Many Israelis are not aware that the United States levies inheritance taxes on assets, such as U.S. stocks or property in the United States, that are owned by a person who has passed away and worth more than a certain amount – even if the deceased was not a U.S. citizen, or even a resident.
This is not a change in U.S. inheritance tax law, but now Bank Leumi is telling all its customers that it is falling into line with the U.S. Internal Revenue Service, and will aid the IRS in collecting taxes if required.
Customers of Bank Leumi who own foreign securities received a letter recently, in which they were told that the bank “may request approval from the foreign tax authority for a tax exemption, or for payment of taxes as a condition for withdrawing funds from the account or transferring assets to another account.”
This is the first time that such a request has been brought to the attention of the full range of a bank’s customers.
Leumi has already been burned very seriously by U.S. tax authorities after it helped American customers evade taxes, and paid a $400 million fine. Bank Hapoalim and Bank Mizrahi Tefahot are now under investigation by American authorities for similar reasons, and they are expected to pay heavy fines too, to put an end to the proceedings.
Many Israeli investors buy foreign securities and other assets to diversify their portfolios, as well as being part of a global investment strategy.
The heirs of Israelis with over $60,000 of U.S. securities could face inheritance taxes of between 10% to 40%, for all sums over $60,000, regardless of the deceased’s citizenship, or that of the heirs.
This means that if an Israeli who owns at least $60,000 in stocks of companies incorporated in the United States, such as Apple, Google, Amazon or many, many others dies, their heirs would not be able to get their hands on the shares until they provide the bank with documentation that they have settled their inheritance taxes as required with the IRS.
This would apply not just to stocks but also to ETFs and index funds, as well as real estate. It applies to works of art and cash held physically, such as in a safe. It does not apply to U.S. bank accounts, if all the taxes on them have been legally paid already.
One way to solve the problem is to transfer ownership of the assets to a corporation while the person is still alive, though this may have other tax implications and requires expertise.
Bank Leumi warned customers that some exemptions and credits exist concerning such taxes, and to turn to a qualified tax adviser on the matter of investing in foreign securities. The bank said the letter was only to provide information for customers as part of the full disclosure it needs to provide in light of questions it has been asked.
As for the other large Israeli banks, Bank Hapoalim said the matter was “under examination"; Israel Discount Bank said every case is “examined on an individual basis, according to the regulations that apply"; and Mizrahi Tefahot has not yet responded.
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