Joint or separate IB accounts for NRA couple?

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mexpat
Posts: 3
Joined: Sun Feb 24, 2019 8:01 pm

Joint or separate IB accounts for NRA couple?

Post by mexpat » Sun Feb 24, 2019 9:32 pm

We are a Danish couple resident in Mexico that have worked internationally for 20+ years and have kept our savings in a joint US brokerage account investing in US ETFs. Among others from the discussions on this forum I am now aware that we have a considerable Estate tax risk with this setup. A much better solution would be to move to Interactive Brokers and buy non-US ETFs. According to Galeano this feels like Boogleheads heaven, so I am now trying to prepare for that before one of actually pass away.

When trying to understand the Estate tax issue I also came across advice against having joint accounts for NRA as these might be frozen and the surviving spouse cannot access the funds while the estate is being resolved.

What IB account would you recommend for a married couple:

1. A joint account owned by two people
2. Two individual accounts
3. A Family account with two individual accounts
4. Some other option that I have not even thought about.

The accounts would hold Irish ETFs bought on LSE, total investment over 1 million USD. We are tax residents in Mexico which has a double tax agreement, but no estate tax agreement with the US.

Any advice or suggestions are much appreciated

LBboglehead
Posts: 1
Joined: Sun Aug 04, 2019 8:24 am

Re: Joint or separate IB accounts for NRA couple?

Post by LBboglehead » Sun Aug 04, 2019 8:41 am

Hi mexpat, my situation is quite similar to yours, so I'm interested to know if you have managed to sort this out.

In the meantime, I have setup a joint account for myself and my wife at IB and currently investing in Ireland-domiciled ETFs who should (in theory) shield us from US estate tax (with the exception of any cash in excess of $60K kept in the account).

Moreover, it's not clear to me if I am to pass away, what process my wife (or any other heir) would need to follow to unfreeze the IB account and regain access to the funds in the account? My understanding is that even if it's a joint account, it will still go through probate upon the demise of any of the account holders.

typical.investor
Posts: 2073
Joined: Mon Jun 11, 2018 3:17 am

Re: Joint or separate IB accounts for NRA couple?

Post by typical.investor » Sun Aug 04, 2019 9:20 am

LBboglehead wrote:
Sun Aug 04, 2019 8:41 am
Hi mexpat, my situation is quite similar to yours, so I'm interested to know if you have managed to sort this out.

In the meantime, I have setup a joint account for myself and my wife at IB and currently investing in Ireland-domiciled ETFs who should (in theory) shield us from US estate tax (with the exception of any cash in excess of $60K kept in the account).

Moreover, it's not clear to me if I am to pass away, what process my wife (or any other heir) would need to follow to unfreeze the IB account and regain access to the funds in the account? My understanding is that even if it's a joint account, it will still go through probate upon the demise of any of the account holders.
I haven't read through it in a while, but I don't believe it's actually probate.

I believe an NRA does need to file a form showing the broker the estate is cleared with the IRS tax wise.

I think 706na is the form to file with the IRS. I'm not sure if you file a copy with the broker or what else is required.

https://www.irs.gov/individuals/interna ... ax-returns

Ahbit seems brokers are supposed to require a conclusion of IRS estate proceedings letter. It has to be requested from the IRS after the 706na is filed. Seems like it could take a while ... Months.

assyadh
Posts: 231
Joined: Tue Sep 18, 2018 12:44 pm

Re: Joint or separate IB accounts for NRA couple?

Post by assyadh » Sun Aug 04, 2019 9:38 pm

Why would the irs form apply if OP os holding LSE listed ETFs?

typical.investor
Posts: 2073
Joined: Mon Jun 11, 2018 3:17 am

Re: Joint or separate IB accounts for NRA couple?

Post by typical.investor » Sun Aug 04, 2019 10:36 pm

assyadh wrote:
Sun Aug 04, 2019 9:38 pm
Why would the irs form apply if OP os holding LSE listed ETFs?
It's required if US situs assets are over $60k.

The relaxant instructions are at https://www.irs.gov/businesses/small-bu ... s-citizens

TedSwippet
Posts: 2984
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Joint or separate IB accounts for NRA couple?

Post by TedSwippet » Mon Aug 05, 2019 3:03 am

Welcome.
LBboglehead wrote:
Sun Aug 04, 2019 8:41 am
Moreover, it's not clear to me if I am to pass away, what process my wife (or any other heir) would need to follow to unfreeze the IB account and regain access to the funds in the account? My understanding is that even if it's a joint account, it will still go through probate upon the demise of any of the account holders.
The process for US based brokers is as in the IRS page referenced by typical.investor above. If US assets exceed $60k, paperwork hassle, form 706-NA and a six to nine month wait for access to the funds. If below $60k, paperwork hassle and a wait of up to three months. Clearly the latter is less bad than the former, but if you are relying on this money for day-to-day expenses then neither will be welcome.

The other sting in the tail with joint accounts is that generally the IRS considers joint assets as fully taxable to the first decedent. Not only does that potentially increase the US estate tax exposure, but it also means the delays outlined above are probably unavoidable if using a US broker. Separate accounts seems the best solution here. Either that, or use non-US brokers who are not under the jackboot of US estate tax compliance.

msk
Posts: 1470
Joined: Mon Aug 15, 2016 10:40 am

Re: Joint or separate IB accounts for NRA couple?

Post by msk » Mon Aug 05, 2019 4:19 am

No clue about Mexico's tax situation, but I have IB Joint Accounts with Survivor Rights with DW. Three accounts, identical names, all with Ireland ETFs: one for my personal use, one for her personal use and one for the kids' investments. Either one of us can and do operate all the accounts at any time. Nothing changes if one becomes incompetent or dead. Problem of probate, etc. only arises if both of us die simultaneously, so we showed one of the (adult) kids how to operate the accounts. Plan is to cash out and transfer all funds to our own tax jurisdiction where due process for probate will take place. Only one country involved. My own Dad died with accounts in other countries, major hassle! and I am sure we left some cash in some far off foreign bank that did not respond to my queries. I had Power of Attorney after probate. Avoid cross national probate matters if at all possible. You or DW may die slowly (terminal illness over many weeks/months) in which case the whole thing is straightforward, and the partner can resolve if it's a matter of sudden death. Bank accounts in our own country of tax residence do get frozen immediately and automatically (register of deaths is auto linked to all banks) upon the issue of a death certificate until probate.

My experiences with cross border probate: Most(?) countries do not seem to recognize probate documents issued by other countries. E.g. the UK insisted that all us heirs of my Dad show up at the British Embassy (luckily there was one locally!) and sign the probate (with the local court-issued list of heirs in hand, officially translated into English) and Power of Attorney document that was finally recognized by the UK bank. I gave up on two other countries where my Dad had bank accounts, assuming that the amounts must have been small since neither bank responded to my queries. But both these countries each wanted their own officially-sanctioned Power of Attorney, etc. Avoid cross border probate if at all possible.

Topic Author
mexpat
Posts: 3
Joined: Sun Feb 24, 2019 8:01 pm

Re: Joint or separate IB accounts for NRA couple?

Post by mexpat » Wed Aug 07, 2019 5:53 pm

I called IB and they recommended a Joint account with Survivor Rights and that is what we opened. IB said that if we opened separate accounts it would be a problem to transfer funds between them. We also setup an Internaxx account to have a second account in another country and this way an option to do the probate at separate moments in separate countries.

The Mexican peso has a tendency to fall and sometimes drastically, so we only hold a few months operations expenses here, but we may have to increase this to a full years expenses to address the time for probate mentioned by others. Mexico is too risky to move all retirement savings, so we need to find a way to do the probate outside our country of residence.

Still a lot to figure out, but at least we have started the process to move away from the US based ETFs and the estate tax risk.

MSK outlines a solution with 3 accounts but as they all have the same names it is unclear to me how that work. If one (previous) owner is 'in probate', would that not affect all three accounts, and all three could be blocked at the same time? Could you elaborate a bit more on how this work?

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