The $60'000 cap for US investments

[maillekeule]

@cray

Then there is the relative calculation mentionned here and which changed recently. This determines the amount on which 40% estate tax has to be paid.

Just to clarify, this estate tax only applies once you die or it is something you have to consider on a yearly basis?

[maillekeule]

@Bojack

If you die and at the moment of death:

you are not a citizen of USA
and you are not living in USA
and you are a citizen of Switzerland
or you are living in Switzerland

Then you will pay as much tax, as if you have been domiciled in USA.

@hedgehog: if I read Bojack comment, then he is writing the opposite. However am I right to assume that all of this only applies in case of death?

[Bojack]

@maillekeule

@hedgehog: if I read Bojack comment, then he is writing the opposite. However am I right to assume that all of this only applies in case of death?

No, I wrote exactly what @hedgehog is saying. Maybe let’s clarify the confusion.

Estate tax is a tax paid upon death. It quickly reaches the rate of sth like 40%, so it hurts. But American residents have an exemption, currently of around 11 million USD. So when they die, and they have an estate of under 11 million, their heirs don’t pay this tax when inheriting their fortune.

However, by default, foreign holders of US assets are subject to estate tax with an exemption of only 60’000 USD. So if you kick the bucket, your family will have to cough up 40% of your US assets over the mentioned 60’000.

But! Switzerland has a deal with US, which lets Swiss people and Swiss domiciled foreigners (like us), to be treated like Americans if we die! So we can enjoy the 11 million tax-free exemption. But if you one day leave Switzerland to a country without a deal, then you better sell these American assets.

Was that clear enough?

[Bojack]

@cray

The US relative exemption, as calculated by the treaty, is not an absolute value

Thank you for reminding me of this. It’s true, I tried to provide a clear explanation.

So this pro rata thing works like this: If you own 11 million US assets and 11 million non-US assets, your exemption will be 11 mln * 50% = 5.5 mln. I would like to have to consider such potential problems.

@cray

My last point is this: Better don’t consider dying holding US situs assets above $60k if you leave LOVED ones.

Why? You mean it’s a complicated mess and they will need to fight in order not to pay estate tax in the full? I don’t know how it works in practice, but if you died holding 1 mln worth of VT, they could pay a good lawyer to avoid this tax?

[ma0]

This post is one of the reasons a Wiki would be better to get info rather than a forum. If you don’t read a forum in the right order (time), you’ll get only confused.

[Fidelio]

Folks, it would be useful to refresh this old discussion, as so many of us are invested in US stocks.
I have asked my stockbroker how systematically the 60K $ threshold is enforced for US non-resident aliens, and the response is that this rarely becomes an issue at succession - but when it does it carries very complex and costly compliance requirments. it is not clear to me who real the risk really is.
I would appreciate any clues… thanks !

[xerox5003]

@Fidelio, there are plenty of results, when I am using the search function. One of the best responses is the one below:

@nugget

so would you agree that the following describes the US estate tax situation correctly:
upon death, if you are a swiss citisen or resident,
below USD 60’000 of US-domiciled assets no taxes apply. Above 60k, the old Siwss-US-taxation treaty from 1952 kicks in: the tax-free limit is calcualated as
$5’230’000 * f
where f is the fraction of US domiciled assets of your total belongings.
Of your US-domiciled property, everything above the threashold is taxed roughly 40% (who knows?)

Example: if you are 100% in US domiciled stocks, you tax free threshold is $5.23M. if you have 20% of you assets in the US, it is $1.46M

Source NZZ
Source Deloitte
Source Credit Suisse
Source admin.ch

[PhilMongoose]

@hedgehog

U.S. estate tax is of little concern for swiss residents.

Swiss-US estate tax treaty mandates that U.S. applies the same estate tax exemption for swiss residents as for U.S. residents, i.e. about $5M currently, not $60k.

One thing to watch out for is that the treaty limit of $5 million is pro-rated. So, for example, if you have US assets and Swiss assets, you will not effectively get the full $5M* exemption!

A second gotcha is that the treaty exemption is not automatic, but requires the filing of various forms with the IRS by the relevant deadlines to take advantage of it.

I’m not a US tax expert so take with a grain of salt, but at least Form 706‑NA within 9 months of death and Form 8833 by April 15.

You reminded me to add this to the “If I die” instructions folder for my partner.

*due to various changes in law the amount may not be $5million, but I assume it is for simplicity.

[jay]

@PhilMongoose

One thing to watch out for is that the treaty limit of $5 million is apportioned. So, for example, if you have US assets and Swiss assets, you will not effectively get the full $5M exemption!

Yes, the global net worth needs to be below the limit to be fully exempt from estate taxes. As of 2023, the threshold is USD 12.92 million for individuals, double for married couples, though, so this is probably not a concern for most people. That said, there is a chance the exemption will be lowered in the future.

@PhilMongoose

A second gotcha is that the treaty exemption is not automatic, but requires the filing of various forms with the IRS by the relevant deadlines to take advantage of it.

I’m not a US tax expert so take with a grain of salt, but at least Form 706‑NA within 9 months of death and Form 8833 by April 15.

There is some discussion on this towards the end of this thread: Are US ETFs worth the (estate tax) troubles?

[PhilMongoose]

@jay

Yes, the global net worth needs to be below the limit to be fully exempt from estate taxes. As of 2023, the threshold is USD 12.92 million for individuals, double for married couples, though, so this is probably not a concern for most people. That said, there is a chance the exemption will be lowered in the future.

I did read something about the automatic sunset clauses reducing it back to $5M by 2026, but I haven’t really followed it so not sure what the current trajectory of the limit is.