Use an Expat Fiduciary Financial Advisor for Smart Financial Decisions
As a U.S. expat, you’ve likely encountered multiple financial challenges in your time living overseas. From multi-jurisdiction tax complexities to investment restrictions to ever-changing regulatory requirements, it can be difficult to know whether you’re making decisions in the best interest of your long-term financial health.
Fortunately, you don’t have to do it alone. An expat fiduciary financial advisor who has experience working with Americans abroad can help you make smart decisions regarding your income, investments, taxes, savings, estate planning and more.
What Is a Fiduciary Financial Advisor?
A fiduciary financial advisor is held to fiduciary duty standards, which means he or she is legally obligated to act in clients’ best interests. As part of that fiduciary responsibility, fiduciary advisors have both a duty of care and a duty of loyalty.
- Duty of Care – This duty includes not only providing advice in the client’s best interest but also executing that advice in the best way possible for the client. The duty of care standard also requires that the fiduciary advisor provide ongoing advice and guidance throughout the life of his or her relationship with the client.
- Duty of Loyalty – This duty requires the advisor to put clients’ interest ahead of his or her own. It further obligates the advisor to provide clients with full and fair disclosure of all material facts relating to the advisory relationship. Furthermore, the advisor must seek to eradicate, or make the client aware of, all conflicts of interest.
How Are Fiduciary Advisors Compensated?
Fiduciary financial advisors are typically paid a percentage fee based on the assets they manage for a client. This fee structure helps align the advisor’s interests with those of the client, because the advisor’s fee grows in proportion with the client’s assets.
In contrast to fiduciary financial advisors, some advisors charge a commission and generally conduct transaction-specific recommendations. These advisors are not required to provide comprehensive advice consistent with the client’s long-term financial goals. Instead, these advisors are held to a best interest standard, which simply requires that an investment be suitable for the client at the time of the recommendation. This means the advisor must have a reasonable basis to believe that a recommended transaction or investment strategy involving a security is suitable for the client.
However, because they’re often paid commissions for the investment products they sell, advisors operating in this capacity may be incentivized to push certain products over others or make frequent portfolio transactions. This incentivization can create a conflict of interest between what’s best for the client and what’s most profitable for the advisor.
Why Is It Important to Work With an Expat or Cross-Border Fiduciary Financial Advisor?
There are several reasons why choosing to work with a fiduciary advisor is vital to your long-term financial success as a U.S. expat.
#1 – Multi-Jurisdiction Tax Complexities
U.S. taxes are based on citizenship, not place of residence. This means even if you have no U.S. tax liabilities as a U.S. citizen living abroad, you’re still required to file taxes in the U.S. As you can imagine, this creates multiple challenges for those living overseas. And a newer piece of legislation, the Foreign Account Tax Compliance Act (FATCA), implements strict penalties for U.S. expats who fail to file with the IRS.
If you’re working and earning in a foreign country, you may be able to exclude much of your income from U.S. taxes, thanks to the foreign earned income exclusion (FEIE), the foreign housing exclusion or deduction (FHE) and foreign tax credits (FTC). However, there are some specific requirements you must satisfy in order to be eligible for these exemptions. A qualified fiduciary advisor can help you take advantage of these tax-saving opportunities.
In addition to helping you understand the best application of the FEIE, FHE and/or FTC, a qualified fiduciary advisor, in collaboration with an experienced tax professional, can also:
- Counsel you on what’s needed to establish a “tax home” for filing purposes
- Guide you on the tax filing requirements of foreign bank accounts
- Help you weigh the pros and cons of owning non-U.S. real estate
#2 – International Investment Considerations
As a U.S. expat living abroad, you need to be careful about what you invest in. For example, passive foreign investment companies (PFICs) have significant tax consequences for American citizens. Also, most Americans living overseas tend to maintain portfolios significantly skewed toward U.S. investments, which may not be the best approach for your specific situation.
A qualified fiduciary advisor with experience navigating the complexities of cross-border investing can help you establish a globally diversified portfolio that aligns with your financial goals, helps you avoid common investing pitfalls and mitigates currency risks.
#3 – Estate Planning Complexities
If you’re an American living abroad who wishes to leave a financial legacy for family members back in the U.S., you’ll likely face several financial planning challenges. For one, if you drafted an estate plan before moving overseas, it’s likely subject to an entirely new set of laws in your host country. If you didn’t consider these local laws when drafting your documents, your assets may not pass to your loved ones as you intended, especially in countries with forced heirship regimes.
A qualified fiduciary advisor, along with an estate planning attorney, can review your estate plan in light of your current expat status, making any adjustments necessary to ensure it holds up to both U.S. and foreign laws. Several important estate planning complexities an advisor can help you navigate include:
- Wills and Trusts – Does it make sense to create multiple “situs” wills to distribute property in various countries? Will your existing trusts hold up while you’re living overseas? How are trust assets taxed in your country of residence? How are trust assets taxed by the U.S. for beneficiaries receiving assets?
- Gifting Strategies – How will local gift tax rules impact your gifting strategies? Does it make sense to gift assets via a 529 college savings plan for a loved one’s college education? What are the tax impacts of other gifting strategies, such as gifting appreciated assets to non-resident spouses?
- Estate Planning for Families with a Non-U.S. Citizen Spouse –How does being married to a non-U.S. citizen impact your tax situation? How will you decide which assets to share and which to keep separate? How do unique U.S. tax rules impact your specific financial situation? What are the most effective strategies for owning and transferring assets in a tax-efficient manner as a mixed-nationality couple?
#4 – Retirement Planning Challenges
Whether you are currently working and saving for retirement or have decided to retire overseas, a qualified fiduciary advisor can assist you in navigating your retirement planning challenges by helping you to:
- Establish tax-efficient savings for retirement income
- Navigate the complexities of required minimum distributions (RMDs)
- Make qualified charitable distributions (QCDs) from your IRA
- Understand the complex international tax implications of Roth IRAs
- Ensure you’re partnered with the right custodian for your unique situation
Are you ready to work with a qualified fiduciary advisor? At Creative Planning International, we specialize in helping expats and cross-border families maximize their wealth and avoid costly mistakes. We understand the complex interaction of multi-jurisdiction tax and regulatory regimes and help clients develop operationally and financially efficient wealth management strategies customized to their unique set of circumstances. Because we serve in a fiduciary capacity, you can be confident we’re acting solely in your best interests.
Moving abroad doesn’t need to derail your financial goals. Give us a call — we’ll be happy to help.
To learn more, request a meeting with a member of our team.