Are US ETFs worth the (estate tax) troubles?

Excuse me for bringing up this topic again, just re-read the famous and great The $60’000 cap for US investments and am (still, again, more so) hating the US estate tax (having no ties with US myself). Basically as soon as you cross the 60’000$ threshold for US domiciled assets your heirs would have to go through the trouble of declaring to the IRS your exact worldwide assets - even if their tax bill will actually be zero if you inherit less than 11 million $. Effectively this leaves you with one of the following binary alternatives:

  1. avoid US ETFs and instead stick to IE-ETFs, swallowing those higher TERs, swallowing the 15% L1WT on US stocks
  2. or you leave “the mess” to your heirs

What have you decided and why?

I decided to read the posts better.
Somewhere @hedgehog shows that it doesn’t make sense for swiss or in switzerland. I don’t remember exactly. There is a tax treaty.

The rules are quite clear: (a) nothing to be done until 60’000$, (b) declare worldwide assets to IRS between 60’000$ and 11 million $, ( c) only above do you pay. So I guess to most of us it’s (b): nothing to pay, but you must declare (== lot of time needed).

The same mechanism applies to US stocks so unless you want to ignore the entire US market you have no choice

you have a choice: only buy non US domiciled ETFs

(d) as you age, switch to Irish domiciliated funds ?

Or, if your NW approaches to 11 Mio $, your heirs will probably afford a financial advisor to file for them the IRS tax declaration… :blush:

yes, (d) is definitely the idea if things go smooth. You still have the problem if they don’t go smooth

but the same happens if you only have 100’000$ in US situs assets: you need to file the form, the amount of work is comparable…

Yes you are right but it seems to me you are considering the envelope of worst cases, say you get struck by a meteorite in the exact moment you reach 60’001 $ of US assets…
you can’t protect yourself by everything

or any time after that until you reach the age of 120…
but agree, meteorite is an acceptable risk!

Why is this even a subject for discussion?

2% dividend yield x 15% tax loss => 0.30% cost p.a. for the privilege of avoiding US funds, that’s a lot

You can buy a life insurance to cover 100% of your portfolio for less than that if you’re so afraid of dying. It’ll be cheaper and more money for your heirs

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The point of the tax treaty is that you declare it in one place and they get declared automatically into the other. They exchange information.

If you don’t declare them in Switzerland then it’s another story…

[so I understood, at least…]

maybe I shouldn’t worry, the only reason for me is the burdon you put on the heirs to fill in the IRS form… but they get money in return, so …

is that so? I read you file a separate 31 page long IRS form…?

Maybe you should ask them what they would prefer.

There’s also a third option, btw - swap-based funds, I think many of them (especially from LU) are engineered specifically to minimize tax losses, but you’d have to research yourself. Personally for me they don’t give quite offer the same peace of mind as simple, fully replicated and massively capitalized funds from trusted vendors like Vanguard. And I’m sure there’s no free lunch and there are some losses either way. (Besides, I work for yankees anyway and have more than $60k in RSUs so “below $60k” scenario doesn’t apply to me either way)

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Never done that. Where did you get that info?

in the NZZ, so in german:

das «Form 706» ausfüllen müssen, ein 31-seitiges Formular. Die US-Steuerbehörde Internal Revenue Service verlangt innert einer Frist von neun Monaten nach dem Todesfall detaillierte Auskunft über alle Vermögenswerte des Erblassers – beispielsweise ist für jedes Kunstwerk im Wert von über 3000 $ eine Schätzung beizulegen. Es ist davon auszugehen, dass die meisten Leute diese Variante vermeiden möchten

Well that’s when you die, not every year.

yes, that’s what I meant originally with

(b) declare worldwide assets to IRS between 60’000$ and 11 million $, ( c) only above do you pay.

Sigh. USD 60k is an absolute number. The USD 11 Mio. is a relative one. It depends on US assets/total assets.

Let’s assume, your wealth is somewhat diversified on your last day:
House in Europe: 1 Mio.
Ireland ETFs: 1 Mio.
3a and Swiss Pension Fund: 1 Mio.
US ETFs: 1 Mio.

Total: 4 Mio., with 1/4 in US funds. The treaty limit is 11 Mio / 4 = 2.75 Mio.
Congrats, no taxes due.

11M is still absolute, it’s just the limit on worldwide assets, not US ones :slight_smile:

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