Many Singaporeans, or non-US persons, may not fully consider the implications of the US estate tax when investing in stocks of US companies, such as Alphabet (Google), Salesforce, or Apple. This oversight is understandable for two reasons. First, since Singapore abolished its estate tax in 2008, the concept of estate tax might be less familiar. Second, there are generally no US income or gift tax implications for the sale or transfer of US company stock for Singaporeans assuming they do not hold a US green card or have not stayed in the US for an extended period to be treated as a “US Person” or “US domiciliary.”
What exactly is the US estate tax?
US estate tax is a levy at a rate of 40% on the fair market value of the estate of a deceased person. For non-US citizens or domiciliaries (referred to as "NCNDs"), this tax is only applicable to property within the US, termed as “US-Situated Assets” or “US Situs Assets.” This includes stocks of US corporations like Google or Apple, cash in US brokerage accounts, and US real estate.
While US citizens and domiciliaries face estate tax only if their estate exceeds US$13.61 million as of 2024 (this amount will fall to $5 million adjusted for inflation at the beginning of 2026 if Congress does not extend the current law beyond 2026.), the threshold for NCNDs like Singaporeans is much lower, at just US$60,000.
Example:
Consider X, a Singaporean working at Google in Singapore, who receives Google shares as part of his compensation. X has never lived or worked in the US. If X passes away with US$100,000 in Google shares, his estate would be liable for US estate tax amounting to $16,000 (40% of the difference between $100,000 and the $60,000 threshold). There may be estate tax deductions that could help reduce the tax.
Practical challenges
In practice, three main issues often arise:
The executor of the estate may be unaware of the need to file a US estate tax return (Form 706-NA) within nine months of death which will cause additional interest and penalties.
Liquidity issues can occur if the brokerage restricts access to shares or cash before the estate acquires a “transfer certificate” from the IRS.
Even after paying the tax, there might be issues with the IRS properly crediting the estate.
In my role as a US tax attorney, I am equipped to assist executors in resolving these issues. However, I strongly advocate for proactive estate planning while the individual is still alive. Pre-death planning not only saves time and money but also significantly reduces stress for the estate and executor.
Strategies for addressing these issues
Effective management of US estate tax liability involves several key strategies:
Assessment of exposure: Singaporeans (or non-US citizens in general) need to evaluate their US investments against the estate tax threshold of US$60,000.
Investment structuring: Proper structuring of US investments can mitigate estate tax exposure. This might include holding US-Situated Assets through non-US legal entities.
Liquidity insurance: Some investors opt for life insurance policies to cover potential estate tax liabilities.
Staying updated: Tax laws are dynamic. Regularly updating one’s knowledge of the current laws and thresholds is crucial for effective planning.
Professional tax guidance: If the exposure to the US estate tax is significant, I would consider consulting with tax professionals (like me) experienced in international estate planning. Tax professionals can offer solutions specifically tailored to your unique situation.
For Singaporeans holding US company stocks, the US estate tax presents a significant planning aspect. Thorough understanding and proactive management of this potential liability are key to ensuring that your investments today do not become a US tax burden for your heirs tomorrow. The goal is to navigate these international investment waters with a clear understanding of all implications, ensuring a secure and profitable journey.
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