Non-US citizen with US Brokers: Estate Tax risk?

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Laurizas
Posts: 129
Joined: Mon Dec 31, 2018 4:44 am
Location: Lithuania

Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by Laurizas »

DXBinvest wrote: Wed Jul 10, 2019 1:47 am Do I get this right?
I hope so. I also did a lot of research but did not find a definitive answer.
DXBinvest
Posts: 22
Joined: Sun Jul 07, 2019 2:42 pm

Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by DXBinvest »

Maybe I got it wrong, it seems securities are insured up to $500,000, while $250,000 limit apply to cash balance at the broker (uninvested money).

Does it double for joint account holders?
https://www.sipc.org/for-investors/inve ... e-accounts

"Joe and Mary are married and they have a joint brokerage account which is separate from the individual accounts that they each have at the firm. An additional maximum of $500,000 of SIPC protection is available for the joint account."

How do you understand it? It the joint account limit $500,000 as well or by "additional" shall we mean it is doubled? Or is it doubled only in connection to their individual accounts....
international001
Posts: 1639
Joined: Thu Feb 15, 2018 7:31 pm

Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by international001 »

Can somebody explain what is SPIC insurance?

I thought if the brokerage firm (IB, Vanguard,..) went bankrupt, I would still own the securities. It would be a matter of transferring them to another brokerage. So I guess I'm missing somehting
typical.investor
Posts: 2320
Joined: Mon Jun 11, 2018 3:17 am

Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by typical.investor »

international001 wrote: Tue Jul 16, 2019 3:12 am Can somebody explain what is SPIC insurance?

I thought if the brokerage firm (IB, Vanguard,..) went bankrupt, I would still own the securities. It would be a matter of transferring them to another brokerage. So I guess I'm missing somehting
That's pretty much it. SIPC covers missing securities. So if you have $50 million, and the broker goes bankrupt but it has followed the rules and nothing is missing, you have no loss. If assets are missing, SIPC covers up to their limit.

Not everything is classified as a security though, so unregistered US REITS are not covered as they are "contracts".

Foreign stocks are covered it seems, but it's not clear about non-US domiciled ETFs. Are they uncovered contracts? Covered stocks? Covered transferrable shares?

I'm guessing uncovered contracts, but would expect the SEC to push for their being covered. SIPC law is set though and ultimately it might come down to a judge. That's the scenerio that played out in the Stanford ponzi case. The judge and SEC didn't agree, and there was no coverage (for fake CD's that the broker sold via the bank they owned), as it was ruled not to have been custodies at a US broker dealer. And also SIPC doesn't cover loss of value - so CDs that are worthless at Stanford Brokerage are worthless anywhere.
Offshore_investor
Posts: 1
Joined: Sun Aug 02, 2020 2:12 pm

Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by Offshore_investor »

TedSwippet wrote: Thu Jun 29, 2017 7:20 am
rijk wrote:my understanding is that any assets, including us stocks and cash, in ib uk accounts owned by european nras do not run any us estate tax risk as these accounts are uk domiciled for tax purposes ... does this sound right?
No. It is the domicile ('situs') of the assets held in the account, not the domicile or location of the account's provider or custodian itself, that gives rise to potential US estate tax issues.

If you are a US NRA in a country without a US estate tax treaty, you risk US estate taxes if you hold US domiciled ETFs in either a US or a non-US brokerage account, or if you hold cash in a US brokerage account. Other combinations are okay. Summarised in the table below:

Code: Select all

                        US broker     Non-US broker
Non-US domiciled ETF    Okay          Okay
US domiciled ETF        AVOID         AVOID
Cash                    AVOID         Okay
A US estate tax treaty may provide some protection, but if covered you would want to read it very carefully to be sure.

A US broker is obviously closely bound by the rules and regulations of the IRS, and so in a much better position to enforce US estate taxes on NRAs. A non-US broker, on the other hand, may not be quite so strictly bound by US regulation. They may also it seems be "unaware" -- either genuinely or perhaps 'conveniently' -- that the US expects estate taxes from dead NRAs, and moreover kicks in its estate taxes at absurdly low levels, only a little over 1/100 of the allowance given to US citizens.

In most cases, the best method for NRAs to isolate themselves from US estate taxes entirely is to avoid US domiciled ETFs and directly holding US stocks or real estate, and instead invest into the US either through non-US domiciled ETFs or, if holding US stocks or real estate in excess of $60k, though intermediate holding companies.
IB accounts offer CFDs on US ETFs and US stocks, my assumption is that since the CFDs are structured in UK and are merely contracts of difference shouldn't be subject to US estate tax. But on the other hand, CFD’s dividends are subject to withholding tax, so it is really counter intuitive because very often one thing is tight to the other. Is my assumption correct?
TedSwippet
Posts: 3231
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Non-US citizen with US Brokers: Estate Tax risk?

Post by TedSwippet »

Welcome.
Offshore_investor wrote: Sun Aug 02, 2020 2:43 pm IB accounts offer CFDs on US ETFs and US stocks, my assumption is that since the CFDs are structured in UK and are merely contracts of difference shouldn't be subject to US estate tax. But on the other hand, CFD’s dividends are subject to withholding tax, so it is really counter intuitive because very often one thing is tight to the other. Is my assumption correct?
Honestly, I have no idea. It sounds plausible (that CFDs are not in scope for US estate tax). But yours is an assumption based on logic. And as you may already have picked up from other threads around here, US tax contains no logic.

The dividend tax probably comes out of IRC section 871(m). There's no mention in this of further extending the reach of the US estate tax. That omission could mean something, or nothing.

Basically then, shrug. Sorry.
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