Estate tax treaty US-Switzerland [2024]

Taxes
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I have carefully reviewed an excellent post from 2020 regarding US Estate Taxes for non-US Persons on Assets (such as VT). As someone who is a bit older and closer to retirement than the average Mustachian, this topic has become increasingly important to me. However, given that the post is somewhat dated, I wonder if there have been any changes since then. I would greatly appreciate clarification on a few open points:

  1. Estate Tax Threshold: After reading the post multiple times, I am still uncertain whether the threshold before the estate tax applies is an “absolute” USD 810,600 or 7% of the overall fortune until it reaches USD 810,600. Perhaps I’m not only old but also a slow learner.
  2. Tax Treaty Updates: Has the tax treaty been modified since the original post? Unfortunately, the link provided in the post is outdated.
  3. US Domiciled ETFs and Assets: I understand that the limit includes all US-domiciled ETFs and assets, with domicile serving as the trigger for being counted as a US asset.
  4. Investment Strategy: Assuming an individual has more than USD 810,000 to invest and is close to retirement, would investing in an ETF or assets with non-USA domicile be the best alternative, considering the estate tax implications?

Your insights and assistance with the above points would be greatly appreciated.

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I try to answer some points:

  1. The tax threshold is not basend on a percentage of your fortune - it’s a single dollar amount. As of 2022, the threshold is USD 12’060’000. This means, your estate won’t be taxed unless its total value exeeds USD 12.06m.

  2. I did not find other updates on the tax treaty.

  3. Correct, the US estate tax applies to all US-domiciled assets, regardless of your location, including ETFs. Domicile, not location, determines whether an asset is considered US for tax purposes.

  4. It depends on your specific situation. With the high threshold of USD >12m, many estates won’t be subject to tax anyway. Even with larger estates, it can make sense to have a higher amount than USD >12m invested, e.g. lower TER, better performance, better diversification, etc.

But yes, it can make sense to diversify with non-US investments.

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It is not fix but based on the % of US assets vs. total assets.
So yes, if you only have US assets, the limit should be the one you mention (even though it is not fix but inflation adjusted and it is supposed to revert back to 5 Mn by the end of 2025 if no further action is taken). Very seldom do people living and working in CH only possess US assets.

The best summary on the subject imo is still this post

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As far as I know, the estate would not be taxed if a proper worldwide estate declaration is made to US authorities and they are convinced with information provided and if the value is below the threshold. It’s not by default that estate tax would be waived if threshold is met.

Right?

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In my opinion, the challenge with US estate tax is not about tax as long as assets are not >12million. It is about the documentation that benefactors need to provide to US authorities. This limit might change though as time progresses.

There is a lot of good information on this blog about what needs to be done. But it is not the same thing as actually doing it. For example if there is real estate abroad where valuation rules might not be straightforward as CH, then it should be checked if the rules are acceptable to US authorities.

I would recommend to ensure following is taken care of

  • person familiar with your global estate information is aware of this process of avoiding estate tax
  • they know where to get all relevant documents and what to do exactly and how

I obviously hope such a case never happens but still soemthing to be prepared for.

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Thanks. Looks like the answer from hedgehog makes all the difference btw. 60k USD and 5M USD.

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Yes, I think this is very sound advice.

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Great document explaining the situation with a fantastic example! Merci beaucoup.

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Indeed, that said many brokers will just release the assets (maybe not IB, but it seems to be the case for swiss brokers).

I would assume many people then don’t fill any paperwork (many people probably wouldn’t even know you might need to, if the broker released the assets, the extra-territoriality of the US being somewhat unusual)

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I think in this regard a local broker might be more useful because they might believe the Swiss tax returns as proof enough.

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What about this 60k threshold? Is that for individual stocks?

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I link a post you liked yourself last year. :grin:

tl;dr: They don’t lock the funds.

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One issue I have will all this: no official documents/links from the Swiss government confirming everything.

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https://www.fedlex.admin.ch/eli/cc/1952/645_661_663/de

:slight_smile:

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I found that too. But where are the concrete numbers?

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I tried to google some “site:.gov” links but didn’t find anything with numbers. I think we either trust private companies (see my link above) or we have to dig deeper.

My usual opinion is: If you have more than 10 millions asset, just cough up the money for a lawyer :slight_smile:

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Yep. I guess this is where I’ll end up or for simplicity just avoid US-Domiciled Assets.

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It’s either ways not your problem anymore :laughing:
But I agree, the numbers are high and if you want to be more on the safe side, switch after 5m into CH, LU or IE ETFs.

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So you are saying IBKR doesn’t lock up the funds and the “trusted person” or beneficiary can just take over the securities or decide to sell them without ever getting involved with IRS?

Or it’s only about freezing of funds? But still an obligation to file tax return with IRS?