Question:

My wife and I are US citizens and are planning in case we both died at the same time. We have non-US citizen family living abroad that we want to designate as beneficiaries on our accounts. We are quite young so we don’t want to do a revocable trust at this time. I know for non-US citizen beneficiaries, traditional IRAs/401ks will have 30% tax withheld and Roths will not be taxed. How are brokerage accounts and non-retirement accounts treated?

Response:

The accounts will be treated no differently from how they would if passing to US-citizen beneficiaries. There would be no tax unless your estate were so large as to exceed the federal estate tax thresholds or any in the state in which you resided upon death. Any stock would receive a step-up in basis, so there would be no tax on capital gain either.

The one difficulty is that some banks and investment houses won’t allow you to name non-US citizens or residents as beneficiaries. You’ll have to check with the institutions where you have accounts to see what restrictions they may have. Unfortunately, whatever they say, their rules may change for the better or worse over the years. But even in the worst case scenario, that they don’t allow non-U.S. account holders, there will have to be a way to transfer the funds. It may be that despite your reluctance to create a revocable trust at this time, having such a trust with a U.S.-resident trustee will turn out to be the easiest way to pass on the accounts to beneficiaries outside of the country. But check with your bank or investment house.

 

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