It is estimated that over six million U.S. citizens live abroad…meaning that it’s likely that you know an American citizen whose primary residence is in a foreign country. Reasons for choosing to live abroad are varied including job opportunity or simply the chance to experience another culture. Packing up and moving to another country is a big decision, but what folks often underestimate are the financial complexities involved. Here are a handful of ‘nuances’ from financial planner Bryan Hancock, CFP, who specializes in working with expatriates:
· Income taxes. The U.S. is the only country that taxes its citizens on worldwide income, regardless of where they live. In addition, expatriates may be liable for state income tax, regardless of how long they have been gone. This creates a very complex and expensive tax situation that may outweigh the perceived tax benefits for Americans living abroad.
· Retirement planning. There are complex tax issues around access to retirement plans, especially for a non-working expatriate spouse. Careful planning is required in deciding whether to locate your retirement assets in the U.S. or your host country. The best answer is often one or the other but not both countries.
· Estate planning. While planning to minimize or eliminate estate taxes for U.S. citizens is not a concern under current law, expatriates could face estate taxes by virtue of the fact they reside in a foreign country. With a worldwide recession, host country governments are looking for new forms of revenue and may seek to tax your wealth at your death, regardless of where it is located. Estate and transfer matters can be complicated, and this is an area that is often completely overlooked.
· Healthcare. While we often complain about healthcare in America, we enjoy the best healthcare in the world. For the expatriate without a traditional “expat package,” access to quality, coordinated care can be an enormous problem, especially for retirees or the self-employed.
· Asset protection. In America it is often a simple process to set up a legal and insurance structure that will protect assets. However, for the expatriate, the issue is much more complex, and some of the most common assumptions don’t apply to automobile, liability, health insurance and long-term care coverage and other common asset-protection techniques.
· Repatriation – The longer one is abroad, the more complex the issues are when it’s time to move back. Many expatriates report having difficulty reestablishing even some of the most basic financial services when returning home.
· Financial advice. One of the top challenges for American expatriates is finding professionals who can give advice that fits the context of their complex situation and who have a complete understanding of the nuances of cross-border living. The non-expatriate who has accumulated substantial financial resources commonly has three or four advisors – a tax preparer, an estate planning attorney, an investment advisor and a trusted insurance agent. For the American expatriate, this is difficult to duplicate. Service from investment brokerage firms may also be problematic. As these companies react to the Foreign Account Tax Compliance Act (FATCA), obtaining services overseas can be difficult. At the same time, some U.S. firms refuse to work with Americans who have a foreign address.
Bryan goes on to recommend that, as an expatriate, you should make the effort to build both a social and professional network among fellow expatriates. The shared experiences of dealing with challenges can provide shortcuts to your own learning experience.
If you are considering living abroad or know someone who does live abroad, I encourage you to get a copy of Bryan’s white paper titled, “A Financial Guide for the American Expatriate”. It is full of useful information and answers the most important questions for expatriates. For your free copy, email me at Stewart@welchgroup.com and write ‘Expatriate White Paper’ in the subject line.