Key Post Be careful if you hold more than $60,000 in US equities

[Gordon Gekko]

In reality, US Estate tax would only arise if the Executors went out of their way to pay it.

 

[Sarenco]

I gather (although I'm open to correction on the point) that in the case of jointly owned property, US tax law assumes that 100% of the property value is included in the estate of the first joint owner to die.

However, the repeal of (federal) estate tax was one of President Trump's big ideas so this issue may fall away as a concern.

 

[SirMille]

No such hassle arises if you simply hold your assets through an Irish broker.

Exactly, that's why I shut down my Waterhouse

 

[Sarenco]

In reality, US Estate tax would only arise if the Executors went out of their way to pay it.

As things stand.

The IRS could, of course, simply require qualified intermediaries to notify them on the demise of a holder of relevant US securities. That doesn't look very likely at the moment but circumstances change.

 

[Brendan Burgess]

In reality, US Estate tax would only arise if the Executors went out of their way to pay it.

This discussion reminds me of the Eighties in Ireland. Bank managers and financial advisors told people: "Tell us you are non-resident and we won't have to deduct tax on your deposit interest or declare it to Revenue. Everyone is doing it. It's fine."

Brendan

 

[Gordon Gekko]

Guys,

I can only report what the reality is.

Sarenco, you seem to delight in contradicting me; in this case my sense is that you're reaching. There is no immediate prospect of this coming under the microscope according to any of the experts in the field.

Gordon

 

[Sarenco]

Sarenco, you seem to delight in contradicting me; in this case my sense is that you're reaching.

In what way am I contradicting you! Read what I actually said.

There is no immediate prospect of this coming under the microscope according to any of the experts in the field.

Did I suggest otherwise?

 

[Marc]

I have an update on this. Do you have shares in a company listed in the USA or a US ETF and you have more than $60,000 and are married or in a Civil Partnership?


If you answered yes to all three of these questions, then you have exposure to Federal Estate Tax in the USA in the event of your death at a graduated rate starting at 28% and rising to 40% on investment of more than $1m.

As there is no tax payable on death for transfers between spouses or civil partners in Ireland, there is nothing to credit the US tax against. On the subsequent death of the survivor there may also be Irish CAT due on the same money resulting in a potential double tax hit.

The double tax treaty between Ireland and the USA is of no assistance as these would be different taxes at different dates.

U.S.-domiciled assets that are subject to estate tax include, for example:

• Real estate located in the U.S.,
• Tangible personal property (excluding some art), and
• Stock of corporations organized in or under U.S. law, even if the non-resident held the certificates abroad or registered the certificates even if they are registered in the name of a nominee.

Note that holding the shares in a nominee account is not an effective solution.

$60,000 exemption​

An executor for a non-resident, not a citizen of the U.S. must file an estate tax return if the fair market value at death of the decedent's U.S.-situated assets exceeds $60,000


In Ireland, probate law requires that the executor be responsible for the affairs and obligations associated with the deceased and their estate. The personal representative is responsible for handling income tax and capital gains tax (tax on gifts and inheritances), which may arise during the administration of the estate. If the personal representative fails to make sure that the relevant taxes are paid, he or she is personally liable.

Turning a blind eye to any US assets when acting as administrator of the estate is therefore not recommended

The Internal Revenue Service may collect any unpaid estate tax from any person receiving a distribution of the decedent’s property under transferee liability provisions of the tax code.

Note that as part of the account opening documentation and to meet the IRS requirement, you must update and complete a W-8BEN form every three years, even if there is no change in your personal information. Without an up-to-date W-8BEN, account restrictions could prevent you from trading.

Remember that a W-8BEN form holds your name, address, date of birth, country of residence and social security number.

Our solution [1]​

We have developed a solution which will provide Irish residents holding US assets an unlimited spousal exemption by establishing a Qualified Domestic Trust (QDOT)

A qualified domestic trust (QDOT) is a special kind of trust that allows taxpayers who survive a deceased spouse to take the marital deduction on estate taxes, even if the surviving spouse is not a U.S. citizen. Normally, a U.S. citizen surviving spouse can take the marital deduction, but a non-citizen surviving spouse cannot.

For more information, please see here

Some Nonresidents with U.S. Assets Must File Estate Tax Returns | Internal Revenue Service (irs.gov)

Option 1 Portfolio option​

Under this option you pay an initial fee of €5,000 to establish a Qualified Domestic Trust in the USA which allows access to an unlimited exemption for a spouse or civil partner on your death.

This is our preferred option for larger investment portfolios, and we understand that the market rate to arrange a QDOT after the death of an investor holding US assets is around €10,000 plus VAT so this is clearly a cost-effective solution.

Option 2 Instalment option [1]​

Under this option you pay a fee of 0.05% of the value of US securities or ETFs held with our nominated custodian subject to a minimum account value of €100,000

Note that it is preferable to move securities from a US Custodian account since in the event of death the account is frozen as the IRS places a charge over the account for the tax owing.

Under this option the surviving spouse or civil partner has up to 9 months to establish the US Qualified Domestic Trust following the death of the investor for a fee of €7,500 plus VAT.

Option 3 Employer Sponsored Option [1]​

Our final option is available to the HR Departments of US Multinationals. This is a block solution covering all employees of the firm holding stock in the sponsoring employer. For a fee of €50 per annum per employee we will provide access to the QDOT solution.

Case Study​

Jane worked for Apple inc. in Cork for many years and through acquiring shares in her employer via share options, now has over $1.5m in the company.

She was told, incorrectly, by her Stockbroker that because the shares were held in a foreign nominee account that she didn’t need to worry about this.

We arranged for the shares to be transferred “in-specie” i.e., without being sold in order to avoid crystallising a capital gain, into our nominated custodian account.

An additional benefit of this arrangement is that on her death her assets will not be frozen for years in the USA pending a winding up of the account. The reason for this is that the IRS places a charge over the assets, and this isn't released until the tax is paid.

She now knows that this issue is correctly addressed in the event of her death avoiding potentially many hundreds of thousands in additional taxation for her family which would be triggered in the event of her death, and which was a worry as she has had come health concerns.[1]

Marc Westlake CFP, TEP, APFS, QFA, EFP
Chartered Certified and European Financial Planner
Everlake






[1] Terms and conditions apply

 

[Horatio]

Thanks for the update Marc & putting forward solutions. Seems like good value options for larger holders of US assets.

I look at the above risks & also the potential solutions you put forward & I find myself thinking is the game worth the candle?
In my particular case probably not because of the level of my holdings in concert with the mental bandwidth to set up & maintain the solutions you described. Cost's of the solutions seem reasonable so that's not a factor in my mind.

I reckon I'll cash out of all US positions over the coming years (when they're finally back in the black) & seek out IE / EU based indices that give me the US exposure without the US Estate tax risk.

 

[Red Baron]

I have eur450,000 in USA shares liable to USA estate taxes. What should I move it to?(33%CGT, dividends as the income)

(Aim long term capital growth.)

Long thread almost money makeover material (I posted there 6 months ago).

Sounds like I am a candidate for what this thread is advertising, but I do not tend to pay for advice/professional help.

Largely inheritance, max out pension, company stock, and Irish life assurance so far. A bit allergic to more real estate. Not a financial wizard more of a squirrel I away/miss allocate it, in units of about eur5000. Mortgage free. Age 53.

Any other investment tax traps to avoid?
Ones I know about:
-USA estate taxes (what little I know).
-Irish taxes on shares and life assurance.
-CAT for gifts/inheritance.
-USA 15% withholding tax on dividends with w8 Ben form.
-I assume 1% charge per year on managing money for example: life assurance or pension.
-Bad at paperwork might well go for life assurance funds, they calculate the tax. Will mess up managing any deamed disposal calculation by myself.
-lots of places have dividend withholding tax rules e.g. Germany.
-stamp duty is a thing in places (only bought /sold USA company stock no stamp duty, through cheap USA broker (Schwab))
-ARF better than annuity.

(Other assets:
-Company world wide equity pension (I have a query in with them to ask if USA estate taxes apply).
-Zurich.ie life assurance 70,000 in gold. 35,000 in largely equity fund 'dynamic' so up 2% in 15 months. This is an example of an ok investment I went out of my way to do, with some inheritance money. Sales guy will not comment on USA taxes. 41%tax 1%stamp 1%management charge(going up to 1.1% for 2023). Will add to this life assurance.
-Zurich UK inherited life assurance tax at 40% of gain on sale/death of father.
-Likely investment with spare cash 50,000 through Zurich.ie 50/50 in 5*5 Asia fund and Asia pacific specific fund (risk of Taiwan)
-Possible move of pension to Emerging markets look like: China Taiwan Korea looking at funds top investments to lower USA exposure. This fund has done less well than general equity fund for the last year.
-Renovate attic for rent a room. Tax free money.
-Wife is kean and has cash set aside to buy an apartment.
-Wife from Belarus is very anti USA or Europe investment, which is why I went for gold 12 months ago. She stayed in cash 'for apartment'. (Loss to inflation)
-Half thought about German tecdax non dividend paying stocks.
-Half thought about standard life vanguard life assurance.
-Half thought of vanguard VUSA in Amsterdam ie in Euro.
-Wife has pension in cash could buy a variety of stock through Davy select.
-Wife is due to a start a civil service AVC pension likely through Davies or labrokers/Zurich.
-Son turns 18 in 15 months (so can claim tax benefits, and sign contracts)
)

 

[jpd]

With that level of assets, you can afford to pay for proper financial advice.

 

[Red Baron]

I do not feel there is much custom advice required to investing money for long term capital appreciation and avoiding USA estate taxes as an Irish resident. (If no exotic products involved.)

You may be right that there may be other areas worth getting advice on.

 

[sadie]

Regarding the QDOT, it seems that setting it up crucially only defers the payment of the Estate tax until the other Non-US citizen spouse dies.

Say Anne has 800k of shares in Intel, she's 80 and married to Jeff who is a retired teacher aged 85.
Anne sets up the QDOT to protect her family from losing a massive chunk of this asset to US Estate Tax.

Anne dies.
Because there is a QDOT set up, Jeff only has to pay the reduced US Estate Tax.
But then Jeff dies a year later.
And their grown up kids then need to pay 40% of 800k to US Estate Tax.

Unless Jeff sells the shares after Anne's death? Have I got that right?

 

[Marc]

Regarding the QDOT, it seems that setting it up crucially only defers the payment of the Estate tax until the other Non-US citizen spouse dies.

Say Anne has 800k of shares in Intel, she's 80 and married to Jeff who is a retired teacher aged 85.
Anne sets up the QDOT to protect her family from losing a massive chunk of this asset to US Estate Tax.

Anne dies.
Because there is a QDOT set up, Jeff only has to pay the reduced US Estate Tax.
But then Jeff dies a year later.
And their grown up kids then need to pay 40% of 800k to US Estate Tax.

Unless Jeff sells the shares after Anne's death? Have I got that right?

Correct the QDOT defers the us estate tax til second death.

This is essential because in Ireland on 1st death of a spouse or civil partner there is no tax in Ireland. So nothing to set against the us tax.

On second death of survivor assets pass on and then there is exposure to Irish CAT.

What the QDOT achieves is to line up the payment of us and Irish tax so that one may be used as a credit against the other.

Otherwise it could result in double taxation

Not a problem if assets pass directly to children on 1st death AND CAT A exemption already used up or assets pass to a partner who is not a spouse or civil partner

 

[onlyonpaper]

For clarification

 

[onlyonpaper]

Apologies for error above; For clarification if an individual has $1.2million in U.S. shares is estate tax calculated by deducting the $60k relief and the total balance is taxed at 40% or is it on a graduated scale based on the tax table

 

[AAAContributor]

if an individual has $1.2million in U.S. shares is estate tax calculated by deducting the $60k relief and the total balance is taxed at 40% or is it on a graduated scale based on the tax table

The calculation methodology is as follows:

	USD
Gross US Estate	1,200,000
Less: Administrative Expenses (legal fees etc)	(0)
Taxable Value of US Estate	1,200,000
US Estate Tax*	425,800
Less: Credit**	(13,000)
Net Liability due	412,800

*Source: From the tax table below, $345,800 + [($1,200,000 - $1,000,000) * 40%] = $425,800

**Source: From the tax table below, $13,000, which is the cumulated tax paid up to an Estate Value of $60,000.

Tax Table:

Lower limit	Upper limit	Cumulated tax payable	Tax rate between limit
0	$10,000	$0	18% of the amount
$10,000	$20,000	$1,800	20% of the excess
$20,000	$40,000	$3,800	22% of the excess
$40,000	$60,000	$8,200	24% of the excess
$60,000	$80,000	$13,000	26% of the excess
$80,000	$100,000	$18,200	28% of the excess
$100,000	$150,000	$23,800	30% of the excess
$150,000	$250,000	$38,800	32% of the excess
$250,000	$500,000	$70,800	34% of the excess
$500,000	$750,000	$155,800	37% of the excess
$750,000	$1,000,000	$248,300	39% of the excess
$1,000,000	and over	$345,800	40% of the excess

 

[onlyonpaper]

Thank u for the prompt and comprehensive reply