- Do you have shares in a company listed in the USA or a US ETF?
- Do you have more than $60,000?
- Are you married or in a Civil Partnership?
If you answered yes to all three of these questions, then you have exposure to Federal Estate Tax in the USA in the event of your death, at a graduated rate starting at 28%, and rising to 40% on investment of more than $1m.
As there is no tax payable on death for transfers between spouses or civil partners in Ireland, there is nothing to credit the US tax against. On the subsequent death of the survivor there may also be Irish CAT due on the same money resulting in a potential double tax hit.
The double tax treaty between Ireland and the USA is of no assistance as these would be different taxes at different dates.
US domiciled assets that are subject to estate tax include, for example:
- Real estate located in the US
- Tangible personal property (excluding some art)
- Stock of corporations organized in or under US law, even if the non-resident held the certificates abroad or registered the certificates, even if they are registered in the name of a nominee.
Note that holding the shares in a nominee account is not an effective solution.
An executor for a non-resident, not a citizen of the US must file an estate tax return if the fair market value at death of the decedent’s US situated assets exceeds $60,000.
In Ireland, probate law requires that the executor be responsible for the affairs and obligations associated with the deceased and their estate. The personal representative is responsible for handling income tax and capital gains tax (tax on gifts and inheritances), which may arise during the administration of the estate. If the personal representative fails to make sure that the relevant taxes are paid, he or she is personally liable.
Turning a blind eye to any US assets when acting as administrator of the estate is therefore not recommended.
The Internal Revenue Service may collect any unpaid estate tax from any person receiving a distribution of the decedent’s property under transferee liability provisions of the tax code.
Note that as part of the account opening documentation and to meet the IRS requirement, you must update and complete a W-8BEN form every three years, even if there is no change in your personal information. Without an up-to-date W-8BEN, account restrictions could prevent you from trading.
Remember that a W-8BEN form holds your name, address, date of birth, country of residence and social security number.
We have developed a solution which will provide Irish residents holding US assets an unlimited spousal exemption by establishing a Qualified Domestic Trust (QDOT).
A qualified domestic trust (QDOT) is a special kind of trust that allows taxpayers who survive a deceased spouse to take the marital deduction on estate taxes, even if the surviving spouse is not a U.S. citizen. Normally, a U.S. citizen surviving spouse can take the marital deduction, but a non-citizen surviving spouse cannot.
For more information, please see Some Non-residents with U.S. Assets Must File Estate Tax Returns.
Option 1 – Portfolio Option
Under this option you pay an initial fee of €5,000 to establish a Qualified Domestic Trust in the USA which allows access to an unlimited exemption for a spouse or civil partner on your death.
This is our preferred option for larger investment portfolios and we understand that the market rate to arrange a QDOT after the death of an investor holding US assets is around €10,000 plus VAT so this is clearly a cost effective solution.
Option 2 – Instalment Option
Under this option you pay a fee of 0.05% of the value of US securities or ETFs held with our nominated custodian subject to a minimum account value of €100,000
Under this option the surviving spouse or civil partner has 9 months to establish the US Qualified Domestic Trust following the death of the investor for a fee of €7,500 plus VAT.
Option 3 – Employer Sponsored Option
Our final option is available to the HR Departments of US Multinationals. This is a block solution covering all employees of the firm holding stock in the sponsoring employer. For a fee of €50 per annum per employee we will provide access to the QDOT solution.
Jane worked for Apple Inc. in Cork for many years and through acquiring shares in her employer via share options, now has over $1.5m in the company.
She was told, incorrectly, by her Stockbroker that because the shares were held in a foreign nominee account that she didn’t need to worry about this.
We arranged for the shares to be transferred “in-specie” i.e. without being sold in order to avoid crystallising a capital gain, into our nominated custodian account.
An additional benefit of this arrangement is that on her death her assets will not be frozen for years in the USA pending a winding up of the account. The reason for this is that the IRS places a charge over the assets and this isn’t released until the tax is paid.
She now knows that this issue is correctly addressed in the event of her death avoiding potentially many hundreds of thousands in additional taxation for her family which would be triggered in the event of her death and which was a worry as she has had come health concerns.
Terms and conditions apply to all of the above solutions and your individual circumstances should always be discussed with a Financial Advisor.
Further information can be found in Our Guide to Investing in Ireland Download Guide