EU investor: any way to avoid punitive US estate tax on death?

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TedSwippet
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Re: EU investor: any way to avoid punitive US estate tax on death?

Post by TedSwippet » Thu Feb 28, 2019 6:56 pm

Thesaints wrote:
Thu Feb 28, 2019 6:17 pm
As far as I know, the US estate tax is one of the lowest in the whole civilized world. This year the threshold is almost 12 millions.
The current nearly $12MM exemption is for US citizens only.

For most non-resident aliens holding US situated assets, including the case discussed in this thread, the exemption is a mere $60k. Non-resident aliens who might be caught by this can -- and definitely should -- avoid it by holding any US assets through either a personal holding corporation or a non-US domiciled mutual fund or ETF.

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DJN
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Re: EU investor: any way to avoid punitive US estate tax on death?

Post by DJN » Fri Mar 01, 2019 12:06 am

Hi Thesaints,
you might be right about the estate threshold for US citizens and tax residents. However this is not the case for non resident aliens holding US domiciled assets (and in particular in this post equities and fixed income). Their liability on death for US estate taxes depends upon what their country's tax treaty with the US says, in the case of a great deal of countries there is no tax treaty (and also in many that have a tax treaty) the liability is taxed at a high rate above a pretty miserable low threshold of $60,000.
DJN
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galeno
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Re: EU investor: any way to avoid punitive US estate tax on death?

Post by galeno » Fri Mar 01, 2019 7:54 am

If a non-USA person buys and holds DIRECT (no fund or ETF) US treasuries and FDIC insured bank account CDs the US govt does not apply the 30% USA-NRA interest income tax.

Does that mean that direct US treasuries and FDIC insured CD still count as US assets and thus vulnerable to USA inheritance taxes? Or not?
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.82%. Term = 33 yr. FI Duration = 6.0 yr. Portfolio survival probability = 95%.

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Hyperborea
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Re: EU investor: any way to avoid punitive US estate tax on death?

Post by Hyperborea » Fri Mar 01, 2019 8:19 am

galeno wrote:
Fri Mar 01, 2019 7:54 am
Does that mean that direct US treasuries and FDIC insured CD still count as US assets and thus vulnerable to USA inheritance taxes? Or not?
Taxes are weird everywhere but the US system is particularly weird. No, publicly traded bonds (of any duration) and CDs (or any money in a BANK account) are not "US situs property".
It’s hard to win an argument with a smart person, it's damn near impossible to win an argument with a stupid person. - Bill Murray

TedSwippet
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Re: EU investor: any way to avoid punitive US estate tax on death?

Post by TedSwippet » Fri Mar 01, 2019 8:40 am

Hyperborea wrote:
Fri Mar 01, 2019 8:19 am
No, publicly traded bonds (of any duration) ... are not "US situs property".
Hmm. The part I put in italics above seems to conflict a little with this analysis.

Nonresident aliens: U.S. estate tax on treasury bills. - Free Online Library
One reason for the popularity of Treasury bills among nonresident aliens is that the interest, or discount, is free from U.S. income tax. What many may not realize, however, is that Treasury bills of 183 days or less in duration are considered U.S. property for U.S. estate tax purposes. Consequently, the obligations may be subject to U.S. estate tax when a nonresident alien dies.

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Hyperborea
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Re: EU investor: any way to avoid punitive US estate tax on death?

Post by Hyperborea » Fri Mar 01, 2019 10:18 am

TedSwippet wrote:
Fri Mar 01, 2019 8:40 am
Hyperborea wrote:
Fri Mar 01, 2019 8:19 am
No, publicly traded bonds (of any duration) ... are not "US situs property".
Hmm. The part I put in italics above seems to conflict a little with this analysis.

Nonresident aliens: U.S. estate tax on treasury bills. - Free Online Library
One reason for the popularity of Treasury bills among nonresident aliens is that the interest, or discount, is free from U.S. income tax. What many may not realize, however, is that Treasury bills of 183 days or less in duration are considered U.S. property for U.S. estate tax purposes. Consequently, the obligations may be subject to U.S. estate tax when a nonresident alien dies.
Your quote is from 1993. The Taxpayer Relief Act of 1997 relaxed the restriction on the maturity of the bonds that are not considered US situs property for estate taxes. Before that bonds needed a maturity of more than 6 months.

Who said any of this had to make sense? :sharebeer
It’s hard to win an argument with a smart person, it's damn near impossible to win an argument with a stupid person. - Bill Murray

TedSwippet
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Re: EU investor: any way to avoid punitive US estate tax on death?

Post by TedSwippet » Fri Mar 01, 2019 10:56 am

Hyperborea wrote:
Fri Mar 01, 2019 10:18 am
Your quote is from 1993. The Taxpayer Relief Act of 1997 relaxed the restriction on the maturity of the bonds that are not considered US situs property for estate taxes. Before that bonds needed a maturity of more than 6 months.
Ah! Thanks so much for the update. :-)
Hyperborea wrote:
Fri Mar 01, 2019 10:18 am
Who said any of this had to make sense?
Quite. My own rule of thumb is, if US tax law looks like it is starting to make sense, you just haven't uncovered all of its details. Irregularity and caprice seem to be two of its central ingredients.

typical.investor
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Re: EU investor: any way to avoid punitive US estate tax on death?

Post by typical.investor » Sat Mar 02, 2019 9:54 am

Thesaints wrote:
Thu Feb 28, 2019 6:17 pm
DJN wrote:
Mon Feb 11, 2019 3:49 am
therefore avoids the dreaded US estate tax.
As far as I know, the US estate tax is one of the lowest in the whole civilized world. This year the threshold is almost 12 millions.
So explain why when I, a US citizen by birth, die and leave my money to my wife who then dies and leaves our money to a disabled child, any amounts over $60k will face the estate tax.

In general I think many Americans are not familiar with the realities in America that they don’t personally face. I mean who cares right.

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DJN
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Re: EU investor: any way to avoid punitive US estate tax on death?

Post by DJN » Thu Mar 07, 2019 5:35 am

Hi,
a little more information to clarify the management of the estate tax liabilities for the non resident alien owners of US domiciled assets in the event of death.

QDOT
Where a spouse dies the survivor can elect to place the property in a Qualified Domestic Trust (QDOT) and this allows for a marital deduction so that the estate tax will not be due (on amounts above $60,000) until the surviving spouses death. This assumes that a benign tax treaty is not available to the couple.
The QDOT needs to be finalised prior to the date of the estate tax return is made. This effectively extends the time before the IRS can seek to recover any estate taxes due. The assets will remain estate tax free until the surviving spouse dies. In the meantime the surviving spouse can take some monies out of the assets for specific reasons including fund costs:
- Health reasons
- Maintenance
- Education
- Support
Its interesting to note that the IRS have two different schemes for QDOTS, one for assets valued below $2M and one for assets above $2M this relates to procedural matters and the use of US based trustees.
The practical upshot as noted by some above is that this requires estate tax planning advice and administration duties. Comments welcome as always.
DJN
Yah shure

typical.investor
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Re: EU investor: any way to avoid punitive US estate tax on death?

Post by typical.investor » Thu Mar 07, 2019 6:55 am

DJN wrote:
Thu Mar 07, 2019 5:35 am
Hi,
a little more information to clarify the management of the estate tax liabilities for the non resident alien owners of US domiciled assets in the event of death.

QDOT
Where a spouse dies the survivor can elect to place the property in a Qualified Domestic Trust (QDOT) and this allows for a marital deduction so that the estate tax will not be due (on amounts above $60,000) until the surviving spouses death. This assumes that a benign tax treaty is not available to the couple.
The QDOT needs to be finalised prior to the date of the estate tax return is made. This effectively extends the time before the IRS can seek to recover any estate taxes due. The assets will remain estate tax free until the surviving spouse dies. In the meantime the surviving spouse can take some monies out of the assets for specific reasons including fund costs:
- Health reasons
- Maintenance
- Education
- Support
Its interesting to note that the IRS have two different schemes for QDOTS, one for assets valued below $2M and one for assets above $2M this relates to procedural matters and the use of US based trustees.
The practical upshot as noted by some above is that this requires estate tax planning advice and administration duties. Comments welcome as always.
DJN
I don’t see this as that useful for NRAs who have children or other legacy desires. Once the surviving spouse dies, the estate will be taxed at the NRA’s rate (so only a $60k exclusion).

I plan to use a QDOT for a non-American wife. Then when she dies, the estate will be taxed at my rate when it goes to our child. That’s what $5 million now.

Certainly it might be better than nothing, and the surviving spouse can set it up after the NRA dies (so it’s not like do it now or lose it).

I set mine up now in case she dies two weeks after a crash that killed me and she was hospitalized and couldn’t do anything.

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