For investors in Singapore, investing in U.S. market can offer exposure to some of the world's most innovative companies such as Apple, Tesla, and Microsoft for wealth creation. Regrettably, many investors remain oblivious to the estate tax and its reverberations on their holdings: estate planning for stock inheritance. This knowledge gap can lead to unwelcome tax burden for their beneficiaries that are inheriting the U.S stocks holdings.


While Singapore does not impose inheritance taxes, the United States imposes estate tax on US situs assets for non-US residents.


Estate tax on stock inheritance upon demise of investor


Upon the demise of a foreign individual not domiciled in the United States, the U.S. imposes an estate tax on U.S. situs assets such as Real Estate, Securities including stock, bonds, mutual funds and Exchange traded funds. The tax rate can amount up to 40% of the value of such assets over the exemption amount, which is $60,000 for non-US residents.


For instance, if a non-U.S. resident has amassed a portfolio of U.S. stocks worth US$1 million, the estate tax would apply to US$940,000 of that sum, after deducting the exempted amount of US $60,000. This may also include RSU stock options granted to employers working in US companies.


Thus, it's important for non-US residents holding US assets to be aware of these potential tax implications and to plan their estates accordingly.


Mitigating Estate Tax Risks


To reduce implications on U.S. estate tax, investors can explore several strategies. One option is to purchase a life insurance policy with a death benefit sufficient to cover the potential tax liability. By doing so, investors can protect their heirs from shouldering the burden of estate taxes, ensuring that the value of their U.S. stock holdings is preserved.


Another alternative strategy involves limiting your U.S Stock exposure to the amount of US $60,000, and diversifying into other financial instrustments.

One option includes purchasing an investment-linked plan, which offers a combination of investment opportunities and insurance coverage. These plans allow investors to allocate funds toward U.S. stocks while simultaneously safeguarding against estate tax liabilities through nomination of the insurance policy.


Importance of Estate Planning


Incorporating estate planning into investment strategies is paramount for Singaporean investors holding U.S. stocks. Failing to address potential estate tax implications can significantly diminish the wealth passed down to heirs, undermining the long-term financial objectives of investors and their families.


While investing in U.S. stocks offers attractive opportunities for Singaporean investors, it is essential to recognize and address the potential implications of U.S. estate taxes. By implementing proactive estate planning strategies and seeking expert advice, investors can safeguard their wealth and ensure a smooth transition of assets to future generations.

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