Estate tax treaty US-Switzerland [2024]

[Abs_max]

The whole cost discussion was important when comparing Index funds vs Hedge funds (2-20).
Within index funds themselves, even though 0.25% matter, it is not the end of world.

[Mirager]

Of course it doesn’t in the real world. The real revolution was bringing down annual costs from 2-3% (with loading fees and exit costs of 2-5% on top) to 0.3-0.5%, the rest is nitpicking.

[covfefe]

1. So the posts from Hans in poorswiss blog is the an experience I could find. The US based broker (not named) blocked and the IRS process is ongoing ~ 4-5 years now. PostFinance released the US shares but the amount of US shares in PostFinance is not mentioned in the comments.

2. In case of non US people( with no US tax ID) , IBKR won’t lock the funds as per this communication with @Helix here
   Correction: This point is NOT CORRECT. As nabalzbhf mentioned below, there are recent communications from IB that they will want evidence of IRS filing – but not require the full process, no transfer certificate needed)

3. Swiss broker will not block per @rolandinho posts here and here

4. NZZ article - implying something to the tune of Swiss Brokers don’t block and people don’t care to do any paperwork with IRS.

Anything else I missed ?

[nabalzbhf]

@covfefe

In case of non US people( with no US tax ID) , IBKR won’t lock the funds as per this communication with @Helix here

I think this is incorrect (at least there’s lots of recent written communication from IB that they will want evidence of IRS filing – but not require the full process, no transfer certificate needed)

[DRPF]

@DRPF

Unless the court of a US state has designated an executor to administer the estate of the deceased, Interactive Brokers cannot disburse any such US assets (or proceeds from their sale until we receive EITHER:

(a) a letter affirming that on date of death, the deceased owned less than $60,000 in US-located assets , the letter does not need to be notarized, OR

I sent a follow up to IB CH. I asked them if such a letter would need to come with any other proof of being <60k. Will revert when I have the answer.

[FunnyDjo]

What about if your spouse is us citizen ?
I’m European citizen and my spouse is us citizen.
I’ve always thought she will have to go through IRS when I will pass away.
Is it a correct assumption ?

[Helix]

Please ask a lawyer specialized in this area. There are too many ways your spouse can cut themselves badly. Or you in the reverse case.

[Fondoperdido]

@afstand

Unless the court of a US state has designated an executor to administer the estate of the deceased, Interactive Brokers cannot disburse any such US assets (or proceeds from their sale) until we receive EITHER:

(a) a letter affirming that on date of death, the deceased owned less than $60,000 in US-located assets , the letter does not need to be notarized, OR

What would happen if this option is executed by the heirs, if the deceased owned more than $60,000?

I would guess, that IB would say, ok, the heirs affirm that in that letter, so we take it as an exemption to us. And after all the procedures are finished, we release the assets to the heirs, so the liabilities rely on the heirs.

The heirs would have the risk that the IRS can file some requirements to the heirs, initiate a court process or who knows what. But… does someone think that the IRS would waste their resources prosecuting heirs who have inherited small money, compared to the big no taxpayers whom they could get more reward if they accomplish to catch them?

So, that option of writing a NOT notarized letter even having more than $60k on assets, sounds to me to whom that want to take the hypotethical risk, as a legal subway or caveat to avoid the IRS. But as it is not fair to admit it publicly and does not fill in the legal requirements, no one will admit that publicly.

Don´t take my message seriously, I am just figuring out what would happen, this Sunday.

[Abs_max]

I think financial plan should not be based on assumptions that include that Tax office wouldn’t enforce the rules.

I understand that lot of us already have IRS exposure and it’s normal tendency to rationalise it because we don’t want to give up the 0.1% extra return that could be achieved. So we are trying to either belittle the tax law, the broker‘s willingness to ignore it or whatever else that comes to mind.

However in this community we should try to list things as they are so that people can decide for themselves.

Hence for me, it’s quite simple

• invested in US ETFs (like VT) beyond 60K? Plan for IRS documentation and make sure heirs/family lawyer understand the process
• prefer using UCITS (like WEBG) instead? Plan for 0.1% extra WHT tax loss for a world ETF

[kawansky]

I share your opinion and also believe that our minds can sometimes be more focused on hypotheses than on facts. In this context, and since it is not possible to predict the future, it is preferable to rely on the facts as of January 26, 2025, rather than compiling a list of hypotheses and “ifs” in anticipation of something changing in the near future.

In this regard, it is reasonable to assert that, (always keeps in mind that it depends on each person’s life situation) :

• For people who understand the system, have the ability to share knowledge and information with their loved ones, are confortable with administrative and legal processes, as well as the time available before any unforeseen event, it is indeed advantageous to recommend the use of US ETFs for the financial benefits they offer, particularly the recovery of 15% on US taxes.

• For anyone who does not fall into the above category, lacking knowledge of tax systems, legal procedures, and administrative steps in the event of an unforeseen occurrence (such as a death), and who does not have the time or desire to deal with the emotional burden of handling matters following a death, it is preferable to recommend turning to UCITS ETFs held with a non-American broker, while accepting to pay a premium for the peace of mind that comes with the costs incurred due to lower tax efficiency, compared to an optimized full US approach.

Finally, I recommend reading this subreddit, which, I imagine, is the result of a seasoned reader from the forum and summarizes the current situation well: Swiss Personal Finance.

[Abs_max]

@kawansky

it is preferable to recommend turning to UCITS ETFs held with a non-American broker,

Just a comment. I don’t think one needs to have a non-American broker necessarily if they buy UCITS ETFs.

[DRPF]

@DRPF

I sent a follow up to IB CH. I asked them if such a letter would need to come with any other proof of being <60k. Will revert when I have the answer.

ANSWER: No proof needed with that said letter.

Der Brief benötigt keine weiteren Nachweise. Das Schreiben ist ausreichend zur Abwicklung des Nachlasses.

Mit freundlichen Grüssen

Heinz G

Estate Processing

IBKR Financial Services AG

A Member of the Interactive Brokers Group

Gubelstrasse 28
6300 Zug

Switzerland

[kawansky]

This is likely true, but if the purpose of using UCITS ETFs is to avoid U.S. tax and regulatory issues, it’s advisable to prioritize non-U.S. brokers. This approach helps reduce potential administrative burdens, ensures greater alignment with the goal of avoiding U.S.-related complexities, and minimizes risks tied to U.S. authorities, no ?

[Abs_max]

But I don’t see why US tax burden would be applicable if there is no US Situ asset involved.

In general I like diversity of brokers but just pointing out that if you hold VWRL at IB, there shouldn’t be any discussion about IRS

[nabalzbhf]

One case it makes a difference is with cash (afaiu cash at a US broker is US situs, unlike cash at a non US broker)

[PhilMongoose]

@covfefe

Move my US domiciled ETFs to Swiss Broker ( post Finance / Swiss quote), and start / keep buying UCITS at IBKR.

This is an interesting idea. Does Swissquote not perform the same US Estate Tax handling processes as IBKR?

My ETFs are not traded, so using SQ as a ‘holding pen’ for them would work for me. When I last used SQ, it was expensive in terms of fees and custody fees, but perhaps they have eliminated custody fees now. I wouldn’t want to pay for them just to hold it.

EDIT: If I read their fees correctly, I’d have to pay around 300 CHF per year per million in assets held. I think it would be better value just to buy life insurance instead, that way, if you die the insurance would pay out on death and bridge the time before the funds are released and in case of any estate tax, funds could be used to pay the tax too.

[nabalzbhf]

@PhilMongoose

This is an interesting idea. Does Swissquote not perform the same US Estate Tax handling processes as IBKR?

See Estate tax treaty US-Switzerland [2024]

[covfefe]

Price:

Post finance e-trading is 72 CHF per year which can be used to make trades too ( I.e 18 CHF per quarter).
If your assets in e-trading are above 25 K CHF, you pay nothing for post finance Bank account ( CHF/ EUR/USD - not multi currency, just 3 different IBANs). Otherwise this is 60 CHF per year.

Regarding estate tax handling, here is my summary: Estate tax treaty US-Switzerland [2024] - #191 by covfefe

[xerox5003]

@PhilMongoose

and in case of any estate tax, funds could be used to pay the tax too.

Then it would have been cheaper just to pay CHF 300 to keep 100% of your invested assets instead playing with the IRS and Dolan Tremp’s bipolar disorder.

FIRE-mindset in all honour, but there are more important factors than saving 200 bucks a year in that way.

[PhilMongoose]

@xerox5003

Then it would have been cheaper just to pay CHF 300

I don’t see how you figure it would be cheaper. The exemption level for estate tax is around $14m.

So if you have less than $14m, then you have no tax to pay anyway. Let’s say you have $15m. Then you would pay $4,500 per year to SQ in custody fees and $400k in tax (assuming 40% on the $1m excess).

Instead you could pay $500 each year for life assurance and on death receive $400k to offset the tax and save $4k per year in custody fees.