1) What are the robo-advisors' stand on US Estate Tax? 2) How has it impacted the robo-advisors in terms of funds selection for portfolio construction? 3) Why is your strategy (with respect to US Estate Tax) superior to the other robo-advisors? - Seedly
 

SeedlyTV EP04

MoneyOwl

Smartly

StashAway

AutoWealth

Endowus

Asked by Anonymous

Asked on 01 May 2019

1) What are the robo-advisors' stand on US Estate Tax? 2) How has it impacted the robo-advisors in terms of funds selection for portfolio construction? 3) Why is your strategy (with respect to US Estate Tax) superior to the other robo-advisors?

The U.S. imposes a 40% estate tax rate on U.S. assets above a $60,000 exemption threshold on assets of the deceased nonresidents.

0

Answers (3)

Sort By

Most Upvote

  • Most Upvote
  • Most Recent

Dear Anonymous

Thank you for your question. Allow me to repost my answer to one of the questions here.

Estate duty has been abolished for all assets in Singapore, whether they are movable and immovable. However, if one holds assets such as ETFs who are domiciled in a country that has estate duty such as USA, and especially so if they are custodised with that country‘s custodian, things can be complex.

For MoneyOwl, the underlying instruments in our portfolios are UCITS Dimensional funds domiciled in Ireland. These funds are registered in Singapore and custodised in Singapore (iFAST). In addition, to make it even simpler, Ireland do not have estate duty. So investors do not have to pay estate duty.

MoneyOwl’s parent company, Providend has been advising clients in this area for the past 18 years and since estate duty was abolished, it is their experience that clients who have unfortunately passed on did not have to pay estate duty for UCITS Funds domiciled in Ireland too.

Estate duty was removed effective 15 February 2008 for Singapore. As a long term investor, it is natural that one fears that estate duty will be reinstated during the course of their investment. Before it was abolished, the estate duty charged on dutiable assets (after exemptions) was

  1. 5% of the market value of the assets for the first $12 million

  2. 10% of the market value of the assets that exceed $12 million

What are the chances of estate duty being introduced again? It is anyone‘s guess but if we look at how much revenue it contributed to the government when it was still in place, it was a mere 0.6%. Besides, for those that would be estate dutiable (usually the very wealthy), there are many ways for them to mitigate and not pay estate duty. This is compared to the advantages of removing estate duty, specifically encouraging the wealthy to keep their wealth here and foreigners to transfer their wealth here. All these benefit Singapore. To understand more about the rationale behind the abolishment of estate duty back in 2008, you may like to read DPM Tharman’s Speech here:

https://www.asiaone.com/News/AsiaOne%2BNews/Singapore/Story/A1Story20080215-49878.html

Hope this clarifies and give some assurances.

0 comments

5
Samuel Rhee
Samuel Rhee, Chief Investment Officer at Endowus
Level 4. Prodigy
Answered on 15 May 2019

Dear Anonymous,

There are no estate duties in Singapore and the US estate tax can be avoided altogether if, rather than simply buying US ETFs like the Robos do, you invest in more suitable products for Singaporean investors - Irish UCITS Funds registered and denominated in SGD, as the more sophisticated and thoughtful Independent Financial Advisors like Endowus and Providend do. Endowus uses UCITS funds for both its Dimensional and PIMCO products. Which are SGD denominated/hedged that removes FX risk, tax-efficient both in terms of withohlding tax and exempt from estate tax, and is low cost. The other simple Roboadvisors blindly use US ETFs as they originally just copied the US Roboadvisors business model in using those products, but we feel they are unsuitable for Singapore based and Singapore dollar investors from a total cost perspective including tax, FX and bid-ask spreads. Furthermore, it completely negates one of the key benefits of using ETFs(exchange traded funds) which is live intraday liquidity. Using US based ETFs means you trade and can therefore only provide daily liquidity which is the same as UCITS funds.

Thank you!

Sam

0 comments

4
Tai Zhi
Tai Zhi, Chief Investment Officer at Autowealth
Level 6. Master
Answered on 07 May 2019

Tax issues are always very complex & sensitive to explain in writing. You may wish to consult a tax advisor. Alternatively, pls call us at 6777 7249 for more info.

0 comments

0