Interactive Brokers – Death & Estate Tax Update

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One of the worst things you can do as an expat is to leave a total financial mess spread all over the world when you die. How are your family or beneficiaries going to figure out where your money is?

I always recommend people send a list of the financial institutions they use in all countries to a trusted family member or even a solicitor for safe-keeping. You don’t have to provide the amounts or the account details if you don’t want to, but at least let people know where to look.

[Bonus hint – update the nominated beneficiary of your old pensions back home, you don’t want them going to your ex. It definitely happens!]

Even if you know where to look, getting the money out can be daunting. Many people have been nervous of using Interactive Brokers because the company is based in the US. It has clarified estate tax and fund/ETF domicile issues on record in the past few days, so I wanted to pass the info on to you and reassure you.

IB is worth it – in my opinion

IB is one of the cheapest places to invest in Exchange-Traded Funds (ETFs) and convert currencies. It is so cheap that you start to save hundreds, maybe thousands as your portfolio grows. While not being the cuddliest platform, they are also secure and fast. And now they accept dirhams plus lots of Asian currencies (still no riyals or dinars though).

What follows is a little bit technical, but only in a set-it-and-forget-it way.

Estate tax

The challenge with using US brokers is the US estate tax on non-residents. If you die with more than $60k in ‘US-situs assets’ (i.e. investments considered to be based in the US), your portfolio will get hit by a hefty tax. For anything just over the $60k allowance, you pay 18%, rising to 40% over $1 million. US citizens or residents pay far less – for the rest of this article I’m going to assume you are a non-citizen non-resident or, more charmingly, a ‘non-resident alien’.

Cash held with IB in any currency, individual stocks from US stock exchanges and US-domiciled ETFs (also based in US for tax and legal purposes) all count as US-situs assets. Bizarrely, money in a US bank account doesn’t count (IB is a brokerage, not a bank).

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What to do while alive (that’s you)

1) If there’s two of you, use a joint account (called Joint Tenants with Rights of Survivorship). That means if one of you dies, the other person gets the other half without having to go through the US probate process to confirm who gets the money. 2) Do not keep more than $60k in IB of any currency for long periods of time. If you are transferring a lump sum over to invest it, that’s ok – get it invested as soon as possible. If you are planning to drip feed money into the stock market over months, don’t send it to IB until you are ready to invest it. IB is also offering a nice rate of interest on large cash deposits at the moment, but the estate tax risk makes it simply not worth it above $60k. 3) Do not invest in US-domiciled stocks or ETFs above $60k (or at all!). Irish-domiciled ETFs cover the same investing universe of stocks but without the estate tax risk, plus they halve the withholding tax on dividends to 15%. If you’re not sure whether an ETF is domiciled in the US or not: a) Check the factsheet by googling the ETF code and factsheet (e.g. VWRA factsheet). If it doesn’t bother to mention domicile, it’s American (sigh). b) If the full name of the ETF has UCITS in it when you google it, it’s domiciled in Europe. IB’s Chief Counsel of Business Operations writes: “We do not consider… UCITS or other exchange-traded funds domiciled in Ireland or other non-US countries to be US-situs assets… Where such a product is traded or the currency used to purchase such a product is not relevant to our analysis. What matters is the legal domicile of the fund in which the investor holds an ownership interest.” This confirms what I have been banging on about for years: domicile, domicile, domicile. It’s the only thing that matters for estate tax purposes.

What to do if you are trying to access the deceased’s portfolio

If you are one half of a joint account, you will have to open a new individual account to receive the assets or receive the proceeds of the joint account as a cheque. 1) Contact IB via email or secure message. 2) Provide scanned copies of: a) An original or certified copy of the death certificate. b) A signed ‘Non-probated Estate Action Form’, which is quite simple. c) Your passport or driver’s licence as ID. If the deceased’s total US-situs assets were below $60k on the date of death, you also need to provide a letter signed by you confirming this. And that’s it! No tax forms. No will (if the deceased had an individual account, you’ll likely need a will and/or probate certificate to confirm who the money should be sent to). If the deceased has more than $60k in US-situs assets, it becomes a lot more complicated. You need to fill out IRS form 706-NA and IRS form 8833, then you need to file these forms with the IRS and confirm to IB that you have done this. IB then has decide whether to transfer some or all of the assets before they receive an IRS transfer certificate. Getting the certificate could take weeks or months. So… don’t keep more than $60k US-situs assets in Interactive Brokers or anywhere else in the US!   Any questions or comments? Add them below. If you need help with the specifics of your financial situation, consider private coaching with me.

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9 thoughts on “Interactive Brokers – Death & Estate Tax Update”

  1. Great article, thanks Steve. While I am no longer resident in the UAE, I have forwarded your service to a number of friends that are – how many advisors are even aware of these risks let alone communicating them to their clients.

    1. Thanks Pete, I appreciate that. It’s scary how many banks and advisors seem to be ignorant of this. US banks in particular – and it’s their tax! They don’t focus much on non-US expats.

  2. Hi Steve, many thanks for the article. If both husband and wife want to invest, is it better to have two separate joint accounts (one with husband as primary and wife secondary, and one with wife as primary and husband secondary) so as to keep the two streams of income separate for ease of tax calculations etc, or is it simpler to keep one joint account?

    Is there also additional complexity that if one of the account holders passes away, then do both joint accounts get frozen?

    Would you also know what the principle would be for offshore accounts in Jersey or Singapore? Would they be transferred without a will to the surviving joint holder, similar to the IBKR process? I have been trying to get an answer to this but haven’t got anything clear. As I am considering offshore accounts, I also worry about risks of getting money back, as we will be non residents and don’t have a visa to visit or any other connection to these countries.

    1. Hi Kiran, it’s better to have one joint account. Simpler and cheaper. Primary or secondary doesn’t matter. If one passes away, the assets have to be moved to an individual account or taken out as cash. With joint accounts in other countries, it could vary. Even with IB there are different types of joint account (you need Joint Tenants with Rights of Survivorship). You’d have to push the bank to clarify in each country. An international will or will in English from a reasonable jurisdiction (UK, Europe, DIFC etc.) should be enough to get the money back.

  3. Pablo Hernandez

    Hi Steve,

    First of all, this is an incredibly helpful blog! Thank you.

    I’ve investigated this exact topic for the past 3 years since I opened up my IBKR account. It’s really hard to find accurate and tangible information. As a Mexican, living in Dubai, I’ve changed my ETF investments in IBKR to all Ireland-Domicile. For instance, instead of VOO, I’ve gotten VUSA or CSPX, both listed as UCITS in Ireland.

    Now, how certain are we that this will relieve me from US Death Tax? Is it actually written somewhere? Is it bullet-proof or there are still some doubts on this?

    Form 706-NA from the IRS states:
    “Stock – Generally, no matter where stock certificates are physically located, stock of corporations organized in
    or under U.S. law is property located in the United States, and all other corporate stock is property located outside the United States.”

    Thus, by buying an Ireland-domicile ETF in USD investing in US Stocks, simply say Tesla, Apple, etc, wouldn’t that be “stock of corporations organized in US Law”?

    What about in addition living in the UAE and not actually living in Ireland?

    Proper understanding of this little detail is crucial of course. Not that I’m planning to die anytime soon, but life does have surprises.


    1. Hi Pablo, IB have confirmed in writing that they consider Irish-domiciled ETFs – even those investing in US stocks – to be non-US situs assets and thus immune from US estate tax. Funds are treated differently to the stocks within those funds. You don’t need to live in Ireland to benefit. If there is a Mexican tax treaty with the US covering estate tax, you could be protected – I am not a Mexican tax expert though.

  4. This is a really useful article that I doubt anyone else would have decided to write, so thank you.
    My situation is that my wife & I are UK/Australian dual citizens and live as permanent residents in Panama. I use IB (US) as my broker and I just have a single account, which I admit I should have opened as a joint account.
    I have more than the $60k invested via IB as this is my only brokerage account; there are few that accept Panamanian residents as clients. I am invested in VEA & VTI, both are domiciled in the US. After reading the article I understand that ideally I should have opened a joint account and looked for Ireland-domiciled funds instead of my current setup. What is your advice in this situation? I would assume that I’d need to add my wife to the account if possible, then sell the funds and re-purchase the Irish equivalents, but this may trigger further tax events, even though I don’t normally pay tax on overseas income here in Panama.
    Thanks for any guidance you may be able to offer. Keep up the great work.

    1. Hi Sam, I’m glad you found it useful – here’s my niche content haha. Immediately sell your US-domiciled ETFs and buy the Irish-domiciled equivalents. Like tomorrow. I have seen 7-figure tax bills from people who made this mistake of investing in US-domiciled funds and then died. I doubt you will trigger any taxes at all in selling. Once you have done that, you can set up a joint account with your wife and request IB to transfer the positions over to that.

      1. Thanks Steve, and apologies for the delayed response as I didn’t see a notification for it. I will endeavour to be more vigilant in the future. I will do as you suggest and switch to Irish domiciled funds. Thanks again and keep up the good work.

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