Estate Taxes for Interactive Brokers HK stocks account

BBCWatcher

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this is usa tax evasion?
Yes. The United States has an estate tax with certain parameters. Failure to pay legally owed taxes is, by definition, illegal tax evasion.

You have no obligation to open an Interactive Brokers account and no obligation to trade U.S. listed securities.
 

Shiny Things

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Does IB provide a joint account option so that all shareholdings will be passed on to the surviving account holder? Will there still be an estate tax?

1) Yes they do.

2) If you're married there's not, because there's an unlimited exemption between married partners. If you're not married (if you have a joint account with your child, for example) then yes there is.

Guys, come on. Stop trying to dodge the estate tax and just deal with it.

Pay attention to this bit: if all you want to do is own ETFs, you can buy the Irish-domiciled equivalents and you won't have to worry about estate tax. If you want to own US-listed stocks, there is no way to dodge the estate tax... but also, there are ways to minimise the hit.

Take out a term life policy to cover the estate tax hit when you're young (which is extremely cheap because you're young); or reduce your holdings of stocks as you get older (which you should be doing anyway).
 

BBCWatcher

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2) If you're married there's not, because there's an unlimited exemption between married partners.
The unlimited exemption is only between legal U.S. citizen spouses (same and opposite sex). My understanding is that the demise of a foreign joint account holder would be treated, for estate tax purposes, as half the account being transferred to the survivor, split right down the middle, no matter which joint holder ponied up the initial capital. So the exclusion would effectively double, to $120,000, but it wouldn't be any more than that if both spouses are foreigners. (The exclusion is approximately $5.5 million if the decedent is a U.S. citizen, but on total worldwide assets. There are special rules that may apply if the decedent is a former U.S. citizen.)

Please check me on all that, of course.

Guys, come on. Stop trying to dodge the estate tax and just deal with it.
Amen. Even more importantly, if your life plan assumes that your executor (who might also be an heir) is going to illegally dodge taxes, you're...well, you're pretty dumb, let's just put it that way. What kind of estate plan is that? You're dead and you're expecting your executor to commit a felony? Good grief, that's...not smart. "Sorry, honey, I'm dead. Now would you commit a tax felony because I didn't leave enough for you and Little Sammy?" Wow.

Pay attention to this bit: if all you want to do is own ETFs, you can buy the Irish-domiciled equivalents and you won't have to worry about estate tax.
Correct. Non-U.S. listed securities are not counted toward the U.S. estate tax exemption, except for U.S. citizens. (Other countries' estate, inheritance, wealth, and/or income taxes may apply.) Cash in any currencies held at a U.S. broker, any U.S. assets (such as a piece of land you bought in Montana or whatever), and U.S. listed securities held anywhere, are counted toward the exclusion for all decedents.

Vanguard's Irish domiciled ETFs are somewhat more tax-efficient for non-U.S. persons while they're still alive, so that's another reason you might wish to stick to those funds. Examples include symbols VWRL and VUSA, traded on the London Stock Exchange.

Take out a term life policy to cover the estate tax hit when you're young (which is extremely cheap because you're young); or reduce your holdings of stocks as you get older (which you should be doing anyway).
Another great solution. Factor the (small) cost of that life/tax insurance into your calculation of investment expenses and returns.

Yet another solution, if you care about charitable causes and want them as beneficiaries in lieu of the United States Treasury, is to bequeath at least the portion of your U.S. estate taxable assets above the exclusion (or above your life/tax insurance coverage) to a qualified U.S. domiciled charity. "Qualified" means it qualifies under IRS 501(c)(3) rules. That includes many international relief organizations as long as you bequeath to their U.S. office. For example, you can leave assets to the New York office of Doctors Without Borders, and that qualifies. There are also some slightly fancy, legal things that qualified U.S. charities can do if you work with them on estate plans.
 
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w1rbelw1nd

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Are the enquirers on estate tax 60 year old forummers, or have a high risk of terminal illnesses?

What for ask things, and try to plan for things which may have huge potential changes 30-40 years later?

Why not just plan to withdraw your funds when you are at retirement age/ dying?

Seriously, low risk event happening 30+ years with very simple, practical solutions is not worth our attention. Move on.
 

w1rbelw1nd

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Or maybe people asking anticipate they will suddenly drop dead and die.

Are the enquirers on estate tax 60 year old forummers, or have a high risk of terminal illnesses?

What for ask things, and try to plan for things which may have huge potential changes 30-40 years later?

Why not just plan to withdraw your funds when you are at retirement age/ dying?

Seriously, low risk event happening 30+ years with very simple, practical solutions is not worth our attention. Move on.
 

BBCWatcher

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So is lqde listed on lse exempted from US estate or any other jurisdiction estate tax?
It's impossible to speak about other tax jurisdictions in general terms. "It depends." (I'll give you an example in just a moment.) However, to answer the first part of your question, LQDE is not considered a U.S. estate taxable asset unless the decedent is a U.S. person. It's just like the Vanguard Irish-domiciled ETFs already mentioned -- same basic construction.

OK, so here's one example: your heir has some residential nexus with Japan. Japan has an inheritance tax. (Also gift taxes.) Currently, if your heir resided in Japan within the past 5 years, then he/she often is subject to Japanese inheritance tax. Japanese inheritance tax applies to worldwide inherited assets -- it's levied and owed on the receiving end. Moreover, the Japanese government is highly likely to increase that "look back" period to 10 years, effective April 1, 2017. (Japan's extension to 10 years will also exempt more non-Japanese.) On top of all that, my understanding is that the Japanese inheritance tax can apply to life insurance proceeds, to some extent anyway. Japan does allow a tax credit if there's a non-Japanese estate tax on a non-Japanese asset.

So, "it depends."

I don't entirely agree with W1rbelw1nd. If you have dependents, you can and should plan ahead to make sure their lifestyles are adequately preserved in the event of your premature demise. That's what simple term life insurance is for. If you can self-insure on an after-tax basis, great. If you cannot, get the best deal you can on some simple term life insurance, up to the amount necessary to accomplish that lifestyle preservation mission for your survivors. If you do not have dependents then you do not need life insurance. The cost of any extra life insurance you must purchase to compensate for taxes should be factored into your estimates of investment costs and returns, and (in turn) those costs and returns should inform your investment choices.
 
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w1rbelw1nd

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I don't entirely agree with W1rbelw1nd. If you have dependents, you can and should plan ahead to make sure their lifestyles are adequately preserved in the event of your premature demise. That's what simple term life insurance is for. If you can self-insure on an after-tax basis, great. If you cannot, get the best deal you can on some simple term life insurance, up to the amount necessary to accomplish that lifestyle preservation mission for your survivors. If you do not have dependents then you do not need life insurance. The cost of any extra life insurance you must purchase to compensate for taxes should be factored into your estimates of investment costs and returns, and (in turn) those costs and returns should inform your investment choices.

I am of the idea that TPD term insurance is important, not sure how my posts previously suggested otherwise.

The estate tax risk can simply be mitigated liquidating the assets and transferring it into the beneficiary bank account. This can be done within a week? Why are we discussing at length on a very very very very very low probability activity where we suddenly drop dead?

Even if we suddenly drop dead, how are the overseas authorities aware that we are dead? Passing our trusted beneficiaries, family members our IB account details can also have e same effect of not being liable for estate tax.
 

klarklar

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Hi BBCWatcher,

Thank you very much for the information. Mostly bad news to me but still very important to know. I have a joint account with Interactive Brokers with my wife. Suppose I got killed in an accident suddenly without warning and all my stocks in the joint IBKR account are HK stocks. I understand HK stocks are not subjected to estate tax. However, at some point in time, the HK stocks have to be sold and converted to cash in the IBKR account. Will this cash be subjected to U.S estate tax?

Are cash in non-USD currencies subjected to US estate tax?

Thank you very much for the information so far.
 

klarklar

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I am of the idea that TPD term insurance is important, not sure how my posts previously suggested otherwise.

The estate tax risk can simply be mitigated liquidating the assets and transferring it into the beneficiary bank account. This can be done within a week? Why are we discussing at length on a very very very very very low probability activity where we suddenly drop dead?

Even if we suddenly drop dead, how are the overseas authorities aware that we are dead? Passing our trusted beneficiaries, family members our IB account details can also have e same effect of not being liable for estate tax.

Hi w1rbelw1nd,

BBCWatcher has made it clear this is tax evasion. I would not want my loved ones to be guilty of an illegal act even if it is in a foreign jurisdiction. It is very easy for the authorities to check the truth later. Besides, the U.S is a land of opportunities. By committing this act, a person is cutting himself off from this land of opportunities and I would want my descendants to have access to this land of opportunities. I think it's better we do our best to minimize taxes through legal means.
 

BBCWatcher

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The estate tax risk can simply be mitigated liquidating the assets and transferring it into the beneficiary bank account.
No, it cannot, not legally. You are describing illegal tax evasion. Are you recommending that your executor/heir commit a felony? Is that part of your estate plan? If so, you're not smart, sorry to say.

I'm not even beginning to scratch the surface when I carefully, patiently explain to you that Interactive Brokers is probably going to be at least "curious" if/when somebody else logs on and attempts to liquidate your account.

Good grief. :(

klarklar said:
I have a joint account with Interactive Brokers with my wife. Suppose I got killed in an accident suddenly without warning and all my stocks in the joint IBKR account are HK stocks. I understand HK stocks are not subjected to estate tax. However, at some point in time, the HK stocks have to be sold and converted to cash in the IBKR account. Will this cash be subjected to U.S estate tax?
No, almost surely not. Let's suppose your surviving spouse decides to liquidate the account. She sells those Hong Kong shares. IB credits the cash proceeds -- Hong Kong dollars, let's suppose -- to her account. She then converts Hong Kong dollars to Singapore dollars and withdraws that cash to her bank account in Singapore. Assuming she does not also die during the short period of time when the cash is held at Interactive Brokers, there are no U.S. estate tax implications that her executor has to worry about. If she's concerned about even that tiny risk then all she has to do is to keep the U.S. estate taxable portion of her account at or below US$60,000 at all times. She can do that by selling smaller blocks of Hong Kong shares rather than trying to liquidate the account all at once. IB allows one free cash withdrawal per month, so if she sells about US$50K per month and liquidates at that pace, that'll work perfectly and legally.

Are cash in non-USD currencies subjected to US estate tax?
Yes, as noted below at least a couple times.
 
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BBCWatcher

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I would not want my loved ones to be guilty of an illegal act even if it is in a foreign jurisdiction. It is very easy for the authorities to check the truth later. Besides, the U.S is a land of opportunities. By committing this act, a person is cutting himself off from this land of opportunities and I would want my descendants to have access to this land of opportunities. I think it's better we do our best to minimize taxes through legal means.
Amen. Add Disney World and Grand Canyon vacations to that long list.

Look, maybe you're a crook and maybe you, personally, don't mind committing felonies. That's your business. (And maybe this forum's moderators' business.) But if you truly care about surviving heirs, then I urge you not to saddle them with either the need or desire to commit felonies in any jurisdiction. That's at least uncaring.

Moreover, leaving the tax authorities aside for a moment, unless you have a joint account holder or somebody with a legal power of attorney (suitably presented and approved), you would be violating IB's terms and conditions if you allowed somebody else access to your account. IB has a keen interest in protecting its accountholders (and itself) from fraud, and I assume IB has fraud detection mechanisms that continue to improve and evolve. IB is the custodian of your assets. You physically hold nothing. IB can (and will) try to protect your assets. Handing an executor/heir a user ID, password, and code card is NOT (triple underscore) an estate plan! That would be supremely risky, even before you get to the tax issues. Do not do that! You're just begging for trouble for your heirs, as IB's fraud detectors raise shields and freeze the account. The correct way to handle this is through normal, legal estate settlement procedures, to make damn sure your heirs actually receive the assets you expect them to receive.
 

w1rbelw1nd

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Well, fair enough. So is liquidating the assets yourself, and putting it in sgd bank account considered tax evasion?

Is doing it 10 years before death illegal? 10 months? 10 days? 10 minutes?
 
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w1rbelw1nd

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Anyway, I am pretty sure that all of us here are not murderers/rapists here, but interested to understand the different ways to work around the taxes, be it being legally wrong/ambiguous, or correct.

So is there a definitive answer to when, and the circumstances of death that lead to estate duties? Even if some of us like to be totally clean/white, there may be legal means to reduce/prevent tax duties.
 

BBCWatcher

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So is liquidating the assets yourself, and putting it in sgd bank account considered tax evasion?
Anybody who is legally and contractually (IB T&Cs) permitted to withdraw the funds can withdraw the funds at any time. U.S. estate taxes apply to nonexempt assets above the applicable exemption limit, with or without a withdrawal, but they never apply when the account holder is still clinically alive. U.S. estate taxes always require a dead body, first.

The definitive information on U.S. estate taxes is available from the U.S. Internal Revenue Service and is referenced below and in other threads. My summary description of U.S. estate taxes is, most likely, correct, but I encourage checking that description against what the IRS publishes.

For non-U.S persons, it's very simple: there is no U.S. estate tax if your total U.S. assets (as the IRS defines them), including cash (in any currencies) held with a U.S. broker, total to US$60,000 or less in Fair Market Value on the date of death. (With the possible exception of former U.S. persons, when special rules sometimes apply.) Simply keep your total U.S. estate taxable assets to US$60,000 or less at every point in time and then your executor has no U.S. estate tax issues. (Your executor may have other issues to deal with, including tax issues, but not that one.)
 
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w1rbelw1nd

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Okok thanks for the info. So I guess as long as I am breathing, 10 sec before death, and the market is open, I can do the US securities sale and cash transfer without being liable for taxes (if I want to "live on the edge" literally).

I appreciate your sharing on the treatment of Irish domiciled UK listed etfs, which is where most of my wealth is parked. Either way, I would personally treat the risk of me facing a sudden death with estate considerations as immaterial as I doubt I would hold more than usd60k in us listed securities/cash, since I only invest in GLD in nyseacra.

Will read your links and update myself on tax laws as and when it is more relevant for myself.

Anybody who is legally and contractually (IB T&Cs) permitted to withdraw the funds can withdraw the funds at any time. U.S. estate taxes apply to nonexempt assets above the applicable exemption limit, with or without a withdrawal, but they never apply when the account holder is still clinically alive. U.S. estate taxes always require a dead body, first.

The definitive information on U.S. estate taxes is available from the U.S. Internal Revenue Service and is referenced below and in other threads. My summary description of U.S. estate taxes is, most likely, correct, but I encourage checking that description against what the IRS publishes.

For non-U.S persons, it's very simple: there is no U.S. estate tax if your total U.S. assets (as the IRS defines them), including cash (in any currencies) held with a U.S. broker, total to US$60,000 or less in Fair Market Value on the date of death. (With the possible exception of former U.S. persons, when special rules sometimes apply.) Simply keep your total U.S. estate taxable assets to US$60,000 or less at every point in time and then your executor has no U.S. estate tax issues. (Your executor may have other issues to deal with, including tax issues, but not that one.)
 

BBCWatcher

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Okok thanks for the info. So I guess as long as I am breathing, 10 sec before death, and the market is open, I can do the US securities sale and cash transfer without being liable for taxes (if I want to "live on the edge" literally).
No, not literally.

First of all, you are never liable for U.S. estate taxes. You're dead in this scenario. The individual handling your estate, i.e. your executor (who might also be a heir, but that's only coincidence), is responsible for settling your estate's tax obligations.

Second, it takes at least a couple days to settle securities trades and then a day or two after that to withdraw funds. If you're counting on being able to liquidate U.S. estate taxable positions, including cash positions, before you expire, then that'll only work if you die relatively slowly or slower and if you or somebody with legal/contractual authorization acts. All of which is impractical, of course.
 

w1rbelw1nd

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Ok sure boss. Thanks for being very precise :)

No, not literally.

First of all, you are never liable for U.S. estate taxes. You're dead in this scenario. The individual handling your estate, i.e. your executor (who might also be a heir, but that's only coincidence), is responsible for settling your estate's tax obligations.

Second, it takes at least a couple days to settle securities trades and then a day or two after that to withdraw funds. If you're counting on being able to liquidate U.S. estate taxable positions, including cash positions, before you expire, then that'll only work if you die relatively slowly or slower and if you or somebody with legal/contractual authorization acts. All of which is impractical, of course.
 
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