What to Know If You’re Considering Moving Abroad

What to Know If You’re Considering Moving Abroad

The U.S. has always had something of a revolving door. While it has long attracted immigrants from all over the world, some citizens and long-time residents ultimately decide that their future lies elsewhere. They might want to emigrate for a career opportunity, to return to an ancestral homeland, or to experience a new climate and culture.

The proliferation of special visas and residency or citizenship schemes, such as “Golden Visas,” might make the prospect more compelling.

If you’re considering emigrating from the United States, you should be aware that extricating yourself from the U.S. financial system is not a simple matter. There are four key financial considerations: cross-border taxation, the dispensation of assets left in the U.S., estate planning, and the exit tax associated with expatriation. Your legal status with the U.S. (citizenship, permanent resident, or non-resident) significantly affects each of them.

• Tip: Do not make life-altering decisions about an international move or immigration in a silo. There are numerous financial considerations, including aspects of immigration, investing, taxation, estate planning, and wealth transfer, that merit careful review.

Cross-Border Taxation Basics

The U.S. taxes its citizens and permanent residents, regardless of actual residence. However, due to the availability of tax exclusions and credits, it is unlikely that anyone going to a relatively high-tax jurisdiction will face additional taxes. A U.S. taxpayer residing in a lower-tax country will find that the U.S. taxes become the dominant ones. Taxes on investments and other types of passive income can be more challenging. Cutting tax-reporting obligations to the U.S. is one of the main reasons people want to leave and give up their green cards after a few years, or even expatriate.

• Tip: U.S. citizenship or permanent residency can complicate tax filing requirements and make for extra paperwork, but it won’t necessarily increase your tax liability.

Assets in the U.S.

If you’re a U.S. citizen or permanent resident, most of your financial assets should probably be left in the U.S., especially retirement accounts, which become completely taxable if disbursed. This is because you will receive the proper tax reporting and have access to low-cost and ample investment options. In addition, many foreign institutions will not permit U.S. taxpayers to open accounts due to onerous regulatory burdens. Many people prefer to keep any real estate that they have in the U.S. as a good, long-term holding.

• Tip: There will be some complications from dealing with cross-border taxation, as investment income taxation can be more complicated, but keeping assets in the U.S is likely worthwhile.

Expatriation and the Exit Tax

Expatriation is the process of renouncing your legal standing in the U.S. if you are a citizen or have been a long-term permanent resident. For some people, this may trigger an exit tax, or a deemed disposition of their assets to true up their tax liability to the U.S. This means a tax on any unrealized gains and other types of eventually taxable accounts, like IRAs. The tax calculation is complicated and is absolutely dependent on your personal financial holdings. However, it can be significant enough that some people choose to keep their U.S. status and continue the annual tax reporting. Importantly, an expatriation can lead to an undue estate tax burden on remaining U.S. heirs.

• Tip: Leaving the U.S. is simple; eliminating your U.S. tax requirements is not. The process of renouncing your U.S. citizenship or long-term residency can be expensive and has major financial consequences.
• Tip: Many people are not prepared for the U.S. exit tax. Get educated and get planning!

Estate Planning for U.S. Citizens

Compared to many other countries, America has far more generous estate planning legislation, offering greater flexibility and less burdensome taxation. These advantages alone convince many emigrants to retain their U.S. status.

• Tip: Estate planning is the most overlooked area of one’s financial affairs. Estate taxes and expenses can take a big bite out of your legacy to your heirs if not thought through. Having U.S. citizenship can be a benefit when it comes to wealth transfer.

Why Cerity Partners?

At Cerity Partners, our cross-border team understands the unique challenges of global individuals and families. Wherever you call home, our cross-border financial advisors are here to serve as your advisor, advocate and sounding board.

Learn more today: Schedule your complimentary 30-minute discovery call so we can understand your financial and life goals and match you with the advisor best-suited to help.