Invested in US Stocks: In today’s globalized world, investing across borders has become easier than ever. With just a few clicks, Indian investors can buy shares of big American names like Apple, Tesla, and Amazon through international trading apps. It feels exciting being part of the global economy and diversifying your portfolio. But behind this dream lies a hidden tax trap that many investors overlook a trap that could cost your family nearly 40% of your wealth if you’re not careful.
Recently, Samir Arora, the founder of Helios Capital, raised an alarming concern for Indian investors holding US stocks directly. He warned that if an Indian investor passes away while owning US-based assets, their heirs could face a massive estate tax something very few people even know about.
The Estate Tax Shock What You Need to Know
The US estate tax is a federal tax applied on the total value of assets owned by a deceased person before they are transferred to heirs. While this tax is well known among American citizens, it also applies to foreign investors, including Indians, who hold assets like US stocks, bonds, or property. Here’s the shocking part the exemption limit for non-US residents is only $60,000. Anything above that amount is taxed at rates that can go up to 40%.
For example, if an Indian investor holds $200,000 worth of US shares, the taxable portion would be $140,000 (after the $60,000 exemption). At a 40% estate tax rate, their heirs would lose $56,000 to US taxes leaving only $144,000 behind.
And since there’s no estate tax treaty between India and the US, there’s no relief or exemption available. The tax applies directly, and heirs may find themselves in an expensive and complicated situation trying to recover their loved one’s investments.
What Experts and Investors Are Saying
Samir Arora’s warning on social media sparked a major discussion among investors. Many were surprised to learn that such a tax even existed.
One investor replied, “It’s surprising how few people know this. When you invest directly in US stocks or ETFs held in US brokerage accounts, your assets can be hit by estate tax if you pass away. The tax starts at 25% and can go up to 40% on the total value, not just profits.”
Another investor suggested a safer path, saying, “You can invest in UCITS ETFs from companies like BlackRock or Invesco, which are domiciled in the EU. These funds give you exposure to US markets but are not subject to US estate tax.”
Others pointed out that it’s smarter to invest in Funds of Funds (FoF) in India that indirectly invest in US markets. These FoFs are managed within India, so the estate tax issue doesn’t apply.
Why This Matters More Than You Think
Estate taxes don’t just affect billionaires or large estates. Even a modest holding in US stocks can create unexpected trouble for your family. Since the $60,000 threshold is so low, even a small investment portfolio can trigger the tax.
Worse, your heirs may have to go through US legal procedures hiring attorneys, dealing with documentation, and paying the tax before they can even access your assets. This can delay the inheritance process for months and cause emotional and financial distress at an already difficult time.
Safer Ways to Invest in US Markets
If you want to enjoy the benefits of US equity investments without falling into this tax trap, there are several smarter ways to structure your investments.
You can invest through foreign-domiciled mutual funds or ETFs registered in countries like Ireland or Luxembourg. These funds hold US stocks but are not considered US assets so estate tax doesn’t apply to investors.
Alternatively, high-net-worth individuals can use corporate or trust structures to legally hold assets outside the US, transferring ownership away from their personal name. This strategy is complex and typically used by family offices or large investors, but it’s effective in reducing risk.
Another popular route for Indian investors is through India’s IFSC (International Financial Services Centre), where pooled fund structures can hold US shares without the investor being considered a direct owner.
And for those who prefer simplicity, life insurance can act as a shield. Buying a policy that covers your potential estate tax liability ensures your heirs receive the full value of your investments, even after taxes.
The Bottom Line
Global investing offers incredible opportunities but every opportunity comes with responsibility. Understanding the legal and tax implications is just as important as tracking stock performance.
If you’re an Indian investor putting money directly into US equities, take this as a wake-up call. The US estate tax is real, and its reach is broader than you think. Before investing, consult a qualified financial planner or tax advisor who understands cross-border taxation. By choosing the right structure, you can protect your wealth and your family’s future.
Disclaimer: This article is for informational purposes only and should not be considered financial or tax advice. Readers are encouraged to consult with a certified financial advisor or tax specialist before making any investment or estate planning decisions related to foreign assets.
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