Attention US NRAs: US situs tax on cash balance in excess of USD60,000

For residents of the United Arab Emirates.
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NOTonA380
Posts: 16
Joined: Sat Jan 15, 2022 12:39 pm

Attention US NRAs: US situs tax on cash balance in excess of USD60,000

Post by NOTonA380 »

[2022 thread bumped in 2024 --admin LadyGeek]

Hi,
Does anyone know how long can a US non-resident alien (NRA) maintain cash over and above USD60k at a US brokerage account (such as IBKR, Charles Schwab) such that it doesn't trigger US situs tax liability? For example a high cash balance can occur when a US NRA is selling all ETFs / stocks and then wires the funds to a non-US bank or another broker. Otherwise, one can also deposit cash in excess of USD60k into a US brokerage account and then gradually invest in the market.
US situs tax is quite hefty at c. 40% or so. Can a cash balance over USD60k sitting in an account for 5-10 days trigger US situs tax liability? What about owning US shares through a discretionary asset manager domiciled in the US: does it trigger US situs tax for NRAs?
TedSwippet
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Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Attention US NRAs: US situs tax on cash balance in excess of USD60,000

Post by TedSwippet »

NOTonA380 wrote: Fri Feb 25, 2022 1:59 pm Does anyone know how long can a US non-resident alien (NRA) maintain cash over and above USD60k at a US brokerage account (such as IBKR, Charles Schwab) such that it doesn't trigger US situs tax liability? For example a high cash balance can occur when a US NRA is selling all ETFs / stocks and then wires the funds to a non-US bank or another broker. Otherwise, one can also deposit cash in excess of USD60k into a US brokerage account and then gradually invest in the market.
US situs tax is quite hefty at c. 40% or so. Can a cash balance over USD60k sitting in an account for 5-10 days trigger US situs tax liability? What about owning US shares through a discretionary asset manager domiciled in the US: does it trigger US situs tax for NRAs?
You seem confused. There is no such thing as a "US situs tax". What there is though, is a US estate tax that applies to any US situs assets you hold at death. US situs assets include US stocks and US domiciled ETFs (no matter where the brokerage holding them is located), and cash in a US brokerage account.

The aim, then is to not hold more than $60k in US situs assets when you die. One way to achieve this is to try to make sure that at no point do you hold more than $60k in US situs assets. (Another way is to ensure that you never die, but this is the less practical option.)

The US estate tax covers what you own, not really (mostly) where or how you own it. If you hold US shares directly, no matter where the broker is situated, you have a potential US estate tax problem. Alternatively, if you hold non-US shares directly you have no particular US estate tax problems, even if those non-US shares are held in a US brokerage. And cash is only problematic if held at a US brokerage.

So, the answer to "... how long can a US non-resident alien (NRA) maintain cash over and above USD60k at a US brokerage account ... such that it doesn't trigger US situs tax liability?" is: until you die. And the answer to "Can a cash balance over USD60k sitting in an account for 5-10 days trigger US situs tax liability?" is: no, provided you don't die during those 5-10 days.
Topic Author
NOTonA380
Posts: 16
Joined: Sat Jan 15, 2022 12:39 pm

Re: Attention US NRAs: US situs tax on cash balance in excess of USD60,000

Post by NOTonA380 »

TedSwippet wrote: Fri Feb 25, 2022 2:39 pm
NOTonA380 wrote: Fri Feb 25, 2022 1:59 pm Does anyone know how long can a US non-resident alien (NRA) maintain cash over and above USD60k at a US brokerage account (such as IBKR, Charles Schwab) such that it doesn't trigger US situs tax liability? For example a high cash balance can occur when a US NRA is selling all ETFs / stocks and then wires the funds to a non-US bank or another broker. Otherwise, one can also deposit cash in excess of USD60k into a US brokerage account and then gradually invest in the market.
US situs tax is quite hefty at c. 40% or so. Can a cash balance over USD60k sitting in an account for 5-10 days trigger US situs tax liability? What about owning US shares through a discretionary asset manager domiciled in the US: does it trigger US situs tax for NRAs?
You seem confused. There is no such thing as a "US situs tax". What there is though, is a US estate tax that applies to any US situs assets you hold at death. US situs assets include US stocks and US domiciled ETFs (no matter where the brokerage holding them is located), and cash in a US brokerage account.

The aim, then is to not hold more than $60k in US situs assets when you die. One way to achieve this is to try to make sure that at no point do you hold more than $60k in US situs assets. (Another way is to ensure that you never die, but this is the less practical option.)

The US estate tax covers what you own, not really (mostly) where or how you own it. If you hold US shares directly, no matter where the broker is situated, you have a potential US estate tax problem. Alternatively, if you hold non-US shares directly you have no particular US estate tax problems, even if those non-US shares are held in a US brokerage. And cash is only problematic if held at a US brokerage.

So, the answer to "... how long can a US non-resident alien (NRA) maintain cash over and above USD60k at a US brokerage account ... such that it doesn't trigger US situs tax liability?" is: until you die. And the answer to "Can a cash balance over USD60k sitting in an account for 5-10 days trigger US situs tax liability?" is: no, provided you don't die during those 5-10 days.
yes, I was definitely confused. Highly appreciate your clarification. As they say "nothing is certain except death and taxes"
Topic Author
NOTonA380
Posts: 16
Joined: Sat Jan 15, 2022 12:39 pm

Re: Attention US NRAs: US situs tax on cash balance in excess of USD60,000

Post by NOTonA380 »

One more question: Does owning US shares via a trust, in which I am a 100% shareholder, remove the risk of the US estate tax for NRAs? Does the domicile of the trust matter in this case (UK, UAE and so on)? What are the best domiciles for such trust (if any) ?
naasot
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Joined: Mon Jan 29, 2024 4:54 am

Re: Attention US NRAs: US situs tax on cash balance in excess of USD60,000

Post by naasot »

I understand that a US bank account (with over US$ 60,000) of a deceased nonresident alien is not considered a US situs asset and therefore not subject to US estate tax. The same cash amount held in a US brokerage account however is considered a US situs asset and therefore subject to US estate tax. But what if the cash in the US brokerage account is always automatically swept into a bank account (as done with Schwab), is that cash considered a US situs asset or not?
JohnFiscal
Posts: 1113
Joined: Mon Jan 06, 2014 3:28 pm
Location: US citizen now retired in Canada. Subject to income tax in both.

Re: Attention US NRAs: US situs tax on cash balance in excess of USD60,000

Post by JohnFiscal »

This thread caught my eye with the recent update.

Canadians (and some other countries) may benefit from tax treaties with the US.

An article published by the Canadian bank TD (Toronto Dominion) https://advisors.td.com/jonathan.grant/ ... x-2020.pdf indicates that Canadian residents (US NRA) benefit from the very large exemption provided to resident aliens

When are Canadians Subject to U.S. Estate Tax?
Generally, Canadians may be subject to U.S. estate tax if, at the time of their death:
• The value of their U.S. situs assets exceeds US$60,000; and
• The value of their worldwide assets exceeds US$11.58 million (for 2020, adjusted for inflation annually).

The second bullet point generally applies only to resident aliens (per this article https://www.guardianlife.com/individual ... estate-tax) but Canadians benefit from rules of the tax treaty, which is described in the TD article.

Of course, do your own due diligence on this. I just happened to be reading this article a day or two before this thread came up again.
daviddem
Posts: 274
Joined: Wed Jul 06, 2016 12:53 pm

Re: Attention US NRAs: US situs tax on cash balance in excess of USD60,000

Post by daviddem »

JohnFiscal wrote: Fri Feb 02, 2024 10:28 am This thread caught my eye with the recent update.

Canadians (and some other countries) may benefit from tax treaties with the US.

An article published by the Canadian bank TD (Toronto Dominion) https://advisors.td.com/jonathan.grant/ ... x-2020.pdf indicates that Canadian residents (US NRA) benefit from the very large exemption provided to resident aliens

When are Canadians Subject to U.S. Estate Tax?
Generally, Canadians may be subject to U.S. estate tax if, at the time of their death:
• The value of their U.S. situs assets exceeds US$60,000; and
• The value of their worldwide assets exceeds US$11.58 million (for 2020, adjusted for inflation annually).

The second bullet point generally applies only to resident aliens (per this article https://www.guardianlife.com/individual ... estate-tax) but Canadians benefit from rules of the tax treaty, which is described in the TD article.

Of course, do your own due diligence on this. I just happened to be reading this article a day or two before this thread came up again.
Follow the steps here to find out if it's ok for your situation to use US-domiciled ETFs.

Specifics for Canada at the finiki website
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