Fueled by the advance of technology, flexibility of remote work, continued expansion of global business, and desirable cost of living tradeoffs for retirees, the ranks of American expats continue to swell. Per the U.S. State Department, in 2020, roughly nine million Americans lived abroad, while a 2022 Gallup poll revealed 15% of Americans would like to leave the United States permanently. At the same time, nations throughout the world continue to entice entrepreneurs and wealthy individuals to relocate, by offering golden visa programs that grant residency and citizenship status in exchange for investments in the host country. While the ease of modern connectivity and travel have lowered some burdens for expats, the Byzantine nature of immigration, estate, and tax laws makes the planning and execution of living abroad incredibly complicated. Additionally, with revenue-hungry governments aplenty, errors in wealth strategies can be expensive if assets are not properly structured and managed.
Life abroad begins with obtaining a visa, residency or, in some cases, a path to citizenship. Electing which nation to live in and under what residential circumstances will drive most of the financial planning decisions that follow. Therefore, hiring an immigration attorney that specializes in your destination country of choice is a crucial first step. For those seeking status through economic channels, ensure that the attorney is well-versed in the rules of the golden visa programs, as the capital investment required can run over a million dollars and possibly be restricted for years. Engaging an estate attorney deeply familiar with the foreign country and its laws should be the next step, as the structure of the assets will not only determine heirship, but estate taxes can be considerably onerous outside of the U.S. Note that in some popular expat nations, standard trusts created in the U.S. are viewed poorly and forced into burdensome reporting, such as in France, while some countries, like Spain, do not recognize the legal status of a trust. Regardless of which nation an expat resides, there are likely to be complicated and ever-changing tax rules in the host country and the U.S. Retaining a CPA in both nations is highly recommended given the very specific nature of local taxes and expats should prepare themselves for heftier reporting requirements to the IRS.
Taken together, the immigration, legal, and tax strategies will inform the investment strategy of your Wealth Manager. With the golden visa programs in particular, sizable amounts of capital will need to be raised for investment and likely be concentrated in a business, real estate property, or equity markets of the host country. Diversification and managing risk around those concentrations are crucial. Furthermore, given the likelihood of tax complications, it is prudent to adopt an investment approach that either minimizes the realization of gains or allows for strategically timed trading that meets the liquidity needs of the expat while still complementing the overall estate and tax strategy.
After all the advanced planning is in place, the practical concerns of day-to-day life take over. Under most circumstances, it is more beneficial to maintain brokerage accounts in the U.S. than abroad. In a host of scenarios, bringing a portfolio into a foreign country can increase a tax burden, ensnare it in estate laws unintentionally and, under certain country circumstances, prevent the assets from ultimately leaving the foreign nation. Plan to utilize a local bank for daily living expenses while being mindful of the FDIC-equivalent protections of cash deposits. In the likely event that liquidity needs will be met with transfers from a U.S. financial institution, money movement will be made more quickly and smoothly across borders if the foreign bank has a U.S. correspondent bank, allowing for same-day wire transfers in U.S. dollars. Be prepared as well for heightened scrutiny of your cross-border money movements both by governments and the regulated financial institutions tasked with preventing money laundering. Supporting documentation requirements, probing questions, and delays in transfer may accompany certain international transfers. Lastly, insurance should not be overlooked in the planning and transitioning to an expat lifestyle. Life insurance, in particular, should be obtained while still in the U.S. as obtaining it once living abroad is considerably harder.
The thrill of living an expat lifestyle has never been more attainable given the modern world. Living abroad can offer career opportunities, a more affordable retirement, or proximity to family. To ensure your adventure isn’t costly to your portfolio or estate, be sure to engage a team of legal and tax specialists, work to position your portfolio for foreign circumstances, and plan for the management of liquidity and daily living expenses.
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