Estate tax treaty US-Switzerland: the final answer about the VT ETF (with the MP family as concrete example)

Have a look at @_MP article. It’s again a confirmation about the 60k chf limit.

It isn’t really good news though. It says that in 2020 the limit is 810k chf (7% of 11Mio chf). It might seem a lot, but many people on this forum need more than that to FIRE.

Shall we plan our death accordingly?

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Some people in this forum have pointed out a couple of times that @_MP was wrong not to hold VT over $60’000. But it is very nice of him to reach out to a professional and get some better basis than “dude, trust me”.

Your phrasing here is very confusing. Do you imply that 810’000 CHF is the limit for everybody? Because that is not the case. The formula is right there in the blog post:

US Exemption = US Assets / World Wide Assets * US Exemption Limit

So if you had $2 million VT and $9 million house in Swtizerland:

US Exemption = 2 / (2+9) * 11 = 2

All is good. In fact, you’re safe as long as your World Wide Assets don’t exceed the US Exemption Limit ($11 million at the time of writing of this post). You would not like to have more US Assets than the US Exemption allows:

US Assets <= US Exemption = US Assets / World Wide Assets * US Exemption Limit
US Assets <= US Assets / World Wide Assets * US Exemption Limit
World Wide Assets <= US Exemption Limit (you’re safe as long as this holds true)

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I might have failed the english test. I read it as 7% was for everyone.

But for @_MP then that 810k is not a limit.

0.810M / (0.810M+1.2M)*11 = 4M , less than 11M

Not the first time Mr MP took some time to understand something :slight_smile: Guys, don’t forget to always go read the law/treaty/whatever. It is like when youtube manipulated youtubers and “had” them make videos about art. 13 beeing the end of youtube. In 30 seconds of reading you could realise it was full BS.

In any case, he did a lot of things right, in my opinion:

  • Take hearsay with a grain of salt
  • Take more salt when that particular hearsay comes from anonymus guys in an internet forum
  • Read the law and regulations yourself and try to understand them thoroughly
  • If necessary or in doubt, consult a specialist and/or professional advisor
  • Make sure that that someone really knows his stuff (e.g., many are familiar with domestic law and circumstances, less with the peculiarities that can arise in cross-border cases)
  • Refrain from investing large sums in things you don’t understand
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You’re right, but where did you get this 810k from? Mrs MP has 84’000 in US and 1’200’000 exUS.

Hey @_MP your calculation confused me a little. I thought these calculations only kick in once your total property exceeds the exemption limit.

Let’s try to understand this legal gibberish once more:

the United States shall allow a specific exemption (E) … in an amount not less than the proportion thereof (X) which the value of the total property subjected to its tax (U) bears to the value of the total property … (T)

E = X * (U / T)

I think in your case this equation makes no sense. Note that if Mrs MP increases het VT position to $10 million, it will still all be exempt.

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Since it is not explicitly mentioned in the post, does the citizenship / location of the inheritor matter for the US estate tax, or it is only the location / citizenship of the decedent?

EDIT:

Generally speaking, Swiss law seems to apply to the inheritance of a decedent with his last residence in Switzerland, irrespective of the residence of heirs.

https://www.admin.ch/opc/de/classified-compilation/19870312/index.html#a90

However I wouldn’t rule out that foreign law stipulates otherwise in some countries.

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This whole thread is why it was a terrible idea for MP to post a blog post on this topic.
Please consult a professional, that you actually pay for
Clearly the person MP discussed this with was not providing any formal* advice, nor was he providing a formula for anyone to determine their own possible US estate taxes.

Do not try to read into the legal information that MP was provided, if you haven’t already done any of your homework.

This advice sounds kind of right, but also kind of ridiculous. Why should thousands of people go to a “professional” to ask the exact same question and get exactly the same answer? I don’t think this is the way you deal with most issues in your life, do you? You just have some people you trust, or if something is written in enough places you just assume it’s true. But for sure it’s a great way for said professionals to make easy money.

I wonder how much would it cost to get a legally binding advice that we could publish online, or if it’s at all possible. I guess the whole tax law is such a mess that it has to be handled on a case-to-case basis. In a better World, you would just write an inquiry to the tax office, pay an administrative fee and get a legally binding response. After all, it is them who will want money from you, so they should be able to tell you how it actually works…

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MP did not seek or get legal advice. What I am saying is that if you want to get it right, do your homework, and then seek a professional vs. do your homework and then check out what a financial blogger wrote.

If you went and paid for advice, you would actually get real advice that you could use, and would be much more helpful than the 3 sentences MP managed to squeeze* out of this so-called lawyer. It seems that all MP did was leverage the fact that he writes a blog to get on the phone with a person who usually charges quite a lot for his time. There is nothing in the blog post that shows that the conclusions MP led himself to believe, would in any small way ever be binding, or to have been in reliance with the person he spoke to.

Every situation is different, and there are obviously additional rules that can come into effect. I.e. wealth taxes, the treatment of forced heirship in Switzerland, and issues relating to whether property owned by married couples will be treated separately or together under the law - a countless dozen or more that I won’t mention here.

We are talking about US law here, not Swiss law, so your question about writing to the tax office and receiving a letter is moot. If you own US securities, you invest at the pleasure of the US government and have to play by their rules.

Well, every jurisdiction has their own tax authority. When we invest in US domiciled assets, it makes US tax law applicable to us. So, to reformulate, it would be nice if we could ask the US tax authorities directly.

As a programmer, I find rules defined in legal documents very imprecise. It would be much shorter and more readable if they wrote a function with pseudocode and some input parameters, instead of all this “proportion”, “thereof” etc.

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Well, you are not a US taxpayer - maybe your estate will be - but until then you actually don’t really have any avenue or right to ask the US authorities for clarification. It seems though that you could ask a Swiss Steuerberater or perhaps the Swiss tax authorities on their interpretation of the Swiss-US Estate Tax Treaty.

MP did the right thing by asking an expert. The issue on this topic that their are major disagreements between the experts.
Based on how the law is applied currently, I don’t think it’s an issue.

Naaah please don’t reopen the legal-blabla-pandora-box ^^
I must admit that my English level reached its limit (same if translated to FR), and I get stuck on the legal blabla.

Anyway, if you’re right, it’s even a better news. At least I can keep going with VT for long :wink: that’s all what matters.

Here it sounds easier:
https://taxsummaries.pwc.com/united-states/individual/other-taxes

Just 11M on all your US assets.

Also, maybe more clear:

Occam’s razor thought: There are a lot of mill/billionaires in switzerland, also not US. It’s logical that they might want to help the government having a friendly law created.

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