You will estimate the value of your US-situs assets now and in ten years, compared with the current exemption.
Rachel has a list of her holdings sorted into likely US-situs, likely not and unsure, from lesson 4.2, Which of your holdings count as US assets. She also has the current exemption for non-resident aliens, which she looked up on the IRS website in lesson 4.1. What she does not have is the answer to the question her father asked: are we anywhere near the line, and when would we cross it?
This exercise answers that for your own portfolio. You need your sorted list, your latest statements, the exemption figure from the IRS website and a spreadsheet. The worked example uses made-up figures throughout, including a made-up threshold, so that nobody copies a number from this page into their plans.
Take every holding you marked likely US-situs. Write its current market value in US dollars from your latest statement. Add them up.
Keep the unsure items in a separate line rather than leaving them out. If they are large, run the whole exercise twice, once with them and once without, so you can see the range.
Rachel's likely US-situs holdings, in made-up figures, were two US company shares worth US$12,000 and US$8,000 and a US-listed ETF worth US$25,000. That is US$45,000 today. Her unsure line, US dollar cash, was US$3,000, which she kept separate.
A portfolio you keep adding to will not stay at today's value. Set up a small table in your spreadsheet with one row per year for ten years. Each row takes last year's total, grows it at a modest rate, and adds what you plan to put into US-situs holdings that year.
Use a modest growth rate, and label it as an assumption. The point is to see roughly when you might cross the line, not to forecast returns. If you are unsure, run a second column at a lower rate.
Rachel planned to add US$6,000 a year to the US-listed ETF. She used 4% a year as her made-up growth rate and assumed the contribution went in at the end of each year. Her rows ran like this: about US$52,800 after year 1, US$60,912 after year 2, US$69,348 after year 3, US$78,122 after year 4, US$87,247 after year 5, and US$138,648 after year 10.
You can check the year-10 figure with one formula: today's total times 1.04 to the power of 10, plus the yearly contribution times 1.04 to the power of 10 minus 1, divided by 0.04. If you prefer, use the future value worksheet you built in How money works, lesson 6.4, Build your time value of money worksheet.
Put the current exemption from the IRS website in one cell, and compare both today's total and each projected year against it. Find the first year your projection passes it.
For the worked example only, use a made-up threshold of US$80,000. This is not the real figure, so replace it with yours. Rachel's US$45,000 today sits well below the made-up line. Her projection passes it during year 5, when it reaches about US$87,247. If today is the start of year 1, that is about five years from now. By year 10, she would be about US$58,648 over the made-up line, and that whole excess would be taxable at the graduated rates from lesson 4.1.
If your projection never passes the exemption, write that down with the assumptions you used. Rerun it each year, because contributions, growth and the exemption itself can all change.
Once you see the numbers, you will want to know what people do about it. People in Rachel's position consider options such as these: holding funds domiciled outside the US, such as Irish-domiciled UCITS ETFs, for new money; keeping US-situs holdings below the exemption; making sure the family has the cash or cover to pay the tax and wait for the process in lesson 4.3; or getting advice from a professional on more complex structures.
This course does not tell you which of these to use. Each has costs and trade-offs, and module 5 looks at the fund domicile option in detail. Your worksheet should list the options you would look into and the questions you would ask, with no decision yet.
Your exposure worksheet shows today's US-situs total with the unsure items on a separate line, a ten-year projection with your stated growth rate and contributions, the current IRS exemption with the date you checked it, and the year your projection passes it, or a note that it does not. Rachel's took her forty minutes, most of it hunting for one fund's prospectus.
Now fill in yours with your own holdings and the real exemption figure, and write down the year your projected US-situs assets would pass it, if they do.
Fill in the exposure worksheet and write the year your projected US-situs assets would pass the current exemption, if they do.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).