Concerns about investing abroad

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airelleofmusic
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Concerns about investing abroad

Post by airelleofmusic » Mon Dec 04, 2017 4:22 pm

Hello,

I am French and I have been investing my money for 2 years on the TD Ameritrade platform (~20k$) on low-cost ETFs.

I definitely prefer investing through the US intead of my local country (France) for two reasons:

- I do not believe in the sustainablity of the EUR over the long term
- Financial products in France are quite expensive (minimum expense ratios for ETFs are 0.20%) whereas on TDA I have access to much less expensive products.

I am going to inherit some money (~30k) and expect to invest it again on TD Ameritrade.

Is it risky to do this ? Can the US government seize my money for any reason because I am not an US-resident ? May I be subject to some restrictions (now or in the future) to withdraw my money and bring it back to France ?

Many thanks !
LBYM and enjoy life ! Thanks BH !

GAAP
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Re: Concerns about investing abroad

Post by GAAP » Wed Dec 06, 2017 12:24 pm

Can the US government seize your money? Certainly, as can any other government for any valid or invalid reason -- historical examples abound.

The better question would whether or not it's likely that the US government would seize your money -- and I really doubt that. France is a US ally, and seizing assets from French citizens would drastically hurt that alliance. It's in the best interests of the US government not to do so.

I wouldn't worry about it.

airelleofmusic
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Re: Concerns about investing abroad

Post by airelleofmusic » Sat Dec 09, 2017 7:12 am

Hum ok thanks for your answer. The issue is just that I feel a bit uncomfortable to know that my investments are abroad.
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grabiner
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Re: Concerns about investing abroad

Post by grabiner » Sun Dec 10, 2017 9:31 am

airelleofmusic wrote:
Mon Dec 04, 2017 4:22 pm
I definitely prefer investing through the US intead of my local country (France) for two reasons:

- I do not believe in the sustainablity of the EUR over the long term
Whether you invest in funds in the US or France is irrelevant for this effect. If you buy a fund in France which holds US stocks, and the US market doesn't move in dollars but the euro falls against the dollar, you will have more euros. If you buy a similar fund in the US, you will have the same number of dollars, but these will be converted to more euros when you sell the fund.

What does matter is what your fund holds. If you buy a fund which holds US stocks and the euro rises against the dollar, the dollar value of those stocks will give you fewer euros. If you buy a fund which holds European stocks, you will get the euro returns
.
Can the US government seize my money for any reason because I am not an US-resident?
The US government is not likely to seize your money, but it is likely to tax your money. I don't know the terms of the tax treaty between the US and France, which determines how the US can tax your US-based investments, and how that interacts with French tax. (For example, if the US and France both tax the same dividend, you may be able to take a French tax credit for the US tax paid on the dividend.) If you have assets in the US when you die, the US estate tax might affect them. You need to investigate these taxes.
David Grabiner

airelleofmusic
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Re: Concerns about investing abroad

Post by airelleofmusic » Mon Dec 11, 2017 3:15 am

grabiner wrote:
Sun Dec 10, 2017 9:31 am
airelleofmusic wrote:
Mon Dec 04, 2017 4:22 pm
I definitely prefer investing through the US intead of my local country (France) for two reasons:

- I do not believe in the sustainablity of the EUR over the long term
Whether you invest in funds in the US or France is irrelevant for this effect. If you buy a fund in France which holds US stocks, and the US market doesn't move in dollars but the euro falls against the dollar, you will have more euros. If you buy a similar fund in the US, you will have the same number of dollars, but these will be converted to more euros when you sell the fund.

What does matter is what your fund holds. If you buy a fund which holds US stocks and the euro rises against the dollar, the dollar value of those stocks will give you fewer euros. If you buy a fund which holds European stocks, you will get the euro returns
.
Can the US government seize my money for any reason because I am not an US-resident?
The US government is not likely to seize your money, but it is likely to tax your money. I don't know the terms of the tax treaty between the US and France, which determines how the US can tax your US-based investments, and how that interacts with French tax. (For example, if the US and France both tax the same dividend, you may be able to take a French tax credit for the US tax paid on the dividend.) If you have assets in the US when you die, the US estate tax might affect them. You need to investigate these taxes.
Regarding the EUR I don't really about its fluctuations vs the USD, it's more about that I am almost sure 100% that the EUR is bound to breakdown and that each eurozone country will find back its own currency (franc, deutsche mark, lire etc.)
And I am very concerned on how this will occur so I prefer staying away from this currency.

Hum yes I already checked tax-treaty between the US and France, I will be taxted 15% on dividends but I can claim back these taxes so that's fine.
LBYM and enjoy life ! Thanks BH !

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Lauretta
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Re: Concerns about investing abroad

Post by Lauretta » Mon Dec 11, 2017 5:47 am

Hi,
interesting point about the end of the eurozone; I sometimes wonder about that mysef - however, don't you think if that were to happen it would be a gradual process and you would see it coming? For example if Le Pen had come to power she would not have been able to revert to the franc overnight. The time they organise a referendum etc one would be able to withdraw from say one's Assurance Vie (I used to live in France so I still have one) and euro labelled accounts and move funds abroad.
Investing in the US seems quite complicated for tax reasons - at least for Italian residents like myself. Is it easy for you when it comes to your declaration, claiming back taxes paid in the US etc?
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airelleofmusic
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Re: Concerns about investing abroad

Post by airelleofmusic » Mon Dec 11, 2017 5:21 pm

Lauretta wrote:
Mon Dec 11, 2017 5:47 am
Hi,
interesting point about the end of the eurozone; I sometimes wonder about that mysef - however, don't you think if that were to happen it would be a gradual process and you would see it coming? For example if Le Pen had come to power she would not have been able to revert to the franc overnight. The time they organise a referendum etc one would be able to withdraw from say one's Assurance Vie (I used to live in France so I still have one) and euro labelled accounts and move funds abroad.
Investing in the US seems quite complicated for tax reasons - at least for Italian residents like myself. Is it easy for you when it comes to your declaration, claiming back taxes paid in the US etc?
Very happy to share with someone interested in the eurozone economy.
Only looking at Target2 balances is enough to see that the eurozone is not sustainable over the long run. Government € bonds already price differently in the financial markets meaning that the unique currency is no longer unique.
Germany recently offered to lmit eurozone wires between eurozone countries by forcing countries that want to send money in the Bundesbank to put some collateral in front of -> when a country (spain, italy) will no longer be able to put this collateral, the spain euro will not be equal to the german euro.
The truth is that it's much more easy to get out of the euro than to come in. A control of movements of capital needs to be declared by the executive so that nobody will be able to withdraw money (for let's say 3 or 6 months) until volatility of the new currency is stabilized. It's in every eurozone country to implement control of movements of capital (Germay does not want to be creditor to billions of euros !)

Yes it's quite easy to claim back taxes, you only need to fill a form with dividends paid in the US. The only con is that it's not a tax-free account and you need to paid taxes if you withdraw money to France.
LBYM and enjoy life ! Thanks BH !

Thesaints
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Re: Concerns about investing abroad

Post by Thesaints » Mon Dec 11, 2017 5:34 pm

Has there ever been a time when bonds of different eurozone countries where priced the same ?

airelleofmusic
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Re: Concerns about investing abroad

Post by airelleofmusic » Mon Dec 11, 2017 5:38 pm

Thesaints wrote:
Mon Dec 11, 2017 5:34 pm
Has there ever been a time when bonds of different eurozone countries where priced the same ?
Eurozone spreads were extremely tight before 2008:
Image
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Thesaints
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Re: Concerns about investing abroad

Post by Thesaints » Mon Dec 11, 2017 5:42 pm

What’s on the vertical scale ?

airelleofmusic
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Re: Concerns about investing abroad

Post by airelleofmusic » Mon Dec 11, 2017 5:51 pm

It's the 10-year government bond yield
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Thesaints
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Re: Concerns about investing abroad

Post by Thesaints » Mon Dec 11, 2017 5:54 pm

Arielle: the 10-year Italian BTP currently yields 1.64%. In fact, at present there is no Italian government issue that pays more than 3%. That plot shows a figure close to 6% for Italy...

airelleofmusic
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Re: Concerns about investing abroad

Post by airelleofmusic » Mon Dec 11, 2017 6:49 pm

Hum this is because the graph stops at 2012 and not until 2017...
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Thesaints
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Re: Concerns about investing abroad

Post by Thesaints » Mon Dec 11, 2017 6:52 pm

So, if you cared to check the latest news, seeing that the Italian 50-year bond yields as much (or as little, actually) as the 30-year T-bond would assuage your fears about the euro-zone and maybe instill some concerns about the US market, n’es pas ?

larryslocum1982
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Re: Concerns about investing abroad

Post by larryslocum1982 » Mon Dec 11, 2017 8:29 pm

There is a big world outside the U.S. and Europe. Lots of opportunities in emerging markets.

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grabiner
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Re: Concerns about investing abroad

Post by grabiner » Mon Dec 11, 2017 11:35 pm

airelleofmusic wrote:
Mon Dec 11, 2017 3:15 am
grabiner wrote:
Sun Dec 10, 2017 9:31 am
airelleofmusic wrote:
Mon Dec 04, 2017 4:22 pm
I definitely prefer investing through the US intead of my local country (France) for two reasons:

- I do not believe in the sustainablity of the EUR over the long term
Whether you invest in funds in the US or France is irrelevant for this effect. If you buy a fund in France which holds US stocks, and the US market doesn't move in dollars but the euro falls against the dollar, you will have more euros. If you buy a similar fund in the US, you will have the same number of dollars, but these will be converted to more euros when you sell the fund.

What does matter is what your fund holds. If you buy a fund which holds US stocks and the euro rises against the dollar, the dollar value of those stocks will give you fewer euros. If you buy a fund which holds European stocks, you will get the euro returns.
Regarding the EUR I don't really about its fluctuations vs the USD, it's more about that I am almost sure 100% that the EUR is bound to breakdown and that each eurozone country will find back its own currency (franc, deutsche mark, lire etc.)
And I am very concerned on how this will occur so I prefer staying away from this currency.
And my point is that what matters is the currency of the corporation you invest in, not the currency of the fund. If you have a fund which holds US stocks but is traded in some other currency, your fund's value will track the dollar value of the US stock market. If France abandons the euro at a time that a euro is worth a dollar, and six new francs are worth a dollar, then an investment which was worth $10,000 will change in value from 10,000 euros to 60,000 francs. Whether your price was quoted in euros/francs in a French fund, or in dollars in the US fund, you have the same stocks and they keep the same dollar value if the US market is stable.

Conversely, if you buy a US-based fund holding French stocks, and the French stock market falls (whether because of euro issues or other reasons), your fund will be worth less in French currency. You gained no protection by holding the US-based fund.
David Grabiner

ivk5
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Re: Concerns about investing abroad

Post by ivk5 » Tue Dec 12, 2017 1:23 am

Estate tax for non-US persons investing in US-domiciled funds is pretty punitive starting at a low level ($40k60k). ETA: except for countries with estate tax treaties with the US, including Italy and France; see TedSwippet's post below.

Would strongly suggest non-US-domiciled funds through a broker like IB.

As others have noted, currency that funds are denominated in is irrelevant, what matters is reporting currency of the fund's holdings.
Last edited by ivk5 on Wed Dec 13, 2017 6:52 pm, edited 1 time in total.

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Lauretta
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Re: Concerns about investing abroad

Post by Lauretta » Tue Dec 12, 2017 2:31 am

grabiner wrote:
Mon Dec 11, 2017 11:35 pm
airelleofmusic wrote:
Mon Dec 11, 2017 3:15 am
grabiner wrote:
Sun Dec 10, 2017 9:31 am
airelleofmusic wrote:
Mon Dec 04, 2017 4:22 pm
I definitely prefer investing through the US intead of my local country (France) for two reasons:

- I do not believe in the sustainablity of the EUR over the long term
Whether you invest in funds in the US or France is irrelevant for this effect. If you buy a fund in France which holds US stocks, and the US market doesn't move in dollars but the euro falls against the dollar, you will have more euros. If you buy a similar fund in the US, you will have the same number of dollars, but these will be converted to more euros when you sell the fund.

What does matter is what your fund holds. If you buy a fund which holds US stocks and the euro rises against the dollar, the dollar value of those stocks will give you fewer euros. If you buy a fund which holds European stocks, you will get the euro returns.
Regarding the EUR I don't really about its fluctuations vs the USD, it's more about that I am almost sure 100% that the EUR is bound to breakdown and that each eurozone country will find back its own currency (franc, deutsche mark, lire etc.)
And I am very concerned on how this will occur so I prefer staying away from this currency.
And my point is that what matters is the currency of the corporation you invest in, not the currency of the fund. If you have a fund which holds US stocks but is traded in some other currency, your fund's value will track the dollar value of the US stock market. If France abandons the euro at a time that a euro is worth a dollar, and six new francs are worth a dollar, then an investment which was worth $10,000 will change in value from 10,000 euros to 60,000 francs. Whether your price was quoted in euros/francs in a French fund, or in dollars in the US fund, you have the same stocks and they keep the same dollar value if the US market is stable.

Conversely, if you buy a US-based fund holding French stocks, and the French stock market falls (whether because of euro issues or other reasons), your fund will be worth less in French currency. You gained no protection by holding the US-based fund.
yes, if you have a globally diversified stock portfolio, like you say the accounting currency doesn't count - indeed if e.g. Italy reverts to lire and lire are devalued relative to the $, one's stocks invested in the US will appreciate (when measured in lire) because of the dollar going up relative to the lire (which is what happened e.g. after Brexit to UK investors owning foreing stocks).
The problem with EU investors are bonds I think. As an Italian, if I invest in a Eurozone bond fund (to avoid currency risk for that part of my portfolio) I face the risk that if France say exits the eurozone and reverts to the franc, and the franc is devalued, I will be repaid by the French government in francs not in euros, and I will face a loss. If I invest only in Italian btp to avoid this risk, I have some default risk instead...
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Re: Concerns about investing abroad

Post by Thesaints » Tue Dec 12, 2017 2:40 am

Repayment of bonds in a different currency is classified as “default”.
Also, investments diversification has not much to do with currency risk. The point is that the currency risk is only between the investor’s own curremcy and the currency of negotiation of the uderlying investment, not the currency of negotiation of the fund/ETF.
In other words, if a UK-based investor buys EWU, the iShares ETF on the UK market index, which is traded in dollars on the NYSE, he doesn’t take on any currency risk.
If he invest in EWJ, the ETF that tracks the nikkei stock index, he is exposed to the gpb-jpy exchange rate risk. The fact that the ETF is dollar denominated is immaterial from that point of view.

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Lauretta
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Re: Concerns about investing abroad

Post by Lauretta » Tue Dec 12, 2017 3:08 am

Thesaints wrote:
Tue Dec 12, 2017 2:40 am
Repayment of bonds in a different currency is classified as “default”.
Also, investments diversification has not much to do with currency risk. The point is that the currency risk is only between the investor’s own curremcy and the currency of negotiation of the uderlying investment, not the currency of negotiation of the fund/ETF.
In other words, if a UK-based investor buys EWU, the iShares ETF on the UK market index, which is traded in dollars on the NYSE, he doesn’t take on any currency risk.
If he invest in EWJ, the ETF that tracks the nikkei stock index, he is exposed to the gpb-jpy exchange rate risk. The fact that the ETF is dollar denominated is immaterial from that point of view.
well I am not an expert at all on bonds, but I have read a number of articles by financial pundits saying that state bonds of different EU members are going to be repaid in the local currency if that country leaves the Eurozone. They add that the state is sovreign and it will do what it wants and there's not much investors can do about that. If France leaves the eurozone, my understanding is that it will repay its sovreign debt in francs.

I am not sure what the point of your second point is (so to speak). Of course currency risk occurs if the currency of the underlying asset is different from one's own currency. The accounting currency of the fund is irrelevant. My point was that a eurozone investor, if they want to avoid currency risk for the bond part of their portfolio, will invest only in bonds from the eurozone because they are denominated in euros (leaving aside the possibility of currency hedged global funds). But if the eurozone disintegrates, and each government adopts a different currency and starts repaying its sovreing debt in the local currency, then those bonds (that the investor had purchased thinking there would be no currency risk) will begin to become sensitive to the fluctuations of the currencies of each country.
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Lauretta
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Re: Concerns about investing abroad

Post by Lauretta » Tue Dec 12, 2017 3:23 am

Thesaints wrote:
Tue Dec 12, 2017 2:40 am
Repayment of bonds in a different currency is classified as “default”.
Also, investments diversification has not much to do with currency risk. The point is that the currency risk is only between the investor’s own curremcy and the currency of negotiation of the uderlying investment, not the currency of negotiation of the fund/ETF.
In other words, if a UK-based investor buys EWU, the iShares ETF on the UK market index, which is traded in dollars on the NYSE, he doesn’t take on any currency risk.
If he invest in EWJ, the ETF that tracks the nikkei stock index, he is exposed to the gpb-jpy exchange rate risk. The fact that the ETF is dollar denominated is immaterial from that point of view.
Perhaps I see more clearly what you meant. :?: You meant that if a country leaves the Eurozone it's immaterial whether they'll repay their debt in Euro or their local currency (say franc), because if the French government owes an investor say 1 million Euros, it would be immaterial whether they repay it in Euros or the equivalent amount in Francs. My understanding is that at the time of leaving the eurozone, France would say: I owe you 1 million Euros and I will repay it in the equivalent in Francs (say 10 million). Then they devalue the Franc, so that 10 million Francs are now worth only half a million euro. Then they pay you back. So you get less than what you lent to them. Hope this makes sense.
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Re: Concerns about investing abroad

Post by Ari » Tue Dec 12, 2017 3:46 am

Lauretta wrote:
Tue Dec 12, 2017 3:08 am
I am not sure what the point of your second point is (so to speak). Of course currency risk occurs if the currency of the underlying asset is different from one's own currency. The accounting currency of the fund is irrelevant. My point was that a eurozone investor, if they want to avoid currency risk for the bond part of their portfolio, will invest only in bonds from the eurozone because they are denominated in euros (leaving aside the possibility of currency hedged global funds). But if the eurozone disintegrates, and each government adopts a different currency and starts repaying its sovreing debt in the local currency, then those bonds (that the investor had purchased thinking there would be no currency risk) will begin to become sensitive to the fluctuations of the currencies of each country.
Sure, but the OP will not in any way be protected from this by holding an account in the US. The only thing that this protects against is if France will try to seize her assets. And even if this happens, if it doesn't happen through a communist takeover or similar, chances are pretty high that US-based companies would comply and hand over the money of French citizens if the French government demanded it.

Let's also remember that there's an additional cost associated with exchanging currencies. Every time you deposit money into a US account and every time you withdraw, you'll be paying a fee for exchanging your EURs into USDs.
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Lauretta
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Re: Concerns about investing abroad

Post by Lauretta » Tue Dec 12, 2017 4:01 am

Ari wrote:
Tue Dec 12, 2017 3:46 am
Lauretta wrote:
Tue Dec 12, 2017 3:08 am
I am not sure what the point of your second point is (so to speak). Of course currency risk occurs if the currency of the underlying asset is different from one's own currency. The accounting currency of the fund is irrelevant. My point was that a eurozone investor, if they want to avoid currency risk for the bond part of their portfolio, will invest only in bonds from the eurozone because they are denominated in euros (leaving aside the possibility of currency hedged global funds). But if the eurozone disintegrates, and each government adopts a different currency and starts repaying its sovreing debt in the local currency, then those bonds (that the investor had purchased thinking there would be no currency risk) will begin to become sensitive to the fluctuations of the currencies of each country.
Sure, but the OP will not in any way be protected from this by holding an account in the US. The only thing that this protects against is if France will try to seize her assets. And even if this happens, if it doesn't happen through a communist takeover or similar, chances are pretty high that US-based companies would comply and hand over the money of French citizens if the French government demanded it.

Let's also remember that there's an additional cost associated with exchanging currencies. Every time you deposit money into a US account and every time you withdraw, you'll be paying a fee for exchanging your EURs into USDs.
Yes I agree with all this, and moreover it makes the taxation issue more complicated (in Italy it's already complicated enough!). That's why I was initially personally tempted to invest some money in a fund by AlphaArchitect which is only available in the US, but in the end I didn't because it seemed too much hassle, like you mention there are costs in currency exchange, also tax complications etc.
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Lauretta
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Re: Concerns about investing abroad

Post by Lauretta » Tue Dec 12, 2017 4:10 am

Thesaints wrote:
Tue Dec 12, 2017 2:40 am
Repayment of bonds in a different currency is classified as “default”.
Please see e.g. this article on repayment of bonds in francs rather than euros.
https://www.bloomberg.com/view/articles ... nce-dearly
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Re: Concerns about investing abroad

Post by Thesaints » Tue Dec 12, 2017 5:22 pm

Lauretta wrote:
Tue Dec 12, 2017 4:10 am
Please see e.g. this article on repayment of bonds in francs rather than euros.
https://www.bloomberg.com/view/articles ... nce-dearly
The article means that, should Mrs. LePen be correct (and she is not), non-french holders would have to be repaid in Euros nonetheless.

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Re: Concerns about investing abroad

Post by TedSwippet » Wed Dec 13, 2017 6:04 pm

ivk5 wrote:
Tue Dec 12, 2017 1:23 am
Estate tax for non-US persons investing in US-domiciled funds is pretty punitive starting at a low level ($40k).
Actually it is not $40k but $60k, But yes, US estate taxes can kick in at ridiculously low levels for US NRAs.

However, in this particular case both France and Italy have US estate tax treaties that generally raise the exemption to the standard $5.49mm available to US citizens (pro-rated based on the ratio of US to worldwide assets). So airelleofmusic and Lauretta will probably both be reasonably well insulated from this nasty US tax.

Under treaty protection, if the worst should occur then there is a bunch of paperwork to complete for a US estate tax return, and potentially a long wait while the IRS processes the return and before any funds could be released by the broker. But aside from inconvenience and delay, no actual US estate tax liability is likely for these two posters.

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Re: Concerns about investing abroad

Post by ivk5 » Wed Dec 13, 2017 6:54 pm

TedSwippet wrote:
Wed Dec 13, 2017 6:04 pm
ivk5 wrote:
Tue Dec 12, 2017 1:23 am
Estate tax for non-US persons investing in US-domiciled funds is pretty punitive starting at a low level ($40k).
Actually it is not $40k but $60k, But yes, US estate taxes can kick in at ridiculously low levels for US NRAs.

However, in this particular case both France and Italy have US estate tax treaties that generally raise the exemption to the standard $5.49mm available to US citizens (pro-rated based on the ratio of US to worldwide assets). So airelleofmusic and Lauretta will probably both be reasonably well insulated from this nasty US tax.
Thanks- corrected post above.

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