Investing in U.S. stocks, Exchange-Traded Funds (ETFs), or property is a great way to grow and diversify wealth. The U.S. market is home to some of the biggest names in the world—Apple, Amazon, Microsoft, Tesla, Meta, and NVIDIA, just to name a few.
Beyond its big names, the U.S. market’s sheer scale and returns make it incredibly attractive. With a total stock market value of over US$54 trillion1, it’s the largest in the world, far ahead of China’s US$11.5 trillion1 and Singapore’s US$600 billion2.
And it’s not just about size—returns are strong too. Over the past 10 years, the S&P 500 has delivered 12% annual returns3, compared to just over 4% from Singapore’s Straits Times Index (STI)4. It’s easy to see why many Singaporeans see the U.S. as a natural step for diversification and growth.
But did you know that your U.S.-based stocks or real estate could face estate taxes of 18% to 40% if you pass away?5 These aren’t small numbers; the last thing anyone wants is to leave their family with a hefty tax bill.
In this article, we’ll cover what you need to know about these taxes and how you can protect your investments for the future. With the right planning, you can enjoy the benefits of investing in the U.S. while ensuring your loved ones are protected.
If you're not a U.S. citizen and own U.S. assets such as stocks or ETFs (e.g., shares in big companies or S&P 500 funds), the U.S. government charges an estate tax on those assets when you pass away. If your U.S. assets are worth more than $60,000, this tax kicks in.5 The tax rates range from 18% to 40%, depending on the total value of your U.S. assets.
For example, if your stock portfolio is worth $1.5 million, your beneficiaries could face a tax bill of $595,800—about 39.72% of the total value. The person managing your estate (the executor) must file a form with the IRS (Form 706-NA) and pay the tax within nine months of your death.5
If the tax isn’t paid or the form isn’t filed on time, there could be penalties, delays, and more stress for your loved ones. The IRS might even take action to collect what’s owed. This can make things very complicated and expensive for your family.
Without proper planning, your beneficiaries would have to deal with a lot of paperwork and a big tax bill, on top of everything else. A little preparation can save your loved ones a lot of trouble later.
If you invest in U.S. assets, this section is for you. We’ll walk you through common strategies to help reduce the estate taxes your loved ones might face after your passing. Keep in mind, though, that tax laws can change, so it’s always a good idea to consult with a tax or estate planner to ensure you’re making the best decisions for your U.S. assets.
If you own U.S. assets like stocks or property, using a trust could be a smart way to manage or even reduce estate taxes. By transferring ownership of your assets to a trust, you could reduce your taxable estate. For example, an irrevocable trust can remove the value of U.S. assets from your estate, which could help reduce the amount of estate tax your family has to pay.7
But trusts aren’t always straightforward. If you maintain control over the assets or benefit from them in any way, the IRS might still include them in your estate, meaning estate taxes could still apply.
Trusts can also lead to other tax complications, like triggering U.S. income taxes, and they need to be set up carefully to comply with U.S. and international tax rules.
To avoid these issues, it’s a good idea to work with an estate planner who understands the rules. They can help you structure the trust properly so that it minimises tax burdens and protects your loved ones.
If you have significant U.S. assets, like stocks or property, setting up an offshore bond can help you avoid estate taxes.8 By transferring them to an offshore bond based in a tax-free country like Jersey, the Isle of Man, or the Cayman Islands, you avoid owning them directly.
Instead, the bond becomes the owner, protecting your assets from U.S. estate taxes upon your passing. It acts like a container for your investments.
This is a popular choice for expatriates due to their flexibility across borders.9
However, while this strategy offers tax advantage, it does involve setup costs, ongoing management, and compliance with international tax laws. Additionally, income generated by the assets, like dividends, could still be taxed under U.S. rules.10
It’s important to work with an experienced tax advisor or estate planner to ensure everything is set up correctly and fits your financial goals. When done right, this approach can protect your wealth and make things much easier for your beneficiaries.
If you want to avoid U.S. estate taxes, investing in funds domiciled in tax-free or low-tax jurisdictions like Singapore or Hong Kong is a straightforward strategy.
Companies, ETFs, and unit trusts listed on the Singapore Exchange (SGX) or the Hong Kong Stock Exchange aren’t subject to estate taxes. To confirm a fund’s domicile, you can review its fact sheet.
Another choice is Irish UCITS funds (Undertakings for Collective Investment in Transferable Securities).11 These funds are designed to be tax-efficient and, while Irish residents may face inheritance taxes, non-residents are exempt from estate taxes on these investments.12 Popular examples include the Vanguard S&P 500 UCITS ETF (VUSD) and the iShares Core MSCI World UCITS ETF (IWDA).
These funds offer the same global and U.S. market exposure as the U.S.-domiciled ETFs but without estate tax worries.11 They also have lower dividend withholding taxes—15% instead of 30% for U.S.-based ETFs,13 making them a cost-effective choice for international investors.
If your U.S. investment portfolio is small, keeping its value under $60,000 can be a straightforward way to avoid U.S. estate taxes entirely. The U.S. only taxes estates of non-residents when their U.S.-based assets exceed this threshold, so staying below it keeps your investments clear of any estate tax liability.
However, this strategy has its limits. If you have a larger portfolio or plan to grow your U.S.-based investments over time, it might not be feasible to stay below the $60,000 mark. In such cases, you’d need to consider long-term planning to manage potential estate tax liabilities.
If selecting individual stocks isn’t your style but you still want exposure to the U.S. economy, unit trusts can be a good alternative. These are pre-packaged investment products that focus on U.S. markets, but they won’t incur U.S. estate taxes as long as the unit trust isn’t listed in the U.S. You can easily buy these through investment platforms in Singapore.
Alternatively, insurance wrappers, like Variable Universal Life (VUL) policies, could also be worth looking into. These policies transfer ownership of your assets to the insurance policy, removing them from your taxable estate under IRS rules. This not only avoids U.S. estate taxes but also simplifies the distribution of your assets.
That said, using insurance wrappers isn’t as simple as buying them off a platform. They often involve higher upfront costs and you’ll need a professional to set them up properly.
Term insurance is an affordable way to handle U.S. estate taxes. Let’s say your U.S. investments are worth $1.5 million, leaving your beneficiaries with a tax bill of $595,800.
Instead of changing your entire investment strategy, you can take up a term life insurance policy for that amount. For a small annual premium—often just 0.10% of your portfolio’s value—the policy payout can cover the estate taxes, making it easier for your beneficiaries to inherit your investments.14
As your portfolio grows, you can gradually increase your coverage to match its value. Just make sure to nominate beneficiaries or include the policy in your will to avoid delays in the payout process.
Thinking about estate taxes on your U.S. investments can feel overwhelming. The idea of leaving your loved ones with a tax bill or complicated paperwork is stressful, especially when all you want is to pass on the wealth you’ve worked so hard to build.
However, estate taxes don’t have to be a burden if you plan. Taking the right steps now, like using term insurance, setting up trusts, or investing in tax-efficient funds, can protect your family from unnecessary stress and financial strain.
A financial advisor or estate planner can help you navigate these decisions and create a plan that works for you. With their guidance, you can ensure your investments become a legacy of care for your loved ones, not a source of worry.
We hope this article helped you in your financial journey. Share this with a friend who might need it too.
👋 Need additional advice and support on navigating your financial planning? Book a complimentary consultation with us.
Estate planning services are provided by PFP Legacy Singapore, a sister company of PFPFA Pte Ltd.
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The views expressed in this media do not necessarily reflect the views of PFPFA Pte Ltd (“PFPFA”). The information provided herein is intended for general circulation and not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use will be contrary to local laws or regulations. You should also note that the information presented does not have regard to the specific investment objectives, financial situation or the particular needs of any specific individuals; and therefore, may not be appropriate to your individual needs. You should seek the advice of your financial adviser representative or a professional before making any commitment to purchase or invest in any investment product.
Estate planning and/or wills-writing services are deemed as prescribed non-financial advisory services. There are no regulatory safeguards for such services as they are not regulated under the Financial Advisers Act.
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