Investing in US domiciled Stocks

For residents of the United Arab Emirates.
Post Reply
Topic Author
one_moment
Posts: 3
Joined: Thu Jun 06, 2019 1:50 am

Investing in US domiciled Stocks

Post by one_moment »

Greetings all,

so, im investing through IB for a long time in the usual irish ETFs to be more efficient with the taxes deductions and of course move away from the trouble of estate laws in the US.

now the thing is, i have done a lot of research and i made an small portfolio with US stocks that are mostly value/dividend based. the total dividend is still higher than the average ucits etf after 30% US tax deduction. now my question is if someone have good information about US tax, if my position was open lets say for couple of years 5-10 years and than closed. will this effect my portfolio ? in relation to the estate laws. what i mean if positions are closed and gains are realised.

from what i understood estate laws go on force in the account holder is deceased and in the account US domociled stocks are in position and not closed yet , is this right ?

Regards
TedSwippet
Posts: 3177
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Investing in US domiciled Stocks

Post by TedSwippet »

one_moment wrote: Wed Jun 12, 2019 2:11 amfrom what i understood estate laws go on force in the account holder is deceased and in the account US domociled stocks are in position and not closed yet , is this right ?
Almost right. Under threat from US estate taxes are: any holdings in US stocks, including US domiciled ETFs; and any cash holdings in US brokers. So you would be safe as long as either (a) your broker is not US based, or (b) if it is, you have transferred the cash out of the broker directly after selling the stocks.

The problem, of course, is the risk of dying unexpectedly during the 5-10 year period you hold these stocks. Your heirs will curse you at your funeral if a component of your bequest to them is a large and unnecessary US tax liability. If you want to do this completely safely, maybe consider putting some form of holding company between you and the US stocks you want to own.
pimple_in
Posts: 2
Joined: Sun Sep 06, 2020 6:07 am

Re: Investing in US domiciled Stocks

Post by pimple_in »

Sorry to bump up an old thread, but I'm in a similar situation. I'm and NRA and hold a joint account in IBKR with my wife who's also an NRA.

I like dabbling in US tech stocks, selling puts and calls etc. I know the account would be liable for Estate Tax since the holdings are well above $60k and all of it is in US domiciled assets/cash.

My question is, in the event of my (or my wife's) untimely demise, what happens if I just close all my positions immediately and cash out, or buy an Irish-domiciled ETF and then cash out? Would IB ask me why I'm cashing out? Would I be able to close the account after cashing out?

Also, since it's a joint account, would I need to cash out to a bank account that's held jointly by us too?
TedSwippet
Posts: 3177
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Investing in US domiciled Stocks

Post by TedSwippet »

Welcome.
pimple_in wrote: Sun Sep 06, 2020 8:01 am My question is, in the event of my (or my wife's) untimely demise, what happens if I just close all my positions immediately and cash out, or buy an Irish-domiciled ETF and then cash out? Would IB ask me why I'm cashing out? Would I be able to close the account after cashing out?
Although we have no way of knowing precisely what IB will do -- as far as I know, nobody here has yet experienced this with them, or in fact with any US broker(*) -- this thread, from the linked post downwards, lays out how things might unfold, with account freeze and 'suspicious activity report' being at least possibilities, particularly with the 'cashing out' option:

viewtopic.php?p=5423278#p5423278

As for moving to Ireland domiciled ETFs after a death ... well, anything done after death does not mitigate or eliminate US estate taxes. At that stage, if the US estate tax conditions are already met, it is too late to change anything.
pimple_in wrote: Sun Sep 06, 2020 8:01 am Also, since it's a joint account, would I need to cash out to a bank account that's held jointly by us too?
A cash holding in a US broker is as at-risk from US estate tax as a US stock holding, so something to avoid there anyway. Strictly though, it's whatever is owned on date of death that is the asset counted for US estate tax, so moving from US stocks to cash after a death, whether that cash is in a US broker or otherwise, is not going to defuse the potential for US estate taxes.

Finally, note that the default for joint accounts is for the US to treat the entire balance as US situs for its estate tax, except to the extent that the joint holders can prove/substantiate the proportion of funds that they invested individually. This can be tricky. Ideally you want to either interpose a non-US corporation between you and your US stock holdings, or at minimum take out life insurance to cover the (probably sizeable) US estate tax bill.

It's all a massive pain, isn't it?


(*) I handled it once with Fidelity, for a NRA in a US estate tax treaty country who held a modest 401k in the US. It was a slow, annoying and tedious process, but worked in the end. However, this is not even close to your own situation.
pimple_in
Posts: 2
Joined: Sun Sep 06, 2020 6:07 am

Re: Investing in US domiciled Stocks

Post by pimple_in »

Thanks for the link to that thread. It helps!

I understand your point about whatever is done after the death doesn't count. I guess I'll have to look into a non-US corp. I've seen your replies about not having much experience with them so I won't prod you for details about it :happy
Post Reply