“Death Tax” and your investment portfolio

“Death Tax” and your investment portfolio

About Nathan SamuelsNathan Samuels

Nathan is a Senior Associate in the firm’s property, trusts and estates practice group and has experience in a wide range of property and private client matters.

Nathan Samuels’s full profile on mjm.bm.

In Bermuda there is no automatic requirement for a person’s estate to be probated following death.  In fact when providing estate planning advice it is often the goal to arrange a client’s estate in such a way that upon death there is no meaningful estate to probate.  This is typically achieved through lifetime gifts, the transfer of assets to a trust or company, or the holding of assets jointly such that the asset automatically transfers to a survivor on death.  Of course every estate planning scenario is unique and such options are not always possible or desirable.  

Where the diminishing estate cannot be achieved and significant assets remain in the estate following death, probate is required to properly collect such assets in and to eventually transfer them to the beneficiaries of the estate.  This involves an application being made to the Supreme Court for a grant of representation which confirms who the rightful estate representative is and provides such person or persons with the authority to properly collect in and distribute the estate assets.  Of course this process is one of give and take – in return for the Court’s confirmation of estate representative, estate stamp duty (or “death tax” as it is commonly called) is assessed on the value of the deceased’s Bermuda estate.

Under such circumstances, what constitutes a person’s Bermuda estate often becomes the central question to their local estate planning.  In general, this question can appear fairly straightforward.  The Stamp Duties Act 1976 (the Act) confirms that for the purposes of assessing estate stamp duty on death, the estate of a deceased person includes: “all the property of the deceased at the time of his death and all the property of which the deceased was at the time of his death competent to dispose[i] with “property” being limited to: “real and personal property of any kind situate or being in Bermuda, and the proceeds of sale thereof and any investment for the time being representing the same[ii].

This general caveat limiting the assessment of estate stamp duty to assets “situated or being in Bermuda” would seem to make the question of what constitutes a person’s Bermuda estate self-explanatory.  

This is also generally the case when assessing investment assets.  The Act confirms that “any share or marketable security issued by or on behalf of any corporation, company or body of persons incorporated, formed or established out of Bermuda, except shares registered in a register kept in Bermuda in conformity to any statutory provision” shall be deemed not to be property situated or being in Bermuda.[iii]

However, when assessing estate stamp duty in respect of an investment portfolio which holds assets that appear to be in or at least connected to Bermuda, it is important to note that there are a number of instances where the investment asset, despite having a local connection, is nevertheless deemed not to form part of the Bermuda estate and therefore exempt from estate stamp duty under the Act.  The following is a list of instances where local investment assets do not attract estate stamp duty:

  1. Foreign currency funds held in a local bank do not attract estate stamp duty[iv];
  2. Employee incentive programs within Bermuda’s international business sector often involve the acquisition of shares by the employee – provided the relevant company is a Bermuda exempted company, shareholdings in such companies do not attract estate stamp duty[v];
  3. Foreign currency mutual funds held through a local investment firm do not attract estate stamp duty[vi]; and
  4. Local investment holding companies can be used for estate planning purposes to hold and administer a personal or family investment portfolio – provided the local investment holding company is not owned by more than 5 persons and adequately meets the requirements for foreign investments and foreign income generation, the shares in the local investment holding company do not attract estate stamp duty[vii].

[i] Stamp Duties Act 1976 s.47(2)(a)(i)

[ii] Ibid. s.47(2)(b)(i)

[iii] Ibid. s.4(e) and s. 47(4)

[iv] Ibid. s.47(3)(a)

[v] Ibid. s.47(3)(b)

[vi] Ibid. s.47(3)(c)

[vii] Ibid. s.47(3)(d)