Dear Mr TanREPLY
I'm a keen follower of your blog and appreciate your efforts in educating the public on financial planning.
I attended a will writing talk recently and was informed that the US estate tax on assets such as stocks bought in the NYSE can be as high as 55%! I have invested quite a bit in the ETFs listed on the NYSE and needless to say, I was quite stunned to hear about that. I did some research about this and it seems there is an exemption provided the total value of assets owned is less than US$60,000 based on fair market value.
I have asked my broker about this, but they claimed that there won't be any estate duties on US stocks. But this doesn't seem to be the case based on what is stated on these 2 sites:
http://www.irs.gov/businesses/small/international/article/0, ,id=156329,00.html (official word from the Internal Revenue Service)
http://www.ifa-sg.com/abolishment-estate-duty/ (opinion from a local Independent Financial Advisor)
If this estate tax does apply to Singaporeans owning US stocks, you might want to blog about this to inform the public as I believe there are quite a number of people who own them but are not aware of the tax.
I am not familiar with estate duty in US on non-resident. I shall post your email in my blog and see if there is some response from the experts.
15 comments:
More information here: Family to pay $1.3 million in estate duty!!
Yes, the estate tax + 30% withholding tax on dividends are two drawbacks of investing directly in the US stock markets.
Investors should do more research on the different investing rules of foreign markets, instead of plunging headlong. I have a friend who boasted about buying Apple, Google and Citibank shares, but he knew nothing about the taxes. Most brokers don't know or care about these either, as their clients are mostly short-term speculators.
This reader rightly pointed out, and s/he gave us a very good reminder.
Hope this has some use for you.
http://topics.nytimes.com/your-money/planning/taxes/index.html
Hi,
Nowadays, stocks can be traded online easily through stock broker website like POEMS. I was wondering if the spouse of the deceased has access to the deceased's trading account, can he or she just sell the US stocks or funds to liquidate the money? Is this legal?
If not, that will be a disaster to pay 55% estate duty!
Yes, US has a very high (~50%) estate tax and the tax exemption is only 5 figures for non-resident aliens (i.e. people who do not work in the US). That's old news actually. If your broker/adviser has not mentioned this, perhaps you should considering firing him. Haha!
No, estate tax has not been abolished! The 2nd link you provided is about how Singapore has abolished its estate tax (emphasis *Singapore* not US).
However, I think estate duty was abolished in the US this year *only*, but it will be reinstated next year (this news I read was referring to US residents, so not sure about us).
Yup, for stocks and other securities bought directly from US markets, they are subject to estate tax. The exemption is only a very low US$60K. Anything above that gets the Death Tax treatment.
And as 1 poster has already mentioned above, any dividends and other distributions made by the stocks are also subjected to 30% with-holding tax. I.E. Whenever dividends declared, Uncle Sam will take 30% first, and you collect 70%.
So until Singapore govt negotiates with US for better tax treaty, otherwise you need to be careful.
Oh, regarding getting a family member to login online broker and sell etc. Well, it's illegal under US laws; pray you don't get caught if you pull this stunt. I'm not sure if the US brokerage account is opened as a JOINT account, then whether this will work. Of course if both spouse die together e.g. car crash, then back to square 1.
The only other legal way is to structure your holdings as an offshore insurance bond. But only worth it if you are high net-worth, coz the annual fees can be like 1% or 1.5% per year. And of course, there is minimum amount you need to have.
What about property in the US owned by non-residents? Many have bought them for rental investment purposes, and accomodation for their childrens' education overseas.
Will the property's value be part of the estate and taxed after the owner's death?
all the posters and the links presented some far point to tax on non-residents holding US stocks but the writer's broker is saying otherwise.
looks like the writer's broker is ignorant of the existence of such US law or pretending to act ignorant.
The question to ask is which is more creditable, the broker or information posted on the US government website?
Merlion
There're two types of non-residents under US tax laws. US citizens resident abroad (liable to all taxes as if resident) and non-resident alien.
For financial transactions with US institutions, whether direct or indirect (including banking, stockbroking, futures through foreign intermediates) the former signs a W9 form and the latter signs a W8 form.
If you're Singaporean trading the US markets through a Singapore broker, your broker would have you sign the W8 form. There's a 30% withholding tax on dividends but no estate duty. That's because your broker is outside US and hold your shares in a nominee account. Foreign corporate nominee is not a physical person and therefore not subject to estate duty, but still subject to withholding tax.
If you happened to have worked or studied in US before and have registered a social security number there, you can choose to file the W9 with your SSN. Anyway, most local brokers would probably stop trading US shares for you as they want to avoid the hassle of the followup, i.e. lots of further disclosures to US authorities and under their power of lien (e.g. freezing assets in case of tax defaults). They'll probably recommend that you open an account directly with a US broker.
The advantage of the W9 form is that there's no withholding tax on dividends or interests. The disadvantage is that you're supposed to file returns to both state and federal tax boards as your shares become direct personal assets owned in US (whether you're in US or not), subject to capital gains tax, estate duty and the whole lock, stock and barrel of US state and federal tax codes.
If you read carefully through most application forms for unit trusts, especially those global or US funds that must hold and trade some US stocks, you'd most likely come across a clause before your signature asking you to affirm that you're a non-US person (meaning neither US citizen nor resident alien). If you hold a US passport or green card, they'd most likely reject your patronage and refer you to a US firm direct.
Hi
Does anyone know whether estate duty tax also apply to foreign currencies held in banks operating in Singapore. I have some deposits in Aust Dollar and British Pounds. Thanks.
Ask your adviser who is supposedly paid by you, right? Sack him or her if you can't an answer. Salesmen don't have this knowledge, they only know how to make a commission from you.
To Anon March 31,2010 10:49PM,
Almost everybody do not pay their financial adviser any fee. If they do, they would have got a better advice. Definitely.
How about holding stocks through US companies with branches in Singapore? Are they subjected to the same estate duties as well? For example Optionsxpress.
Below is a response I got from my broker.
Regarding US estate tax, there is a lot of misinformation on this subject being published on the Internet. US estate taxes are for US residents with assets in the United States. There is no estate tax for customers outside of the US. In fact, we don't even get involved in estate taxation for US customers either. The best way to describe this is to detail how we handle a customer's sudden passing:
If a customer either within and/or outside of the US passes suddenly, we ask for the next-of-kin in the family to provide a copy of the death certificate. We would also ask for any documents that could be from the Courts, which may inform us who is the rightful owner of the assets after the customer's death. After receiving the documents, we work with the appropriate person in your family to create an Estate account, and then we encourage them to either liquidate the holdings, and withdraw the funds. Or, they could also transfer the account contents to another broker, if simpler. Either way, there is no estate taxation, nor services related to estate taxes done by Interactive Brokers. We can unfortunately confirm that it happens frequently that a customer passes suddenly, including thousands of our Non-US customers, and our procedure is always exactly as described above.
We hope this helps to clarify.
Regards,
Melissa-Interactive Brokers
Additional information I got regarding UK inheritance tax.
---
Thank you for contacting us. Interactive Brokers does not get involved with, or support any taxation at death. (not for any client worldwide)
We can confirm that (unfortunately) it happens every week, all over the world, that a customer passes suddenly. Here is our procedure:
We ask the customer's spouse or next of kin (children, other family member) to provide a copy of the death certificate along with any other court-ordered documents which might describe who has the legal rights to assets of the Estate.
Most of the time, if a customer is married, the legal heir is the spouse. In this case, we simply work with the spouse to create an Estate account, then we work to either liquidate the positions and/or transfer the account to a new broker. It all depends on the rightful owner's wishes.
There is no support or reporting related to taxation.
We hope this helps to clarify.
Best Regards,
Melissa - IB
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