And Tips to Help You Overcome Them
As if navigating a new city and learning new customs isn’t challenging enough, U.S. expats face multiple financial challenges when moving overseas. Here, we highlight five common financial obstacles faced by U.S. expats and offer tips to help you overcome them.
#1 – Tax regulations
Tax regulations vary greatly by country, but one constant regardless of where you live is that, as a U.S. citizen, you’re required to file a U.S. tax return. Fortunately, the United States holds tax treaties with many foreign countries that can help reduce or eliminate your U.S. tax liabilities.
However, even with tax treaties in place, keeping up with two countries’ ever-changing tax laws and how they interact with one another can be a complex and overwhelming task. Some of the most common obstacles include Foreign Bank Accounting Reporting (FBAR) requirements, tax filing status, retirement income optimization, country-specific tax considerations, foreign tax credits and double-taxation treaties.
Consider enlisting the help of a qualified international wealth manager to help you navigate multi-jurisdictional tax complexities and lower your tax exposure.
#2 – Currency fluctuations
Another common financial obstacle faced by U.S. expats is navigating the challenges of having income in one currency and expenses in another currency. Fluctuating exchange rates can significantly reduce your spending power, which is why it’s important to take steps to manage your currency risk. One effective strategy includes maintaining a diversified investment portfolio that spans multiple countries, asset classes and investment types.
Matching your currency to your future expenses can also help mitigate the impact of currency swings. For example, if you plan on spending your retirement in Spain, it may make sense to hold a large portion of your investments in European stocks and bonds to match the currency of your future retirement expenses.
Keep in mind, however, that if you plan to return to the United States in a few years, it may make more sense to maintain a U.S. dollar-focused investment strategy.
Your international wealth manager can help you establish a currency management strategy that makes sense for you based on your personal financial situation and goals for the future.
#3 – Estate planning
U.S.-based estate plans don’t always hold up well overseas. U.S wills aren’t always recognized by other countries, and trusts typically don’t operate as intended once the tax and probate laws of another jurisdiction come into play. Also, depending on where you live, your heirs may be subject to taxation on your estate if you die as a resident of a foreign country. In most cases, the United States offers a tax credit against any estate tax paid to a foreign country, but it’s important to have a plan in place to help ensure your heirs aren’t taxed on the same assets twice.
To overcome these estate planning obstacles, consider working with an international wealth manager and international estate planning attorney to help ensure you have the right documents in place and that your estate plan addresses:
- Any anticipated U.S. tax obligations
- Any anticipated tax obligations in your current country of residence
- The probate and succession process for every jurisdiction in which you own assets
#4 – Investing
A potentially costly mistake made by many U.S. expats is investing in foreign mutual funds. The U.S. tax code categorizes non-U.S. registered mutual funds as passive foreign investment companies (PFICs), and these investments are taxed very punitively by the United States. In addition, each PFIC must be reported annually on U.S. Tax Form 8621, which requires complex accounting and is very time consuming to complete.
Foreign brokerages rarely offer U.S.-domiciled investment funds, so it can be very easy to inadvertently invest in a PFIC in an overseas account. The best course of action is to avoid these investments entirely by maintaining a U.S.-based brokerage account while living abroad.
#5 – Healthcare
The cost of healthcare can vary widely between different countries, and finding adequate healthcare insurance abroad can be a challenging obstacle to overcome. Some countries are known for providing excellent public healthcare for foreign residents, while others offer limited coverage options.
Depending on your country of residence and employment situation, you may be eligible to participate in a national public healthcare plan. If you’re actively working for a company, you may even be automatically enrolled in the plan. Countries typically require you to make monthly contributions in order to access affordable care in public hospitals and clinics.
If you plan to move to a country that doesn’t offer public healthcare to foreign residents, you may need to purchase a private insurance policy. Fortunately, there are many international health insurance plans that provide similar coverage to U.S.-based plans. Your international wealth manager can help you identify a plan that meets your needs.
Could you use help navigating the financial obstacles you face as a U.S. expat? Creative Planning International is here for you. Our fiduciary wealth managers work with Americans living abroad and cross-border families to help them maximize their wealth and avoid costly mistakes. We understand the complex interaction of multi-jurisdiction tax and regulatory regimes and take into account currency, diversification, tax and other portfolio considerations as we help you plan and invest for the future.
