Moving from VT to VWRL (or VWRD, or VEVE/VFEM)

Hi everyone,

I’ve been a visitor on the forum for a while now and have learned a lot from some of the more veteran Mustachians so firstly a big thank you for that!

As one of my first posts I wanted to get your opinion on something we are in the process of deciding regading our investments.

We initially started on Degiro with the VWRL, and a while back (after learning about it on this forum) switched to IB and continued adding only VT to our portfolio.

Now getting close to the dreaded (for some) limit of 60k for our US investments (includes our BRK.B shares we’ve been accumulating as well), we’ve made an informed decision to stop contributing to the US funds because of the US estate tax - this has been discussed already on the forum, and while it might be just a minor hassle, we decided we don’t want to leave our kids with a potential freezing of our portfolio and complicated administrative proceedings with the IRS when the time comes.

I was happy to have the VT diversification into small-caps but not caring to replicate it with several EU UCITS ETFs (lazy investor here) I’ll be more than happy with a large- and mid-cap World ETF like VWRL.

So our dilemma is the following :

  1. we continue to invest in VWRL (AEX EUR, commision free) with Degiro.

  2. we start investing in VWRL in EUR at IB for liquidity sake (and maybe transfer and merge my existing shares from Degiro to IB).

  3. we invest in VWRD in USD at IB for liquidity and to have USD dividends that can be reinvested immediately - I tend toward THIS at the moment.

  4. we start investing in VEVE and VFEM (90/10%) on IB instead of VWRL to lower the TER from 0,22 to 0,13.

  5. less desirable to invest in VWRL in CHF at IB to avoid FX fees (but would have to do a currency conversion for the USD dividends quarterly and incur higher exchange fees).

What is your take on this?

Thanks for reading so far and your input!
Marc

1 Like

If you are living in Switzerland the estate tax limit is 10M, not 60K but yeah, the differences are minor and I also considered simplifying my investments. Maybe some day, VWRL will drop below 0.15% and then I’ll just switch.

1 Like

Yes of course, according to the bilateral estate tax treaty, we know that, but there’s potentially a lot of hassle involved (again, this might be subjective on our part) for my wife or kids having to file a US tax return, declare / have all our Swiss and other international assets evaluated etc and have the US porfolio blocked in the meantime, in order for the tax to be calculated.

Sure, if you have >10M assets AND don’t want to risk a freeze of assets (which probably won’t happen anyway, no one tells IB that you died), this is quite plausible. The whole DA-1 tax part etc. is also a bit of Roulette some times… I just wanted to state that the real limit only comes into play over 10M total assets, not 60K.

Not wanting to dwell much into this, as this is already decided, as far as I know however even a 75k US stock or fund position (be it part of a 500k or 5,5M portfolio) will trigger the IRS proceedings in order to evaluate for the “potential” tax, even if in the end no tax will have to be paid.

Yes, you are right with this statement… It’s some paperwork that needs to be done etc. But I mean… You don’t have to inform them. Just tell your kids the IB login details, they sell the assets (no capital gains tax) and buy new ones in their name.

The IRS only cares when it has something to collect. Even if they notice, nothing will happen.

This would be my choice.

I’d be careful with such statements. It’s possible this wouldn’t be an issue if you’re below the estate tax limit. However, I’d rather be safe and fill out the IRS form.

4 Likes

Sure, But I don’t like “vorrauseilender Gehorsam” if they don’t freeze your assets and you just move the money… well then it’s not your problem anymore. They can’t lock you up for that, because you are not obligated to follow their laws in the first place, you are in Switzerland… I don’t think they’ll sue here without any benefit for them.

I know some people that had large US Stock positions transferred from their dead parents (both Swiss, Stock position > 1M, but under 10M total assets) and no one ever asked if they died or not. It’s not like Swissquote f. e. reports this to the IRS lol.

1 Like

Yes, that would be my second choice for now - it satisfies the human irrational itch to improve the “too simple to be effective” - VWRD/VWRL approach (while improving on the TER), and I don’t worry too much about spreads and/or volume, even after getting an ideal limit order filled the ETF can rally another 1% after that before market closing.

  1. Without the filled out form, they don’t know the total value of the estate, so they don’t know whether any taxes are owed. If you have a couple of millions in US ETFs, they might guess that the total estate could be above the limit, whether that’s the case or not.
  2. They might not sue here but could it be possible that the heirs would be denied entry to the US?

A risk well worth for me personally… Or they just file the forms. I just wanted to say that there won’t be a traumatic depot freeze without warning and/or message and locked up assets for decades…

I would also go for this approach.

Actually, I’m also considering to stop using US-ETFs for exactly that reason. The IRS paperwork and troubles for my wife are not worth it and IE based ETFs are as good, and even if you lose a very small amount compared to VT, who cares. At least for that your heirs won’t have troubles with IRS bureaucracy and don’t need to pay an expensive US tax advisor to file all the required asset inventory and paperwork.

With VEVE and VFEM you already have a TER of 0.13%.

It is also in Switzerland the case that after a person died their assets are frozen until the banks sees an heir’s certificate. You can get even in Switzerland into troubles for moving around assets after someones death.

At some point you need to tell IB that the person has died and then they likely want to see an official certificate and then they can see in the history that you transferred assets after the person died. This can trigger an investigation and lots of troubles, especially having troubles with the US around such topics is not much fun. I don’t want that my wife gets arrested at the airport next time she visits the US, or even another country because they set her on an international wanted list as person of interest for potential tax evasion.

Not saying this is good how it is. I also feel annoyed that the governments have to make things annoying even after our death but still I wouldn’t want that my wife gets into troubles or has to deal with annoying bureaucracy and US tax advisors etc. that’s why I think IE based ETFs are better.

I was into US ETFs before too because I thought that with the tax treaty the limit is 10M or so, so I don’t need to bother, but I learned that it’s not like that. It is not like if you have below 10M it doesn’t affect you. You still have to deal with IRS and provide evidence that your assets are under the threshold and you have to fill out forms and create an asset inventory and disclose everything to them to claim the treaty and only if they decide it’s okay, then you’re fine. Not worth the troubles IMHO.

3 Likes

True, but it is more complicated to manage, rebalance and sell off in early retirement. I really do enjoy the simplicity of VT and I don’t care what happens to my money after I am dead for now, those people that are affected will care if it’s substantial and if not, no taxes are being paid anyway.

The other points are valid… I’d just do the paper work. If you don’t have too many different assets, this shouldn’t be that difficult. just hire a tax advisor and let him do the forms, costs you like 0.1% of your portfolio one time.

In my opinion, it’s not a good tradeoff to avoid US securities because of the estate tax issue.

  • The most important: most of us are young, the risk of us actually passing away is very, very low.
  • In the case we actually would pass away, as already stated, not tax would be due. It’s likely the question of filling some paperwork and waiting for a year or so. I’d expect the “hassle” of it being comparable to filling a DA-1 and waiting for a decision.
  • So it’s essentially “buying insurance” for an event with very low probability and low severity.

The way I am personally dealing with this is that I’m mentioning this in the instructions I’ve prepared for my relative for the case when I would pass away. They contain an article on the issue and instructions to hire a lawyer experienced in the topic of CH and US tax law and pay the lawyer from my estate.

4 Likes

First, liquidity in the sense of trading volume is not relevant for you. There will be enough shares available for you. So instead of trading volume of ETF, look at spreads in different exchanges and currencies. Half of the spread is an extra cost of a trade.

Second, I would suggest to keep one broker. Especially since your portfolio value is not that big. I would choose IB for low fees and margin loans and either stepwise sell and rebuy or order a securities transfer. As always, compare costs.
What about your 3a by the way?

Concerning buying in different currencies at different exchanges with different brokers: calculate all costs (broker’s fee + exchange fee + currency exchange fee + half of the spread) and compare. My guess it would be cheaper to buy in the currency USD/EUR/CHF you have at the moment, without a conversion. Should depend on the amount you want to invest though.

From all options you listed, only splitting VEVE + VFEM is significantly different. With your portfolio size it makes sense, but then you should rather sell all VWRL.

1 Like

No matter in which currency you buy VWRL (IE00B3RBWM25), it distributes USD.

1 Like

Could you post or pm the information you regrouped ?
I would like to do the same.
My wife is an US person so it best for her to fill the IRS form.

We think alike. Glad to read your reply.

Yes, totally agree about the trading volume, there’s always 50 shares of VWRL in the ASK. I tend to not worry about the spread either, tell me if I’m wrong : even if I use a Market order and buy let’s say a bit more expensive, the price could go up or down by several percent by the end of the trading day (if I buy in the morning for example), so in the long run it doesn’t matter, right?

Yes, IB is my broker now, we just stopped buying and have not yet moved/sold the VWRL shares that we have with Degiro, but plan to do that to simplify the situation (especially with the CH tax return to avoid having dividends from two brokers when I start buying on IB).

My 3a is at VIAC with Global 100.

Well that’s why I like the VWRD idea (the USD dividends can be used immediately to buy more VWRD which is in USD), and why I would probably choose to buy the VEVE/VFEM combo on the SIX if I went that direction, at least no FX cost on buying the shares (but again the exchange costs need to be taken into account). I invest some 3-5k monthly.

As said before the VWRL will be either merged with the future IB shares or sold (enough time has passed to not be an issue with the Swiss tax office).

Thank you for your ideas!

Yes.

According to some information that I have “from Internet” moving securities bought at Degiro at a European exchange should cost you not more than 50-60 CHF. If you want to avoid a hassle, might be worth just paying for it.

There are no issues of this type whatsoever.

1 Like