Read this if you own any U.S. stocks (especially if youre not American)

Today I’m sharing an article from – http://truewealthpublishing.activehosted.com/index.php?action=social&chash=0f49c89d1e7298bb9930789c8ed59d48.367

Die, and the U.S. government could confiscate
40 percent of your portfolio…

Even if you aren’t American!

By Tama Churchouse


“Nothing is certain except death and taxes”

– Benjamin Franklin

We don’t spend too much time worrying about taxes here in Hong Kong.

Hong Kong is one of the most tax friendly major business centres in the world.

The maximum total income tax rate you can pay, for example, is 15 percent.

A married father of two earning US$200,000 a year will pay roughly 11 percent in income tax after allowances.

As for the paperwork? Well, your salary tax form is just four pages of A4 paper.

Being born and bred here, I have to say, I sympathise with folks in places like the U.S. and Europe, given all the tax complications they have to deal with.

The annual nightmare that our U.S. subscribers go through filing their returns is particularly painful, I’m told.

In our own business and personal investments at the office here, we also try to avoid “touching” the U.S. tax system in any way.

What can I say? It’s just expensive… in terms of both time and money.

But going back to that famous quote from American Founding Father Benjamin Franklin about those two certainties… death and taxes.

In many parts of the world, death is your government’s final opportunity to take one last slice of whatever pie you leave behind.

And it can be a significant slice.

I’m talking about Death Duty, or its more pleasant-sounding synonym, Estate Tax.

You may be thinking this is irrelevant for you. Maybe you live in a country that doesn’t have any estate tax.

Well, keep reading, because I’m going to explain to you how you might legally be facing a large estate tax you know absolutely nothing about.

Estate Taxes are not a new phenomenon. They go back nearly 3,000 years. In fact, as early as 700 B.C. in Egypt, there appears to have been a 10 percent tax on the transfer of property upon death.

In the U.S., taxing assets upon death was introduced with the Stamp Act of 1797.

For the next couple hundred years, estate taxes were levied temporarily and then repealed, mainly to finance wars.

In 1916, the Revenue Act introduced the modern-day income tax and also created the foundation of today’s estate tax.

Again, you may be thinking “who cares? I’m not a U.S. citizen.”

Me neither. But answer this simple question: Do you own more than US$60,000 in U.S. stocks?

If the answer is YES, then you are technically liable to pay U.S. estate taxes of up to 40 percent on those assets upon death.

This tax applies to you regardless of whether you’re a U.S. citizen or not.

Don’t believe me? Get it straight from the horse’s mouth, or the IRS’s website, by clicking here.

Specifically, it says (my highlights):

“Deceased nonresidents who were not American citizens are subject to U.S. estate taxation with respect to their U.S.-situated assets.”


“U.S.-situated assets include American real estate, tangible personal property, and securities of U.S. companies. A nonresident’s stock holdings in American companies are subject to estate taxation even though the nonresident held the certificates abroad or registered the certificates in the name of a nominee.”

On top of this, it states:

“Executors for nonresidents must file an estate tax return if the fair market value at death of the decedent’s U.S.-situated assets exceeds $60,000.”

So your threshold is a mere US$60,000. After that, 40 percent of everything else is payable to the U.S. government – thank you very much.

That’s a lot more Estate Tax than U.S. citizens pay!

There are exemptions of course. Nothing that involves U.S. tax is simple. Several countries with their own estate taxes have “Death Tax Treaties” with the U.S. government.

And, of course, your U.S. Treasury bond holdings aren’t liable to estate tax.

Let’s be honest, Uncle Sam needs you to keep lending him money.

But your equities? Your Apple stock… that Berkshire Hathaway position you’ve patiently and prudently built up over the years? That’s up for grabs. By law.

I’d never heard of this law applied to U.S. stocks before. A subscriber mentioned it in an email to us.

I couldn’t believe it at first. Estate tax for property, sure, but U.S. stocks? It sounded so outlandish.

But then I remembered we’re talking about American tax law here…

Was I the only one in the dark on this? I asked around a handful of non-American investors I know.

None of them had heard about this either.

Firstly, this tax is a MAJOR issue for foreign buyers of U.S. real estate.

Estate duties will be enforced on U.S. real estate.

It is possible to bypass this using some perfectly legal estate planning. Feel free to contact Jessica (jessica@capital-company.com) if you want to know more.

(Please note there is absolutely zero arrangement – financial or otherwise – between Churchouse Publishing and The Capital Company.)

Secondly, this law should be ringing alarm bells for non-U.S. persons with large stock awards from their U.S. employers – particularly from U.S. banks, of course.

This is even more important nowadays if you work in the finance field. Why? Because since the global economic crisis, a greater share of bonus compensation is paid in stock and not cash.

And bear in mind that stock now typically vests over several years.

So let’s say you’re a Managing Director at a U.S. investment bank with a couple million dollars in company stock, much of which hasn’t vested.

What happens if you die suddenly?

From a purely legal perspective, technically your stock would be liable to estate tax.

And here’s where things get a little grey.

According to the IRS, the burden of declaring this tax liability is on the executor of the estate/will, not the employer or your broker.

In reality, does the executor actually take the initiative to file the estate declaration form and send it to the IRS?

Does he even know about it?

Or does he conveniently… ahem… “forget”?

The answer is, I don’t know.

But in my opinion, there’s an even more concerning scenario here.

Let’s say someone with substantial U.S. stock holdings (like the Managing Director mentioned earlier) owns a little investment property in New York or a ski lodge in Vail.

The real estate component of estate tax WILL be enforced on death.

And here comes the problem as I see it – the IRS estate tax declaration form covers all your U.S. assets.

This means both your U.S. property and U.S. stocks have to be declared on this form. You can look at Page 2 of the form (Form 706-NA), if you want to see for yourself.

The problem here is that by owning U.S. real estate, you can end up dragging all of your U.S. stock holdings into the IRS net as well.
Let me repeat that. The executor must file the declaration with the IRS because of your real estate holdings. Forgetfulness here is not an option.

The million-dollar question then becomes: will your executor include your U.S. stocks on that form?

At this point, I should note that on the form, he needs to include his signature next to a statement that starts with the words: “Under penalties of perjury”.

If he does include the stocks, then that’s potentially a HUGE tax liability… 40 percent of anything above US$60,000!

I mean, we’re potentially talking about hundreds of thousands or even millions of dollars in tax to the U.S. government!

Again I can’t answer that question.

But maybe it’s a question that you should be thinking about…

Yes, we write about stocks and investment ideas to help build wealth, but there’s little point in building wealth if 40 percent of it is going to be confiscated by a foreign government!
Maybe you are already fully aware of this and ahead of the curve. If so, then great!

But if not, then I hope what I’ve talked about might be something that gets you pose the right questions to the right people.

A huge number of our readers are non-U.S. citizens and hold U.S. stocks and real estate. I didn’t know about this law, and none of the handful of non-American investors I spoke to did either.

Related Posts