$$$ KPO and CZM $$$: Estate Tax - The Issue Not Addressed By Some Robo Advisors

Monday, August 10, 2020

Estate Tax - The Issue Not Addressed By Some Robo Advisors

This is actually a continuation of my previous post - StashAway - July 2020 + Happy 3 Years! It got slightly too long and I decided to take a portion of it out and write it as a standalone post.

Anyway, to recap, StashAway was showcasing the annualized returns (before fees) for their portfolios in their 3 years birthday/anniversary email which were beating all their benchmark from 19 July 2017 to June 2020. Based on our own portfolio (Risk Index 22%), I agreed that the performance has been very impressive (look at the above screenshot), StashAway has indeed maximize the returns (beating STI and even IWDA but lost to SPY) by managing the risk (lower volatility and max drawndown).

Let's take a look at our self-managed SGX portfolio.



Unfortunately, after 6 years of investment, we are not even beating inflation or CPF OA! Our money would have been better left in the bank (as of the current moment). lol. Anyway, we are not too concerned as we enjoy stock picking and believe that the performance will eventually improve. Having said that, there's definitely an opportunity cost. Had we simply invested in SPY or IWDA, we would have seen our investment double! That's why we are also diversifying out of the Singapore market. Our plan is to stay in Singapore for dividends and the rest of the world for growth.

If StashAway's portfolio is performing so well, what's stopping us from investing more money? It is the 40% estate tax rate on assets above US$60,000 for non-US resident/citizen. Take a look at this 2019 Seedly question/forum. It is interesting to see how the founders who are not using US ETFs/not affected are answering the question (MoneyOwl and Endowus) in detail while the rest avoid answering (StashAway, Smartly) or gave a generic answer that is equivalent to not answering (AutoWealth). FYI, Smartly is no longer around and Syfe was not available then.

Anyway, I first asked StashAway the question late last year, however, their response did not provide any confidence for me to invest more money.

That was when I started exploring other alternatives and ended up with Endowus, IWDA, and more recently Syfe. I decided to ask the same question again, not through the regular support chat but to StashAway Head Of Client Experience & PR, Amanda Ong. Her response was almost similar but with some slight improvement...

Firstly, it went from "customers may not be liable to US estate taxes" to "our clients should not be subject to this estate and gift tax". Having said that, they ended with the same disclaimer - "This is for informational purposes only. It is not intended to be tax, legal or accounting advice and should not be relied upon as such. We recommend that you consult your tax, legal and accounting advisors before engaging in any transaction". Secondly, she was willing to add the question and their response to the FAQ/Help Center. Prior to this, one can never find this question and the answer in any of the robo advisor FAQ (I tried looking for it in StashAway, Syfe, and AutoWealth but to no avail). Now you can access StashAway version here.

Not sure if the above gave you any additional confidence but I will be honest, the disclaimer is a huge turn-off. This kind of tax issue should be straightforward. Either I am subjected to it or I am not. Why the uncertainty with a disclaimer? In addition, the template statement (We recommend that you consult your tax, legal and accounting advisors before engaging in any transaction) pisses me off too. If I have one, I wouldn't be asking you guys. Why would you expect an average retail investor to have tax, legal and accounting advisors?? We only have robo advisors. lol.

Anyway, I have also asked the same question to Dhruv Arora - Founder, CEO of Syfe and his response was almost similar. Most likely not, go consult your tax advisors/experts but maybe yes, regardless good to go until US$60k. Uncertainty everywhere...

What's the plan now? We will still continue with our current monthly investment plan and reevaluate when we are nearer to the US$60k limit. Hopefully, by then the robo advisors would have sorted this out and declare openly that we will not be subjected to any estate tax. Otherwise, we are definitely not increasing our investment. 

Alternatively, something I can think of that may/may not put some of our minds at ease is to introduce the joint account concept where our other half can simply withdraw/sell the investment without any issue. All else fails, share your login and credential with your other half and instruct them to withdraw/sell the investment if any unfortunate event happens. It is annoying that I am not worried about the company dying and losing 100% of my money but myself dying and losing 40% of my money @_@"

If you are interested in StashAway, do use our referral link. You get $10,000 free management fees for 6 months and we will get $16!

If you are interested in Endowus, do use our referral link for our readers! You will get S$10,000 managed free for 6 months ($20 equivalent) and we will get $20 too!

If you are interested in signing up, do use our referral code (KPOBONUS) for some cash incentive! Invests $500 and more and we will receive a $10 bonus each. Invests $10,000 and more and we will receive a $50 bonus each. Invests $20,000 and more, we will receive a $100 bonus each!

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  1. Lol. For sure if you ask any proper tax lawyer or accountant, they will say have to cough up 40%. Double confirm if you're dumb enough to check directly with US IRS.

    But kinda hazy if the securities are not bought/ registered directly under your name. Which may be the case with some robos.

    The only sure way is to buy your US securities & assets thru a holding company or some trust account. But it involves costs. Ireland was (is?) a popular place to set up these in the 2000s as they're a low tax financial hub, don't have death tax & also have reduced 15% dividend withholding tax with US. Tax havens like various Caribbean islands & Canary Islands are also popular choices. Lol.

    For poor guys like us, having the ID, password & 2FA available to trusted family members is the easiest.

    Legally, the easiest is to have joint account.

    1. I know right. Definitely prefer the joint account option if that is one.