Estate tax treaty US-Switzerland [2024]

Taxes
45

I received that from a customer. I don’t think they have a standardized procedure across their entities, and certainly, the answer might vary depending on whom you talk to (especially if that’s a low-level customer service representative), so you’re probably wasting your time asking them. I understand US brokers would do that, but what surprises me here is that it came from IBKR UK.

Please be advised that Interactive Brokers does not provide tax advice. The responsible person or persons for the estate and heirs are ultimately responsible for determining tax obligations, if any, under U.S. Law. We urge you to seek professional tax advice.

Non-US resident, non-US citizens who owned more than $60,000 USD in US-located assets on their date of death may have estate-tax obligations to the US Internal Revenue Service. US-located assets may include, among other assets, stock in US companies, real estate or other tangible assets located in the United States. See this link for more information https://www.irs.gov/businesses/small-businesses-self-employed/transfer-certificate-filing-requirements-for-the-estates-of-nonresidents-not-citizens-of-the-united-states

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

  1. 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
  2. Because US assets in the account exceed $60,000, we can disperse upon receipt of a Transfer Certificate issued by the U.S. IRS. See https://www.irs.gov/pub/irs-pdf/f706na.pdf
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46

One reason more to hold everything at a Swiss broker.

@xerox5003

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47

Email sent, let’s see.

I don’t know if that helps. If they can’t make money by hiding money, they are usually just as servile as any other institution. Fund transparent tax credits can not come soon enough.

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Thanks for sharing… One really needs to write down the exact procedure to file the IRS forms because it will be needed in case of tragic event.

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@oslasho question for you: Why you keep posting and then deleting your posts?

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Would a joint account be enough to avoid estate tax if one of the 2 pass away?

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(post deleted by author)

Edit: happy someone got the joke :smiley:

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53

I finally got a reply, and they linked to the same IRS page stating the requirement for a Transfer Certificate.

No explanation why they state different things at different times to different people. But your experience trumps an answer they gave me. So locking of all assets upon death until confirmation by the IRS can be assumed.

54

My PhD supervisor used to say “pay peanuts, get monkeys” :wink:

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55

I wonder if I can program a bot to liquidate and withdraw everything after I die (but of course before the doctor pronounces me dead officially). :grin:

Meh, might be easier to just set up things without the USA in the loop. I repeat, foreign withholding tax transparency for UCITS funds can not come soon enough.

56

Would any IRS-related shenanigans also be triggered upon death with only UCITS funds in one’s portfolio at IBKR UK, because its parent company is US-based?

57

Just give access to your account to your wife/kids. Show them the close positions button and then what other ucits fund to buy.

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58

To be honest

WEBG with 0.07% TER is very competitive offer for UCITS funds.

Next best is ACWI 0.12%

This whole estate tax drama is making life complicated. I am not sure if <0.1% (post tax WHT on US dividends) benefit of holding VT is worth it anymore.

Basis of calculation -:
1.4 % dividends on US exposure
15% WHT loss
60% US exposure in World ETF
Effective loss -: 0.08% to 0.09% for 40% and 30% marginal tax rate.

P.S -: I know we can pay a lawyer 2000 CHF to take care of stuff and it would all be okay. But I think investor should consider if this effort is worth it or not very carefully.

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59

No
It’s not about the broker. It’s about the assets
If you don’t hold US assets there is nothing that concerns IRS

UCITS funds don’t have this problem because when you buy shares of UCITS funds, you invest in fund and not in the underlying companies. The fund itself invest in companies. And for IRS the fund legal entity is investor in US assets and not individual ETF investor. And legal entity never dies.

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60

Innocent things like cash can be US-situs, because they consider cash at a broker to be some kind of debt from a US entity. But surprisingly, cash at a bank is not US-situs.

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61

This link nicely summarizes US situs assets (key points pasted below *).

As an aside from the main topic: I own Fundsmith which is a UK open ended investment company. I find it interesting that UK HMRC (see ** below) has an exemption from IHT. On the other hand US IRS views US mutual funds, which I guess are a similar concept, as US situs assets and subject to US estate tax.

( UK rules about domicile are all currently under review and will change in April 2025 , tbc if this remains the same…)

=======
(*) HSBC Investing in the U.S. While Managing the U.S. Estate Tax Risk
*What is a “U.S. Situs Asset”?

… Certain classes of assets are specifically exempted from the definition of a U.S. situs asset, and are therefore not subject to U.S. estate taxes upon the death of a foreign person. For example, cash held in a deposit account (e.g., checking, savings, CDs) is exempted from this definition. Similarly, U.S. Treasury Bonds and corporate bonds of U.S. publicly traded companies are exempted.

With regard to a typical investment portfolio, the types of financial investments which are subject to the U.S. estate tax include individual U.S. stocks and U.S. pooled investment vehicles (e.g. U.S. mutual funds, U.S. ETFs, and similarly structured U.S. vehicles). …

It is also important to dispel the misconception that U.S. stocks owned in accounts outside the U.S. are not subject to the U.S. estate tax. As discussed above, this analysis is based on the type of investment within an account, and not where the account itself is physically located. An individually-owned account in Switzerland with shares of individual U.S. stocks will also potentially be subject to the U.S. tax upon the death of the individual foreign owner. "

======

(**) UK HMRC
" When someone living outside the UK dies

If your permanent home (‘domicile’) is abroad, Inheritance Tax is only paid on your UK assets, for example property or bank accounts you have in the UK.

It’s not paid on ‘excluded assets’ like:

** foreign currency accounts with a bank or the Post Office*
** overseas pensions*
** holdings in authorised unit trusts and open-ended investment companies"*

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62

Hi everyone
I have a question that concerns me in the case of a partnership/family saving with US ETFs: What exactly happens in the case of an inheritance? We are of course all saving for our financial freedom (even cheaper with US ETFs such as VT), but do any of you have the details of how onerous all the formalities are in the event of an inheritance with a volume of US ETFs > CHF 60,000 (apparently the survivors have to file a tax return in the US, which sounds quite complicated)?
I ask myself this question against the background that we can hopefully all live a long and financially free life, but somehow this point should also be taken into account in financial planning (especially for a family or partnership).

63

Perhaps this post is good point to start

Key points

  • proper information and procedure should be known to the descendants or family lawyer
  • Swiss US tax treaty helps investor avoid estate taxes, but a process needs to be followed together with paper and documents

For me personally, I don’t like this additional hurdle for my descendants. Not because it’s not possible to be arranged but because for time being it’s not preferred approach for me. So I am slowly trying to build positions in UCITS ETFs. Read this Wiki for some details

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One important thing to remember is that the exemption threshold may change in one direction or another. For instance, if the new administration doesn’t intervene, it will be automatically cut by half (from almost $14m to around $7m) starting in 2026. Seeing how indebted the country is, I wouldn’t be surprised if the threshold is not raised.

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Even Democrats don’t like taxing the rich, especially with a generally dsliked tax like the ‘death-tax’.

Also, with ‘only’ 6 or 7 million, it is probably worth hiring an estate lawyer – ideally before dying.