they were not aware of it. Sometime they just ask their broker to buy XYZ stocks or ETFs listed on the US stock exchange but they are not advised that they should use a tax shelter instrument to do that.
According to US government tax website: http://www.irs.gov the Form 706NA is meant for the deceased's Executor to fill up. It is assumed that the deceased was a non-US citizen and non-resident. It is clearly written that assets above the filing limit of US$60,000 (under the "Who Must File" page 1 of the Form 706NA instructions) need to file this form. The actual Form 706NA is so complex that it is obvious that an US certified accountant cum lawyer need to be engage to assist. After legal fees for the accountant and lawyer, I really wonder how much assets are left for the estate!
If a person is a US-citizen US-resident, how much is the exemption limit? According to Form 706 Instruction, the exemption limit is US$2,000,000 ! This is confirmed by this US government IRS website here:http://www.irs.gov/publications/p950/ar02.html#d0e126
How much is the estate duty rates in US? The "Economic Growth and Tax Relief
Reconciliation Act of 2001" states that the rates are as follows:
Year Rate
2001 55%
2002 50%
2003 49%
2004 48%
2005 47%
2006 46%
2007 45%
2008 45%
2009 45%
2010 0%
2011 55% <--- Note!
Estate Duty is automatically reinstated in 2011 unless Congress acts before then. Seehttp://en.wikipedia.org/wiki/Economic_Growth_and_Tax_Relief_Reconciliation_Act_of_2001
While effort have been made to ensure the above information is as accurate as possible, readers are advised to consult their tax and legal advisers.
My opinions are subjected to change although at the present they are in agreement with other financial planners such as these:
http://www.internationallawoffice.com/Newsletters/Detail.aspx?r=13948&l=6G4RBLT
Besides Estate Duty, there is also a relatively unknown problem which is the Probate process. Regardless of whether the foreign jurisdiction has estate duty or not, a Probate is required to be done in those countries. This can be a long and costly process too. After considering time and money, investing offshore can be an expensive thing to do. Some of my clients who have families continue to act irresponsibility in the way they invest offshore as they just seem not to care about the hardship they will be imposing on their families when they have passed on. Of course we have a solution to help people invests offshore without the problems of estate duty and probate (probate still need to be done in Singapore - only) but the key point is this - if people do not treat financial planning seriously, the solutions are of no use. The losers at the end of the day will be their family who will turn from rich to rag.
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Hi Wilfred, what do you think of this response I got from my broker?
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Regarding US estate tax, there is a lot of misinformation on this subject being published on the Internet. US estate taxes are for US residents with assets in the United States. There is no estate tax for customers outside of the US. In fact, we don’t even get involved in estate taxation for US customers either. The best way to describe this is to detail how we handle a customer’s sudden passing:
If a customer either within and/or outside of the US passes suddenly, we ask for the next-of-kin in the family to provide a copy of the death certificate. We would also ask for any documents that could be from the Courts, which may inform us who is the rightful owner of the assets after the customer’s death. After receiving the documents, we work with the appropriate person in your family to create an Estate account, and then we encourage them to either liquidate the holdings, and withdraw the funds. Or, they could also transfer the account contents to another broker, if simpler. Either way, there is no estate taxation, nor services related to estate taxes done by Interactive Brokers. We can unfortunately confirm that it happens frequently that a customer passes suddenly, including thousands of our Non-US customers, and our procedure is always exactly as described above.
We hope this helps to clarify.
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and
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Thank you for contacting us. Interactive Brokers does not get involved with, or support any taxation at death. (not for any client worldwide)
We can confirm that (unfortunately) it happens every week, all over the world, that a customer passes suddenly. Here is our procedure:
We ask the customer’s spouse or next of kin (children, other family member) to provide a copy of the death certificate along with any other court-ordered documents which might describe who has the legal rights to assets of the Estate.
Most of the time, if a customer is married, the legal heir is the spouse. In this case, we simply work with the spouse to create an Estate account, then we work to either liquidate the positions and/or transfer the account to a new broker. It all depends on the rightful owner’s wishes.
There is no support or reporting related to taxation.
Regards,
Melissa-Interactive Brokers
A stock broker is not involved in the payment of estate duty. Estate duty is payable prior to obtaining the grant of probate.
US estate taxes apply to both people staying in US, as well as people staying outside US but with assets in US e.g. stocks, ETFs, bonds. So it also applies to non-US citizens staying outside US.
Exemption limit for US citizens who die in 2015 is US$5.43M.
Exemption limit for Non-Resident Aliens e.g. Sinkies staying in S’pore with US stocks, ETFs — US$60K.
S’pore-US still doesn’t have estate tax treaty, so whatever current max tax rates apply.
US has estate tax treaty with most Western Europe, Oz & Japan.
Thanks for the insightful sharing. Will you elaborate a bit on the tax shelter instrument?
Aiyah please lah…. you so old already need people to tell you what to do?!?!
As long as everything is online, you can & should inform your spouse and/or trusted kid on how to login, trade, buy/sell, transfer etc. Conduct a few tutorial lessons for them.
So even if you die, your family can simply take over the seat behind the computer — the US govt, other foreign govts, banks, brokers etc don’t need to know you have died. Your spouse and/or your kids can even continue investing / trading / saving your online accounts. And buy / sell / transfer as & when required.
Same also goes for any local bank or brokerage account. Hell, you don’t even need to pay govt money for probate or letter of administration, unless for physical assets like properties or cars. And in fact if you don’t intend to sell / transfer the property or car, you don’t even need probate or administration — just continue to live in or rent out the house and drive the car lah.
And if you don’t trust your family that much, change your passwords after each time you conduct tutorials, and put them in sealed envelopes & keep in bank safety deposit box. But this requires your family to apply probate or letter of admin to get access to the damn box — just don’t list down all those “secret” bank account & broker accounts when applying for probate or admin.
BTW what Interactive Brokers advised above is strictly speaking circumventing their US laws. As a brokerage licensed under SEC, they should know the basic US tax laws & estate duties. While not empowered nor do they wish to provide tax /legal info, the least they should do is point customers towards the relevant US govt web site and/or advise to seek proper US tax/legal advice. But of course this will simply turn off prospective overseas customers.