Are US ETFs worth the (estate tax) troubles?

Taxes
63

A Swiss bank will not force you to file (by blocking the account until you prove filing), nor will IBKR (source: their answer to your question that you posted a few posts up).
So, no, tell your heirs to withdraw/transfer and move on.

In the unlikely event, that IRS later demands you file, then you can still file. There would only be a fine ($100 to $1000) for having exceeded the 9 month deadline to file. You don’t lose the advantages of the DTA, because you “forgot” to file.

Of course all banks will cover their asses by handing out information sheets that you have to file, if US assets over 60k. That’s so you can’t sue them for not informing you of this “risk”, and also they can show nice internal processes to IRS auditors. Like they make you sign papers saying you “understand” the risks of trading on the stock market.

64

Any source for this claim?

65

Is there any documented case of the heir of a non resident/non citizen being in trouble due to estate tax?

Some of the extra territoriality from the US are pretty unusual, would any country extradite or pursue action on behalf of the US for that kind of case? To worst case it really depends on on much tie the heirs have to the US (but even then I really doubt anything would ever happen, if the US is never informed in the first place).

I can imagine the IRS caring in case of e.g. “hard” ownership (e.g. significant owner of a US company, real estate, etc.), but someone having a few shares in an ETF?

66

Ja, I know, I am only some random person on the internet, I’m aware of that, and understand your wish for a source on that.
I can explain the source, but it’s (unfortunately) not going to be a link to a US website listing this dismeanour and the fine amount/range. So, I’m afraid it won’t be fully satisfactory.

The source is a Swiss lawyer (he was supposedly the specialised one for such topics of the medium-sized law firm) . I assisted/stood by a close friend who was going through such an inheritance (all-swiss/non-US people, low 7-figure inheritance, high 6-figure US stocks).
The fine was the only risk, the lawyer stated, for non-declaration at the “correct time”.
The DTA stands highest from a law point of view, and does not lose its effect by not filing.

I’d like to add, because some have mentioned “just fill out the form, doesn’t look too difficult” - I do remember, that he did also mention that smallish accounts at US banks (a few $ 1000 to $20000/30000), which will be blocked, are often simply “written off”, because the procedure to file is often complex & involves expensive lawyers (the form itself may be not too complicated, but for example attaching a valuation of Swiss RE conforming to US IRS requirements and standards quickly costs thousands!)

2 Likes
67

Thanks for your insight.

As I understand it, initial documentation of the gross estate outside the US only requires a certified copy of the foreign death tax return. However, the IRS may ask for more proof. I don’t know whether they simply accept the Swiss death tax return or would ask for more documentation, assuming the total gross estate (per tax return) is significantly below the USD 12 Mio.

From the IRS instructions:

To document the line 2 amount, attach a certified copy
of the foreign death tax return or, if none was filed, a
certified copy of the estate inventory and the schedule of
debts and charges that were filed with the foreign probate
court or as part of the estate’s administration proceedings.
Supplement these documents with attachments if they do
not set forth the entire gross estate outside the United
States. If more proof is needed, you will be notified.

1 Like
68

Is there any updated information or recent experiences regarding the cost associated with processing estate forms with the IRS? A cost in the low four-digit range would be acceptable, but if it reaches 100k as someone mentioned, it becomes a significant factor to consider when choosing between US and UCITS ETF options.