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5 Key Cross-Border Wealth Management Questions to Answer Before Moving Abroad

Jake Mongler, CFP®, MBA

Director of Financial Education

Last Updated
March 01, 2022
Town Hall of The City of Brussels

Global Wealth Planning Considerations as a U.S. Expat

When relocating from the U.S. to a new country, there are all the normal considerations — sorting out visas and housing, exploring your new surroundings, adapting to a new culture, etc. Equally important, though, is paying attention to protecting your wealth and avoiding tax traps. Here are five key global wealth management questions to answer before you make the move overseas.

Question #1 – Will Your Current Investment Strategy Still Work?

Strategies and investments that worked well in the U.S. may not work after you move. As a U.S. expat, you will have to navigate the complexities of cross-border investing. For example, U.S. mutual funds cannot be sold outside the U.S. Under its MIFID II regulations, the European Union will generally not allow EU residents (regardless of whether they’re EU citizens) to buy U.S.-based investment funds unless they’re working with a U.S. investment advisor. At the same time, U.S. citizens should also avoid buying non-U.S. investment funds that will be deemed tax-toxic passive foreign investment companies (PFICs) by the IRS.

Question #2 – Will Your Current Advisor, Custodian or Investment Firm Still be Able to Help You?

Due to compliance and regulatory complexities, many U.S. investment firms refuse to work with individuals outside the U.S. This could mean your current advisor or broker can no longer serve you once you’re overseas. Check with your financial service providers before you go rather than be surprised later when your options are much more limited.

Question #3 – How Will Your New Country Treat and Tax Your Current Investment Accounts?

Each country has its own unique tax laws. How your new country of residence will tax your U.S. investment and retirement accounts may be quite different than how the IRS taxes those accounts.

For example, Roth IRAs are a great way to save for retirement and avoid future taxation in the U.S., but the unique tax-exempt nature of Roth accounts is not recognized in many countries, such as Germany, Portugal and Japan. On the other hand, the UK and France fully recognize the tax-exempt nature of Roth accounts under the terms of their double taxation treaties with the U.S.

However, other countries including the Netherlands and Denmark allow you to take tax-exempt withdrawals but assess an annual tax on the Roth account balance.

Learn common misconceptions about navigating taxes as a U.S. expat.

Question #4 – Can You Break U.S. State Residency and Save on Taxes?

If you’re moving overseas for the long term, you’ll want to break state residency to avoid paying state income taxes. To ensure you don’t get a surprise state tax bill, you’ll need to take definitive actions — selling property, closing or moving bank accounts, dropping vehicle registrations, etc. You’ll likely also have to file a final part-year or non-resident state tax return and possibly make a declaration to the state tax authority to formally cut ties.

Question #5 – Will Your Estate Plan Work in Your New Country?

Estate planning is a key component of cross-border wealth management. Just as every country has its own unique tax laws, every country also establishes its own unique set of estate and inheritance laws and probate procedures. Even a simple will may fail to distribute your assets as you wish if its stipulations conflict with your new country’s succession laws.

Probate tools, such as revocable trusts, are designed for tax and legal efficiency in the U.S. but will not be effective in many other countries. Even worse, they may create unanticipated and punitive complications in those countries.

For example, many countries treat inheritance via a trust structure as coming from a third party and, therefore, subject it to a higher tax rate than if it came directly from a relative. Another potential risk is that your new country completely ignores your trust and, hence, your wishes. Even the UK — a country with a long tradition of using trusts — applies punitive taxes to trusts, depending on how they are structured.

Important Takeaways When Considering Global Wealth Management

Much of the world has strict forced heirship rules and high estate or inheritance tax rates. Before you move outside the U.S., ensure your estate plan doesn’t make an already difficult situation even worse for your loved ones. These five questions are simply the tip of the iceberg, but they’re important considerations as you start your new adventure off on the right foot.

Estate planning is a key component of cross-border wealth management for U.S. expats. Contact us if you’d like to discuss your unique situation and get help answering important expat questions. We at Creative Planning International are committed to helping Americans abroad navigate the tricky waters of cross-border wealth management.

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This commentary is provided for general information purposes only and should not be construed as investment, tax or legal advice, and does not constitute an attorney/client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.

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