Should Swiss investors worry about the U.S. Estate Tax in 2025?
| Updated: |(Disclosure: Some of the links below may be affiliate links)
Many think investing in the United States Exchanged Traded Funds (ETFs) is dangerous. They believe that because of the U.S. Estate Tax, they will lose a lot of money. This tax will heavily tax the assets of a decedent.
The U.S. estate tax means that your beneficiary will only get a portion of your estate when you decease. Because of that, many people recommend not investing in American ETFs (or even stocks).
But is that even true? Not really! Indeed, many people forget about the U.S.-Switzerland double taxation estate tax treaty.
In this article, we detail the U.S. Estate Tax and the U.S. Estate Tax Treaty with Switzerland. And we see what this means for Swiss investors.
The U.S. Estate Tax
In the United States, when an estate is transferred from a deceased person, the beneficiary has to pay a tax on this estate.
This estate tax is a United States federal tax. It means it will apply everywhere in the United States. In addition to that, some states have added extra inheritance taxes. And some states have removed the estate tax. However, we will focus on the U.S. Federal Estate Tax since this is the one that matters in our case.
This U.S. Estate Tax law taxes inheritance at 40% of the estate’s value. It is a very significant estate tax. It is among the top estate taxes in the world.
For American citizens, estates of up to 12.92 million dollars (as of 2023) are exempted from the U.S. Estate Tax. It means that most American investors do not care about this law. Very few investors have estates worth that much money.
However, this law also applies to non-resident aliens. It means it applies to everybody who invests in U.S. products. And unfortunately, the large exemption of 12.92 million dollars only applies to U.S. citizens.
Non-resident aliens only have an exemption of only up to 60’000 dollars. It means that if you have U.S. assets valued at more than 60’000 dollars, you must pay this estate tax. You will not be paying this tax, but it will be the beneficiary of your estate, likely your spouse.
So this means that if you invest in a U.S. ETF, you will be subject to estate tax. In general, this means that if you have more than 60’000 USD in U.S. ETF, your beneficiaries will lose 40% of this value. It is a very significant tax. This loss could be terrible if your beneficiaries are depending on your portfolio.
Because of that, many people assume that they should not invest more than 60’000 in U.S. ETF. But this is not true in Switzerland!
The U.S. Estate Tax Treaties
The United States has many tax treaties with other countries in the world.
The United States has two kinds of tax treaties:
- Income Tax Treaties
- Estate Tax Treaties
For this current problem, we are only interested in estate tax treaties.
These treaties can change how citizens of other countries are taxed either on income or on the estate. In the case of estate tax treaties, these treaties generally provide better conditions for foreign citizens.
The United States has about 60 income tax treaties currently. But they only have 15 estate tax treaties. And fortunately for us, Switzerland is on the list. It means that this treaty must be considered if we want to consider the U.S. Estate Tax.
If you are interested, you can find the list of U.S. Estate Tax Treaties from the IRS. This list should be kept complete.
The U.S. Switzerland Estate Tax Treaty
In 1951, the United States and the Swiss Confederation signed an estate tax treaty. To this day, this treaty is still valid. And this tax treaty is perfect for Swiss investors that have U.S. assets.
The official name of the tax treaty is “Convention between the Swiss Confederation and the United States of America for the avoidance of double taxation concerning taxes on estates and inheritances”.
What does this mean for Swiss investors? First, this treaty works both ways. There are some exemptions for Swiss people regarding U.S. taxes, and there are some exemptions for Americans regarding Swiss taxes. But here, we are only interested in exemptions for Swiss people.
The law article states that decedent citizens of Switzerland (or domiciled in Switzerland) have a right to a certain proportion of the same exemption that would apply to a United States citizen. We saw before that this exemption was 12.92 million dollars.
The critical part is the proportion. It is relatively easy to figure out. It is the proportion of U.S. assets in your entire net worth. You divide the value of your assets in the U.S. by your entire estate value, and you will get your proportion of U.S. assets. We also run some examples to make that clearer.
If you want all the details, you can read the original 1951 U.S. Swiss Estate Tax Treaty (in German). It is a relatively short read. And I would say that for an official document, it is a straightforward document.
Examples
We can give a few examples to make it simpler:
- The decedent’s estate is one million dollars, with 200’000 dollars in U.S. assets and the rest in Swiss assets. The decedent has 20% of U.S. assets. It means he can get an exemption of up to 20% of 12.92 million, 2.584 million dollars. So, his beneficiaries will not pay any U.S. taxes.
- The decedent’s estate is 2 million dollars, with 1.8 million dollars in U.S. assets. The decedent has 90% of U.S. assets. So, he can get an exemption of up to 90% of 12.92 million, which is 11.62 million. So, there will not be any U.S. estate taxes.
- The decedent’s estate is 25 million dollars, with 2 million dollars in U.S. assets. It means the decedent has 8% in U.S. assets. So, he can get an exemption of 8% of 12.92 million. This is an 1.033 million USD exemption. His beneficiary must pay U.S. estate taxes on 0.966 million dollars (2 million minus the exemption). His beneficiaries will pay about 386’000 USD.
As you can see, most investors will end up paying no U.S. Estate.
We can take a final example of my situation. Once I retire, my net worth should be about two million CHF. I expect to have a house for about 300’000 CHF, 100’000 CHF in cash, and the rest in my investment portfolio. And my portfolio is currently 80% in U.S. assets. So I will have 80% of 1.6 million CHF in U.S. assets. This is 1.28 million CHF in U.S. assets. It is 64% of my entire estate.
So, I will get an exemption of 8.26 million dollars. It is much more than the value of my U.S. assets. So, I do not expect to pay any U.S. Estate Tax.
The exemption may change in 2026
The current large exemption is partly due to a change in 2017, the Tax Cuts and Jobs Act (TCJA). This almost doubled the exemption at that time.
Unless there is a change by the US Congress, the exemption will go back to normal in 2026. This means we will go from about 13 million to about 7 million USD.
While this is a significant difference, this remains a huge exemption. So, I am not worried about this change. It is also entirely possible that there will be new tax changes until then.
What happens on death with US stocks?
Some people are also worried about what would happen in case of death with US stocks, especially on a foreign broker. I have discussed that matter with Interactive Brokers to be clear on exactly what needs to be done.
On death, no US assets can be distributed by Interactive Brokers until they receive some information about the estate tax. And there are three cases for that:
- If you have less than 60’000 USD in US assets at the time of death, then a simple letter, signed by the heirs, stating that the US assets are below the limit is enough.
- If you have more than the limit of the US-Swiss estate tax treaty (12.92 million USD currently), you must fill a 706-NA form and send it to the IRS. Once this is received and processed, the IRS will send you a transfer certificate. Sending this certificate to IB will let you disburse the assets. It is important to know that it may take more than a year to get the transfer certificate.
- If you have more than 60’000 USD but less than the exemption of the tax treaty, the situation will be faster. You must fill both 706-NA and 8833 forms and send them to the IRS. Then, you need to send a copy of these two forms to IB, with a letter signed from the heir (or executor) stating that these two forms have been properly filed with the IRS. This will be faster because you do not have to wait until the IRS comes back to you.
Unless you fall in category 2, it should be fast and relatively straightforward to get back your assets. In category 3, you will have to fill some IRS forms, but they are both only two-pagers.
Conclusion
For Swiss investors, the U.S. Estate Tax is of little concern! Switzerland and the United States have an excellent estate tax treaty.
This treaty says that Swiss investors can be treated like U.S. citizens. It means that Swiss investors can get an extensive exemption. This exemption is still prorated based on the percentage of U.S. assets in your net worth at your death.
There are only very few cases where you would even pay this tax. It is only when you have a substantial net worth (more than 10M) and a small proportion of U.S. assets.
So, Swiss investors do not have to worry about investing in U.S. assets. United States ETFs are still the best ETFs available to Swiss investors.
If you are from another European country, you can see if your country has an estate tax treaty with the United States. If they have, you can try to find details about how this will impact you. If they do not, you will only be exempted up to 60’000 U.S. dollars. And you should probably avoid having more than that in U.S. assets.
Talking about U.S. ETFs, you may want to learn about why Swiss investors may lose access to them.
Recommended reading
Learn easy ways to optimize your finances and save thousands in Switzerland with our exclusive e-book. Learn about the most cost-effective financial services tailored for savvy residents and expats!
Get Your FREE Swiss Money-Saving Guide
Hello Baptiste,
ETFs not domiciled in the United States but that invest in the S&P 500 index or in American stocks. For example VWRL with ISIN IE00B3RBWM25 or IE00B88DZ566 or LUxxxxx or CH xxxxx do not fall within the threshold of 60,000 USD. ?
If they do not fall within I think that most of us can invest safely?
Hi Clay
Yes, they do not fall within the US Estate Tax. However, you also lose the tax advantage of US ETFs, it’s a tradeoff.
Is there a Swiss legal entity that could be used by a Swiss citizen/resident as a US estate tax “blocker”?
That is, open the US investment account through a Swiss legal entity.
Hi Carlos
You can open the US investment from a Swiss broker, like Swissquote. But this will not block you from the IRS. If taxes are due, you must pay it, anything else is tax evasion.
Perhaps this post might be of interest for folks on this thread
It compares difference in final performance for alternates to IBKR + VT
https://www.reddit.com/r/SwissPersonalFinance/comments/1gy0igd/alternates_to_ibkrvt_chill/?utm_source=share&utm_medium=mweb3x&utm_name=mweb3xcss&utm_term=1&utm_content=share_button
Thanks for sharing, this seems very well done!
Based on what is explained by Hans, my conclusion is that US ETFS are not worth the trouble unless investor is exposed to IRS because of RSUs anyways.
The 0.1% per annum saved on effective WHT tax advantage for World ETF is not worth the trouble for beneficiary in grief.
That’s indeed a choice every investor has to make.
Even after this discussion, I think this is worth doing for our household.
I would argue that your household is not typical for many Swiss. You mention 2M net worth, with 300K in real estate. In addition, you have 80% in US Assets for the rest.
I would guess most Swiss (residents) with this net worth would have a higher real estate % and a lower percentage of the remaining in US Assets.
Until now, I have not worried about this. Now I am no longer so sure and I think I may rather prefer the haircut of 15% of the US dividends. Of course compounding a negative 0.5% has an impact…
Possibly, but that’s why I said that everyone has to take this decision themselves. The US assets are worth it for my case, but they may not be worth it for other cases.
Hi Baptiste,
The issue with the US Estate Tax is a much bigger one, and I’m right in the middle of it…
A relative of mine passed away in 2021 and he appointed me as the executor of his will. He used to work at one of the Big Five US tech companies here in Switzerland and he got part of his earnings as shares of his employer, which were deposited by the employer in an account at a broker in the US. Other than that there were/are absolutely no tax-relevant ties of any involved party to the US, all are Swiss citizens and residents.
A large portion of those shares were unvested and they all got vested at the date of his passing, resulting in an enormous income on his tax statement for the year 2021. More on that later.
Knowing that this process would not be an easy one, the former employer appointed (and is paying for) a well-known global tax advisory firm to help me with the formalities. They requested about 10 documents, including certified English translations of the detailed inheritance inventory and the deceased’s three-page will, which mentioned a number of beneficiaries besides the heirs, including some non-Swiss citizens and residents. I don’t know where we would stand if this had gone through… Fortunately, my notary is a reasonable man and we succeeded in settling for a summary inventory (after I had studied the estate tax treaty and all the related forms and instructions), including only the numbers that they really needed for the IRS, and the absence of any will.
The process at the advisory firm dragged on and on, with reviews after reviews, necessitating two extensions of the relatively short deadline for filing with the IRS. Shortly before the absolute last deadline they sent me the papers to sign, about 40 pages (!) and I discovered that they had used completely wrong numbers, resulting in about double the (correct) amounts reported by the notary. As a physical signature was required, this resulted in a hectic FedEx exchange of papers during holiday season, under the threat of missing the IRS deadline and losing the tax treaty benefits and having to pay the 40% estate tax. Which, BTW, you need to pay out of your own pocket before the IRS will issue the release, unless you make a timely (!) request for relief, and if you end up having to pay in spite of the tax treaty, you’ll need to pay interest as well!
In the end, we made the deadline; this was in the summer of 2022. Since then we’re waiting for the IRS to get around to treat the case, and the forecast is that we may get the release some time in 2025, unless the IRS comes up with any questions.
The Swiss tax authority took their time with the 2021 Steuererklärung, but in the meantime they have processed it and sent the tax bill for the huge 2021 income of the deceased (see above), most of which is still blocked in the US. We’re still not sure if and when we’ll get the release, and in the meantime the 5% interest on the Swiss tax bill is accumulating…
To add another angle to the story, the deceased also owned shares of another Magnificent Seven US company at a Swiss broker, and by US jurisdiction these shares would also fall under the US estate tax. I’m unsure whether the IRS was aware of them (because Swiss broker had reported them?) and how it would work out if we didn’t have to apply to the IRS because of the shares at the US broker. To be on the safe side, and since we should still be fully covered by the tax treaty, we decided to explicitly declare the shares in the Swiss deposit, too, in the summary inventory.
In conclusion, this absolutely straight-forward case, which should result in zero estate tax in the end, is taking 4 years or more for a simple no-brainer decision. The stock in question used to be at the top of its valuation when this man passed away; it fell by 60%, has climbed up to new heights, and is falling again these days, and we’re forced to sit and watch… And to pay Swiss income tax for income that is blocked in the US…
If you have any property within reach of the US IRS, consider selling it and taking the money and run BEFORE you die!
P.S. In hindsight I’m not sure whether the tax advisor has really helped. They must cost thousands of dollars, and I still spent weeks doing all the research/work/reviewing/etc. It was me who brought up the Estate Tax Treaty and I don’t know whether they were even aware of it. The one advantage that they have is that they seem to be able to inquire with the IRS whether we’re still in the queue, and I hope the fact of having them will help me to come to terms with the Swiss tax authority. By myself, I would be completely lost by now.
Thanks for sharing. Which of the three cases did you fall into? From what you write it could even fall into case two (>12.92 million).
Hi Hans
Thanks for sharing your experience. It does sound dreadful.
It seems that the advisors really did not help much in this case.
It’s true that the process can be complicated. But I have discussed with IB and outlined the necessary steps in the article and it really does not seem too bad to go through by yourself. Of course, it may be more complicated with other brokers.
Could you share in which of the three categories you fell? (below 60k, below 12M or above?).
We’re in the middle category, below 1M.
Here’s the calculation again, as it was in 2021:
1. Only assets are considered, you can’t deduct any liabilities (mortgages, debts, etc.)!
2. Calculate the percentage of your US assets vs. your world-wide assets, which gives you, say, 30%.
3. Then your exemption is 30% of the current exemption for US citizens. In 2021 this was $11.7M, giving an exemption of about $3.5M.
4. If you have more than $3.5M in US assets, then your tax will be 40% of what’s above the $3.5M, which is due shortly, plus interest on the tax.
Our advisor proposed to immediately file a request for extension of the payment deadline, with justification that we needed time to come up with the funds for the 40% tax, which would be reimbursed once the exemption is granted. I refused because I was reasonably confident that we would get the exemption, but in the meantime interest is running up, and if we end up not getting the exemption after 4 or 5 years, this will be a hefty sum in addition to the tax.
> It’s true that the process can be complicated.
Actually, our situation is about as simple as it can get. It’s hard to imagine a simpler situation, if a broker under US jurisdiction is involved.
> it may be more complicated with other brokers.
The broker will not make any difference. They may be able to coach you through the process, but I doubt they’ll even do that in a specific case, because they’re not legal advisors and they would not want to run the risk of liabilities (you going after them) in case it doesn’t work out as intended. In our situation they have absolutely no active role, they just block your account until they get the release (transfer certificate or whatever it’s called) from the IRS. If they didn’t do that, they would be held liable by the IRS for your taxes, in case you don’t pay them.
Yes, it is doable by yourself (actually your executor, spouse, whoever!), but you’ll work under time pressure and you’ll spend several days pouring over US tax regulations until you begin to understand what you’re going to do. For example, you will also need to submit form 8971, naming all the beneficiaries and the exact amount of each US asset that they’re going to receive. Each beneficiary will need to provide their passport and certify their US tax relation. If you don’t submit this form, the IRS may ask you for it, and you may get pushed back to the bottom of the pile. And fortunately, none of the beneficiaries has any US tax relation.
Where the broker will enter the picture is for transferring the shares after they are released. You cannot take over the existing account. In our case, the decedent’s broker insists that we open a new account with a US broker (probably one for each beneficiary, requires a passport) where they can transfer the shares. They refuse to transfer to a Swiss broker, for fear of raising money-laundering flags with the US authorities.
I don’t know how this would work out with a Swiss broker. In our case, the decedent also had some US shares in a deposit at PostFinance, and there were zero formalities with them. I just transferred the shares after presenting my executor credentials and that’s it.
So, yes, you can do it yourself, but it takes guts and an immense amount of patience while you wait for many years, sitting on a blocked portfolio. In our case the former employer of the decedent notified the broker of his passing, but if I had to go through a similar situation again, I would try to find an approach that does not involve the IRS…
Thanks for all the details.
The process can actually be simpler in the way I see it. The likely case is that a spouse dies and the other spouse goes through the process, but he/she already has access to the joint account. This is the case I envision the most likely. But then, there is of course the matter of the heirs when the second parent passes. This is definitely something that must be planned in advance and that must educated upon the people that may have to go through this process.
> Our advisor proposed to immediately file a request for extension of the payment deadline, with justification that we needed time to come up with the funds for the 40% tax, which would be reimbursed once the exemption is granted. I refused because I was reasonably confident that we would get the exemption, but in the meantime interest is running up, and if we end up not getting the exemption after 4 or 5 years, this will be a hefty sum in addition to the tax.
That’s pretty odd, if you follow the instructions of the 706-NA, and your overall worldwide assets are below the 12M limit, then line 7 will nullify the tax and tax due (line 16) is 0 (so no payment is necessary to the IRS).
> you can’t deduct any liabilities (mortgages, debts, etc.)
They get deducted in Schedule B, line 4.
[Reply to Foobar, 4 January 2025 at 7:32 pm (I don’t have any Reply button on his comment)]
I didn’t plan to go into further details, but Foobar challenged me to take out the papers and get specific…
> if you follow the instructions of the 706-NA, and your overall worldwide assets are below the 12M limit, […]
No, whether your worldwide assets are below or above 12M has no significance. You must read and understand the Estate Tax Treaty of 1951 and all the tax regulations before you draw any conclusions.
> […] then line 7 will nullify the tax and tax due (line 16) is 0 […]
You need to lay out in detail your calculation for line 7 based on the treaty in a continuation of Schedule A, including a listing of each and every asset one-by-one. My advisor included screenshots of Yahoo Finance for each asset at the day of death to document the valuations.
In Form 8833 you must explain on which article(s) of which treaty you’re basing your claims for treaty benefits, why they apply to your situation and how you interpret them, as well as “list the Internal Revenue Code provision(s) overruled or modified by the treaty-based return position”.
> […] (so no payment is necessary to the IRS).
Yes, IF that’s the outcome. That’s why in our case I refused to pay and to even submit Form 4768 for Extension to Pay the U.S. Estate Taxes, in spite of the advisor’s advice, but that means that interest starts running up (and maybe even a fine for late-payment, not sure about that), in case the exemption is not granted in the end.
To take that risk, you need to be ultra-confident that the examiner will not find any fault, flaw, or open question in your exposition. I don’t dare to think of how this would develop if the exemption was not granted (after 4 years or so!) for whatever reason.
(Giving me some reassurance is where the advisor was helpful.)
>> you can’t deduct any liabilities (mortgages, debts, etc.)
> They get deducted in Schedule B, line 4.
You’re misquoting me by leaving out context and you’re providing misleading information. What I’m saying is that /for the calculation/ of the exemption amount in Schedule A (leading to the amount in Part II line 7) and Form 8833 you can’t deduct any liabilities. The calculation according to the treaty is based on gross estate, i.e. assets only, not on Taxable Estate.
IF you end up with a non-zero tax due, then you may want to bring down your Taxable Estate by listing (and documenting!) the liabilities. Since we were well below the calculated maximum exemption, we decided to not introduce any unnecessary complexity and we left lines 4 to 8 of Schedule B (various deductions) empty.
Your examiner will probably have no idea of the Swiss legal system and of how we do business, accounting, and taxes in Switzerland, and you want to provide just the absolutely necessary amount of information, in easily understandable steps.
THIS IS NOT TAX ADVICE! I’m just a layman relaying his personal experience and understanding.
If you expect your spouse to go through this process in a time of grief, take the trouble to download the forms mentioned above and the corresponding instructions, as well as the 1951 Estate Tax Treaty (again, you’ll need to “explain the treaty-based return position taken” in Form 8833, i.e. cite specific paragraphs from it, your interpretation of those paragraphs, and why they apply to your case!), and fill them out with current or projected numbers and include all the required documentation!
Oh, and good luck even finding the English version of the treaty. The U.S. has obviously no interest in making it available and Switzerland publishes only the German version… Hint: The U.N. have a repository of international treaties.
Having such a dossier will be invaluable to your spouse, because the deadline of 9 months after the death for submitting the papers to the IRS is extremely short, considering what needs to be done before the papers can be finalized:
– executor appointed and certified
– will opened and certified translation completed
– estate inventory completed by the Swiss notary (this alone can take more than a year!)
– …
Your spouse may need to file Form 4768 Application for Extension of Time To File a Return to extend the deadline… S/he may not get any acknowledgment from the IRS but will have to hope for the best. IAC s/he should include a copy of the submitted form and proof of delivery with the return.
Going against the IRS, we’re at the very short end of the stick…
Maybe it would be useful if you want to provide an anonymized version of those forms. (Most of form 883 should look the same for any swiss resident with stock assets)
This way the blog author could maybe host them, I’m sure it could be useful for many people.
(and if I understand correctly your form 706-NA shows 0 USD tax, and you didn’t pay anything, right?)
(also FYI, some brokers would let you sell the stock, I’ve seen it mentioned as a thing that IB will do, I assume others will as well. Esp. if you hold single stock which can be pretty volatile, might be a good idea to contact the broker and ask them to sell ASAP, since it avoids the issue where the stock crashes 60% before the funds are released, while you might still owe taxes on the value at the time of death)
> Maybe it would be useful if you want to provide an anonymized version of those forms. (Most of form 883 should look the same for any swiss resident with stock assets)
I thought about this, but it could be used as tax advice, and I don’t even know yet whether my return will actually pass or what objections it will raise, because I’m still waiting for a response from the IRS. Some people might be tempted to rely on such a template, but if you read my initial comment, you’ll see that it really is my story and not even typical for many readers. I never looked left or right; my comments are based solely on my path and I may have missed any number of issues.
If Baptiste posted my forms, they would definitely not work for “any swiss resident with stock assets” — you need to be very careful to determine whether you qualify, and it can be very costly if you make a mistake or wrong assumption.
> (and if I understand correctly your form 706-NA shows 0 USD tax, and you didn’t pay anything, right?)
That’s correct, line 7 is the same as line 6, leading to zeroes in lines 8 and 16.
Nonetheless, the advisor proposed to file Form 4768 Application for Extension of Time To Pay U.S. Estate Taxes under the pretense of needing time to come up with the money to pay. If I remember correctly, there’s a deadline by which you need to pay the estate tax whether you request an exemption or not. If the exemption is granted, you get the money back. The Americans are used to have income tax taxed at the source and filing an “income tax return” (= tax declaration) and getting any excess amount returned, so they know the pattern. Now, in our case, if the exemption is granted in full (years after the application has been filed!), everything is fine, but otherwise we’ll be guilty of late payment.
To put this into perspective, I never found out whether the tax advisor was aware of the Estate Tax Treaty before I mentioned it, and the expectation of $0 tax. And we had not yet put together the numbers and made the calculation. I guess the Form 4768 is part of their standard proceedings, and they claimed they would have come forward with the tax treaty in time, but I have some doubts.
> (also FYI, some brokers would let you sell the stock, I’ve seen it mentioned as a thing that IB will do, I assume others will as well. Esp. if you hold single stock which can be pretty volatile, might be a good idea to contact the broker and ask them to sell ASAP, since it avoids the issue where the stock crashes 60% before the funds are released, while you might still owe taxes on the value at the time of death)
When I complained, well, whined to our broker about the falling stock, they actually did offer to sell the shares “exceptionally”. But I’m sure they would still keep the cash until they received the Estate Tax Closing Letter from the IRS. We didn’t go for that, and in the meantime the stock more than recovered temporarily and is falling again. It’s a roller coaster ride. And I still don’t know how the Swiss tax authority will react to our appeal for not (yet) paying taxes on assets that are held back by a foreign government.
The broker came forward from the start with the option of selling enough of the shares to pay for the tax, in case we didn’t have enough cash available.
Now, if you have a joint account, the surviving party may want to think about immediately liquidating the account before starting any other legal proceedings. This may be a challenge in the state of shock over the partner’s passing, but if they let this go its natural way, they may end up in an awful mess.
I would love to know how this would work out with a Swiss broker! Will they actively contact the IRS after being notified of the account holder’s passing? I guess we’ve allowed them to do it in the contract, but will they do it? What about IB? According to Baptiste’s original post, IB expects the IRS to be involved…
> I would love to know how this would work out with a Swiss broker! Will they actively contact the IRS after being notified of the account holder’s passing? I guess we’ve allowed them to do it in the contract, but will they do it? What about IB? According to Baptiste’s original post, IB expects the IRS to be involved…
My understanding is that non-US brokers will release the funds once local process is finished (they might tell you about your filing obligations with the IRS, but that’s your problem not theirs afaik).
(and my understanding is that most people don’t file with the IRS, they probably don’t even know about their obligations, the good thing is that the US is not really interested in deterring US investment and is unlikely to enforce it, I think modern US estate treaty, e.g. the German one, make US shares not exempt — you’d put 0 as value, too bad those treaties are not a priority and there’s no political appetite to reform things explicitly)
I think we would hear about it more if that was a widespread issue (my guess is that the amount of people dying with large amount of single US stock is non trivial, but they’re held with a Swiss broker).
(I think we can also trust the statement from IB that they’ll release the funds once they’re convinced you filed properly with the IRS and have no liability)
It seems pure US brokers will make you wait for the formal closure with the IRS (and sadly everyone with RSU vesting at death will have to deal with this, and most likely they have >60k)
Thank you, Baptiste, for another great article! Your explanation has made it clear that U.S. ETFs can be a highly attractive option for Swiss investors, particularly due to the favorable estate tax treaty between Switzerland and the U.S.
However, I have a question regarding a potential scenario: what happens if a Swiss-based investor, who has been building a portfolio of U.S. ETFs, decides to retire in an EU country that does not have an estate tax treaty with the U.S., and passes away in this country? And how would the answer differ if the investor, despite having lived in Switzerland for several years, is not a Swiss citizen?
After reading through your answers to other people’s comments in this and other related articles, I can add some further assumptions to my initial question, as well as extend it. Please correct me if any of the following is wrong:
1. Switzerland’s estate tax treaty with the U.S. applies to Swiss residents who pay their taxes in Switzerland, not only to Swiss citizens.
2. The U.S. estate tax is an estate tax at death, so what matters is where you die.
Therefore, if a Swiss-based investor, who has been building a portfolio of U.S. ETFs, decides to retire in an EU country that does not have an estate tax treaty with the U.S., and passes away in this country, they would pay the U.S. estate tax on their U.S. assets above 60’000 dollars -> Here my question of how the situation would differ if this person was a Swiss citizen or not still remains.
Nonetheless, and assuming the above to be correct, even if this person would have to pay “the full U.S. estate tax” when they retire in an EU country without an estate tax treaty with the U.S., they could still benefit from U.S. domiciled ETFs while living in Switzerland. They could do the following:
– While residing in Switzerland, buy U.S. domiciled ETFs and reclaim the 15% from withholding dividend tax during the tax declaration.
– When leaving Switzerland, sell the U.S. domiciled ETFs and buy EU (eg Ireland) domiciled ETFs. In that way, when passing away in an EU country without an estate tax treaty with the U.S., the person would not have to worry about the estate tax.
Do you think such a strategy makes sense and would prove advantageous, despite the transaction costs that the person would incur when performing the portfolio swap from U.S. domiciled ETFs to EU domiciled?
Hi Aitor,
I think the above is correct. It would then depend on whether this EU country has an estate tax treaty at the time of death or not. I think it makes no difference whether one is Swiss or not, what matters is mostly residency, but there may be exceptions for which I am not qualified.
And yes, I think your strategy makes sense as long as you have a good broker with relatively low transaction costs and as long as you stay long enough in Switzerland to profit from the US dividend savings. Below at least 5 years and likely more, I would not both with it. You need to make sure to do the transfer while in Switzerland, to reset your capital gains in the other country because many other countries have capital gains tax.
But if you want to be sure, you may have to consult with a tax professional or an estate professional.
Perfect, thank you Baptiste! Keep up the great work!
Hello Baptiste,
Thanks for this blog! Re estate tax for US ETFs, would it make sense to select Irish-based ones instead (despite higher TERs)? I’m think of a standard world ETF.
Best
Christian C
Hi Christian
If you want to avoid having to fill the estate tax, yes, it makes sense to use IE ETFs instead. But know that you will not only pay higher TER, you will also lose 15% of the US dividends.
You only mention not paying US estate taxes. What about Swiss inheritance tax. Are you still subject to paying these taxes on the amounts detained in USD? Example: You have a traditional IRA in the US. You are a US citizen and pass away leaving 3 people to inherit your IRA, all are US citizens: two (niece and nephew) live in the US and the third lives in Switzerland (no relation to the deceased). Are the beneficiaries subject to Swiss inheritance tax. Undoubtedly, they are not subject to US inheritance tax. Or should they not be subjected to Swiss inheritance tax based on the US Switzerland estate tax treaty considered double taxation?
In most cases, spouses and children are exempt for estate tax in Switzerland.
For US citizens and non-residents, I don’t know what will happen. I can’t learn all the rules for all the citizens, it’s already complicated enough for Swiss citizens. That’s a question for an estate expert.
Hello,
What about joint accounts, like the IB joint account? If one of spouses dies, the other half still ‚owns‘ the account with no estate tax applicability, or not? The real dance starts then with kids…
Hi Marius
In general, spouses are exempted from estate taxes. So, it should always fall on the children and other inheritors. I should make that clearer in the article.
However, it is important to note that the IRS is picky about what is marriage. A registered partnership in Switzerland will likely not work, it needs to be considered a marriage. But that is very deep in US tax law.
Please be very careful! The unlimited marital deduction applies to spouses only if they are US citizens; everyone else is at risk.
I don’t find credible reports of how brokers handle joint accounts on the death of one holder; I would be concerned that the broker blocks access to all US assets until the IRS issues the clearance certificate. Even if no estate tax ultimately has to be paid, it could take many months to complete the tax return and regain access. How long can your dependents get by without money from the account?
Thanks, that’s good information. I will ask IB what would happen for married couples. For children, it could take months indeed, but I was expecting it to be fast for spouses as well.
thank You, perfect text.