Updated: August 16th, 2016.
Most foreign nationals (non U.S. resident aliens) are not aware that their investment accounts are subject to estate taxes. Those estate taxes could add up to almost 40% of the accounts, and assets they hold in the US.
What are estate taxes for foreign nationals?
Imagine the estate tax as a Death Tax. Residents and citizens don’t have to pay estate taxes on their first $5.3 million (we are using Florida as an example, your estate taxes may change by state). That’s what we call the estate tax exemption, anything above $5.3 million they will have to pay estate taxes. However, the estate tax exemption for foreign nationals is only $60,000, anything above that will be subject to “death taxes”.
Foreign National Investment in USA:
I see many foreign nationals hold investment accounts in the U.S. for many reasons. People want to invest in a stable country, with a strong currency and a banking and investment system that works. But there are issues with these type of accounts.
For example let’s say you have an account with Morgan Stanley worth $1,000,000. If you were to pass away your family will have to pay almost $400,000 to the government in estate taxes. Please contact your estate planning attorney for a proper analysis of estate taxes and how to reduce your estate taxes.
That makes an Investment Account for foreign nationals very costly at the death of the owner.
Simple solution for Estate Taxes on Investment Accounts that may fit many people is life insurance. Life insurance can be a good way to protect from estate taxes by using the life insurance to pay for the taxes.
Let’s use the same example with the $1,000,000 in Morgan Stanley. For a healthy 50 year old, he could get a 10 year term insurance to pay the estate taxes. The cost would be approximately $40/month!
So you can either pay $400,000 at death, or protect your self for $40/month for 10 years.
An other issue is that as the if your accounts grow, so does the estate tax you will have to pay when you die, so it is imperative you protect your self not only for the taxes you would have to pay today, but also in the future if your assets were to appreciate.
Life Insurance as an Asset
There are also ways to make your life insurance an asset and not an expense. Under certain circumstances this you can benefit from a growing life insurance that will protect your investments from the inevitable estate taxes.
Please make sure you contact your estate planning attorney to find out how much of your assets are exposed to estate taxes.
Contact Us if you would like to find out if you can get life insurance to protect your investment accounts, or leave a comment if you have any questions.