Suppose two US non-resident aliens (parent and grown child) open a "Joint Tenants with Rights of Survivorship" stock brokerage account. When one of the account owners dies, does the other owner have to liquidate part of the account to pay US taxes? If so, what is the tax called, and what is the tax rate?
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If there is a tax, can't the money to pay the tax come from anywhere?– mhoran_psprepFeb 14, 2022 at 10:53
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1 Answer
The account doesn't have to be liquidated unless the estate and the beneficiary couldn't pay the calculated tax.
The tax is still called Estate Tax. Tax rate after first $60,000 is in Table A of the instructions, which is 18% to 40%.
In your case, for 2 non-resident aliens (and not spousal), the value of the estate is the market value of the joint account, minus the past contribution/withdrawal of the surviving owner (taking into account Money-Weighted Return).
Instructions for Form 706
Note. You cannot claim the special treatment under section 2040(b) for property held jointly by a decedent and a surviving spouse who is not a U.S. citizen. Report these joint interests on Part 2 of Schedule E, not Part 1.
Part 2. All other joint interests.
All joint interests that were not entered in Part 1 must be entered in Part 2.
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In the "Percentage includible" column, enter the percentage of the total value of the property included in the gross estate.
Generally, you must include the full value of the jointly owned property in the gross estate. However, the full value should not be included if you can show that a part of the property originally belonged to the other tenant or tenants and was never received or acquired by the other tenant or tenants from the decedent for less than adequate and full consideration in money or money's worth. Full value of jointly owned property also does not have to be included in the gross estate if you can show that any part of the property was acquired with consideration originally belonging to the surviving joint tenant or tenants. In this case, you may exclude from the value of the property an amount proportionate to the consideration furnished by the other tenant or tenants. Relinquishing or promising to relinquish dower, curtesy, or statutory estate created instead of dower or curtesy, or other marital rights in the decedent's property or estate is not consideration in money or money's worth. See the Schedule A instructions for the value to show for real property that is subject to a mortgage.
https://www.irs.gov/instructions/i706#en_US_202112_publink1000276782
Note that the Instructions for Form 706-NA (NA = nonresident not a citizen of the United States) says "For additional information concerning joint tenancies, tenancies by the entirety, annuities, life insurance, transfers during life, and powers of appointment, see the Instructions for Form 706.", and "use Table A—Unified Rate Schedule in the version of the Instructions for Form 706".
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"... it is very rare for international stock brokers to offer JTWROS ..." — For nonresident alien joint accounts, TD Ameritrade only offers JTWROS. The account modification form says: "Nonresident Alien Account Owners are only eligible for Joint Tenants with Rights of Survivorship (JTWROS) accounts."– FluxFeb 15, 2022 at 4:24
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How does one show that "part of the property was acquired with consideration originally belonging to the surviving joint tenant or tenants"?– FluxFeb 25, 2022 at 3:11
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Brokerage account statements and Money-Weighted Dollar Return between each deposit/withdrawal triggered by either tenants. For example, at the beginning of the year, A and B each invested $100, account value shows $200. 6 months later, the account increased by 10% and shows $220. If A decides to withdraw $50 and B did not take any actions, the account value shows $170, but in your own Excel, it shows A now owns $60 and B owns $110. Another 6 months later if the account increased by another 10%, the account value shows $187, but in your own Excel it shows A owns $66 and B owns $121.– base64Feb 25, 2022 at 3:41
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Basically, each time there is a deposit/withdrawal event, the "ownership percentage" changes. The same applies to joint bank account (with interest), paid real estate (considering market value and rent), etc.– base64Feb 25, 2022 at 3:48