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Old 10.10.2017, 22:54
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Buying VTI - potential estate tax liability in the US?

Hi

I am thinking of going all-in on the VTI (Vanguard Total Stock Market ETF) but I heard there can be potential estate tax liability in the US for Europeans?

Should I form a company and buy through it (via Interactive Brokers)? (Companies never die)
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Old 10.10.2017, 23:06
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Re: Buying VTI - potential estate tax liability in the US?

As a resident of a random country you/your heirs would indeed get into trouble with IRS if you'd do this and die. It counts as a US situs asset and the default exemption limit from US estate tax for non-US residents/taxpayers is a mere $60k. Fortunately, Switzerland and US have concluded an estate tax treaty which raises the limit $5.49M (at the moment), same as for US taxpayers. So unless you're multimillionaire already, US estate taxation probably doesn't really concern you very much. There's a minor additional technicality: if you have significant non-US assets, that exemption limit would get prorated.
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Old 11.10.2017, 00:13
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Re: Buying VTI - potential estate tax liability in the US?

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if you have significant non-US assets, that exemption limit would get prorated.
What does that mean? Stocks / ETFs in other countries?
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Old 11.10.2017, 00:22
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Re: Buying VTI - potential estate tax liability in the US?

Real estate too

The exact legal wording from the treaty is:

"In imposing the tax in the case of a decedent who at the time of death was not a citizen of the United States and was not domiciled therein, but who was at the time of his death a citizen of or domiciled in Switzerland, the United States shall allow a specific exemption which would be allowable under its law if the decedent had been domiciled in the United States in an amount not less than the proportion thereof which the value of the total property (both movable and immovable) subjected to its tax bears to the value of the total property (both movable and immovable) which would have been subjected to its tax if the decedent had been domiciled in the United States."
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Old 11.10.2017, 00:41
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Re: Buying VTI - potential estate tax liability in the US?

Another interesting fact from the treaty:
Quote:
but who was at the time of his death a citizen of or domiciled in Switzerland
So don't forget to get a swiss passport before you go off to die in a less treatyed country
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Old 11.10.2017, 01:51
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Re: Buying VTI - potential estate tax liability in the US?

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Another interesting fact from the treaty:
So don't forget to get a swiss passport before you go off to die in a less treatyed country
US definition of Domicile is similar to the UK one, it's not merely where you live, but where you intend to return to. Having a Swiss passport won't make any difference, especially if you return to your country of origin. I lived in CH for 20 years, however being British I never obtained Swiss domicile in the US/UK meaning.
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Old 11.10.2017, 02:14
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Re: Buying VTI - potential estate tax liability in the US?

The conjunction used in the treaty is "or", not "and": a citizen of or domiciled in Switzerland
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Old 11.10.2017, 02:29
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Re: Buying VTI - potential estate tax liability in the US?

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The conjunction used in the treaty is "or", not "and": a citizen of or domiciled in Switzerland
Unless you are a Swiss passport holder you wont then get the exemption if just living in CH.
US meaning of domicile is different to Swiss, being a Swiss resident is not the same as Swiss domiciled.
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Old 11.10.2017, 03:09
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Re: Buying VTI - potential estate tax liability in the US?

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Unless you are a Swiss passport holder
And what exactly did I suggest to get in post #4 on your way out?

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US meaning of domicile is different to Swiss, being a Swiss resident is not the same as Swiss domiciled.
Is this the definition you're referring to - https://www.law.cornell.edu/cfr/text/26/20.0-1 - "A person acquires a domicile in a place by living there, for even a brief period of time, with no definite present intention of later removing therefrom." Seems reasonable and straightforward, practically same as swiss ZGB's definition "Wohnsitz einer Person befindet sich an dem Orte, wo sie sich mit der Absicht dauernden Verbleibens aufhält".

Only catch I'm seeing is who would bear the burden of proof for the "intention" part of definition (and correspondingly have a high chance to lose) - the IRS or your heirs. Is this what you're suggesting the pitfall here is?
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Old 11.10.2017, 07:59
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Re: Buying VTI - potential estate tax liability in the US?

Any other things to consider buying ETFs in USD/US-based ones? (Maybe relevant for later move + relocation to the US?)
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Old 11.10.2017, 08:19
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Re: Buying VTI - potential estate tax liability in the US?

Sell everything before moving out of Switzerland to reset cost basis for capital gains - other countries might otherwise tax them, you know

Stick to biggest pure equity funds. Mixed and bond funds with a non-stock part may cause problems with refunding of US withholding tax from the swiss side, like you're not supposed to get a refund for withholding on interests, just on divs
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Old 11.10.2017, 08:48
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Re: Buying VTI - potential estate tax liability in the US?

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Sell everything before moving out of Switzerland to reset cost basis for capital gains - other countries might otherwise tax them, you know
Does that actually work? Is it legal?

For example before moving out of CH or before retirement (when one would start having more than 50% of the income from capital gains).

Can you just sell everything in a few batches (to prevent going above the 50% income limit) in the last years still employed and "reset" capital gains. And after that pretend that you sell your assets with little to no gain?
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Old 11.10.2017, 09:53
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Re: Buying VTI - potential estate tax liability in the US?

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And what exactly did I suggest to get in post #4 on your way out?

Is this the definition you're referring to - https://www.law.cornell.edu/cfr/text/26/20.0-1 - "A person acquires a domicile in a place by living there, for even a brief period of time, with no definite present intention of later removing therefrom." Seems reasonable and straightforward, practically same as swiss ZGB's definition "Wohnsitz einer Person befindet sich an dem Orte, wo sie sich mit der Absicht dauernden Verbleibens aufhält".

Only catch I'm seeing is who would bear the burden of proof for the "intention" part of definition (and correspondingly have a high chance to lose) - the IRS or your heirs. Is this what you're suggesting the pitfall here is?
You can only hold 1 domicile, someone with British domicile will not loose it even after 10 years of living in CH.
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Old 11.10.2017, 10:19
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Re: Buying VTI - potential estate tax liability in the US?

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There's a minor additional technicality: if you have significant non-US assets, that exemption limit would get prorated.
So how does this pro rata thing work, in a simple example?

CASE A: The single thing I own is $5 million US stocks - everything fine?

CASE B: I own $5 million US stocks and $5 million ex-US stocks (or a house outside USA) - will $2.5 million of the US stocks be exempted and other $2.5 million charged with estate tax?

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So don't forget to get a swiss passport before you go off to die in a less treatyed country
What are the other countries that have the estate tax treaty, that I could go to retire without the Swiss pass or having to sell US assets?

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Stick to biggest pure equity funds. Mixed and bond funds with a non-stock part may cause problems with refunding of US withholding tax
Really? So Vanguard BND and BNDX are a no-no? So how would you recommend I buy my bonds? Through Swiss broker at SIX?

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Sell everything before moving out of Switzerland to reset cost basis for capital gains - other countries might otherwise tax them, you know
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Can you just sell everything in a few batches (to prevent going above the 50% income limit) in the last years still employed and "reset" capital gains?
That was my question in another thread. What are the rules governing realized capital gains? Is it FIFO or LIFO - if I sell a batch of my ETF, do I sell the shares I bought first, or last? And are the capital gains realized as soon as I sell or end of year? What if sell and the buy the same ETF on the next day?
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Old 11.10.2017, 14:54
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Re: Buying VTI - potential estate tax liability in the US?

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So how does this pro rata thing work, in a simple example?
I posted you the exact legalese, interpret how you will, you know as much as me now about it

Quote:
What are the other countries that have the estate tax treaty, that I could go to retire without the Swiss pass or having to sell US assets?
https://www.irs.gov/businesses/small...-international

(Note Belgium and Sweden treaties aren't effective)

Quote:
Really? So Vanguard BND and BNDX are a no-no?
Non refundable US withholding would just make them more expensive as you will still owe full swiss taxes as well, so consider this in calculations. Frankly I don't bother with bonds, they're far too expensive

Quote:
That was my question in another thread. What are the rules governing realized capital gains? Is it FIFO or LIFO - if I sell a batch of my ETF, do I sell the shares I bought first, or last?
No clue

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And are the capital gains realized as soon as I sell or end of year?
At sale of course

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What if sell and the buy the same ETF on the next day?
Don't tempt the tax authorities, they might see through such simple mere formalities and tax the underlying economic activity anyway to their convenience. At least have a decency to buy a different ETF. Vanguard is great and such, but not the only firm out there and with a mindbogglingly low expense ratios
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Old 15.10.2017, 10:59
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Re: Buying VTI - potential estate tax liability in the US?

I heard that to avoid dividends/getting taxed on them, it is okay to sell stocks/ETFs one day before the dividends are paid out and buy them right back the next day.

*(they're then anyway a bit elevated I guess?)
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Old 15.10.2017, 17:41
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Re: Buying VTI - potential estate tax liability in the US?

Strictly formally yes that should avoid the tax. The tax authorities however may argue that the only reason you did this was to evade the due taxes and slap you with taxes anyway on this dividend. Don't tempt them, at least buy a different stock with the proceeds.
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Old 24.08.2018, 09:37
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Re: Buying VTI - potential estate tax liability in the US?

so at the moment as an Italian living in Italy the limit would be $60k or $5.49M? thanks in advance for the answer
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Old 24.08.2018, 16:35
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Re: Buying VTI - potential estate tax liability in the US?

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Another interesting fact from the treaty:
So don't forget to get a swiss passport before you go off to die in a less treatyed country
Or sell VTI
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Old 24.08.2018, 16:38
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Re: Buying VTI - potential estate tax liability in the US?

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so at the moment as an Italian living in Italy the limit would be $60k or $5.49M? thanks in advance for the answer
https://www.bogleheads.org/wiki/Investing_from_Italy
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