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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Sprache: Englisch
Make sense of international personal finance with expat-specific expert advice The Cross-Border Family Wealth Guide is the long-awaited financial handbook for cross border families, with expert insight from a financial advisor who specializes in expat issues. Whether you're an American living abroad, or foreign-born and living in the U.S., this book demystifies the complex issues surrounding the worldwide tax system, international information reporting, sensible investments, international real estate, and retirement planning. When your wealth crosses international borders, managing even the most mundane financial affairs can become wrought with time-consuming complexity; moving money, opening accounts, dealing with currency risks and translation, and setting up investments suddenly involves a whole new set of rules and regulations. Your 401(k), IRA, or annuity must be handled properly to retain certain tax benefits, and retirement planning takes on a brand new dimension of difficulty. This book shows you how to navigate the maze to make sure your money keeps working for you. Real world examples illustrate solutions to common problems, and real, actionable advice gives you a solid plan for your next steps. While personal finance management is rarely simple, the recent crackdown on tax havens and increased tax collection vigilance has made things even more difficult for cross border families. This book answers your questions, and shines a light on the way forward to long-term financial security for international families. * Navigate the complexities of international taxation * Get specific guidance on retirement planning * Make sense of how real estate fits into your financial picture * Invest appropriately to maximize growth for the future * Manage your assets and tax benefits across borders With the right know-how, cross border professionals can make sensible investment and financial planning decisions, but credible guidance is rare and difficult to find. Simple and practical, with targeted advice, The Cross-Border Family Wealth Guide is the international family's solution for avoiding financial confusion.
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Seitenzahl: 429
Veröffentlichungsjahr: 2017
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Table of Contents
Title Page
Copyright
Dedication
Foreword
Preface
Our Firm: Worldview Wealth Advisors
Worldview's Founder, Andrew Fisher: A Personal Pledge
Acknowledgments
About the Author
Part I: The Financial Challenges of a Cross-Border Life
Chapter 1: Who Are These Cross-Border Families?
The Growing Need for a Definitive Guide
Who's Who: Who This Book Is Meant to Serve
Diagramming a Cross-Border Person: Residency and U.S. Income Tax Status
How Many Cross-Border Professionals and Families Are There?
Chapter 2: Unique Challenges and the Regulatory Landscape
The Unequal Nature of Tax Regimes and Reach
The Unique Worldwide Reach of the U.S. Tax System
A Changing Legal, Financial, and Regulatory Landscape
Part II: Saving and Investing: Building Your Personal Net Worth
Chapter 3: Building a Strong Foundation
Retirement Destination Unknown: Invest Globally
Wealth Creation and Accumulation
Diversification: Protecting and Growing Wealth
Allocating Your Net Worth: A Balance Sheet Approach
Cash and Cash Equivalents
Personal Residences
Income Property
Publicly Traded Securities: Stocks and Bonds
Concentrated Business Ownership
Personal Debt
Collectibles and Other Hard Assets
Other Private Investment Vehicles
Conclusion
Chapter 4: Investing in the Markets: Stocks and Bonds
Three Important Attributes
Stocks and Bonds Work Better Together
Managing Emotions While Focusing on the Long Term
Stock Picking—Maybe Not
Investment Advice to Live By
Determining Investment Goals and Objectives
Four Common Investor Objectives Defined
Fundamental Investment Guidelines
A Jurisdictional Review: Where to Hold Investments?
Problems with Maintaining Accounts in the United States
The Best Choice for Many People
Part III: 401(k)s, IRAs, and Other Pensions and Savings Plans
Chapter 5: A Global Approach to 401(k)s and IRAs
Investing Your Serious Money
401(k) Plan Basics
Key Benefits of 401(k) Plans
Global Investing for a Global Retirement
401(k) Plans Lack a Global Perspective
Target Date Funds: A Lot to Like and Dislike
IRA Rollovers
IRAs Offer Distinct Advantages
Owning Real Estate Within an IRA
Leave It Alone and Let It Grow
Chapter 6: Unique Cross-Border 401(k) Issues
A Lack of International Tax Agreement
Do the Benefits of a 401(k) Follow You?
How Are Distributions Taxed?
Contributions to IRA Accounts While Living Abroad—Be Careful
Chapter 7: Foreign Retirement Plans, Pensions, and Other Savings Accounts
Foreign Retirement Plans
Roth IRAs and Roth 401(k)s
Traditional Pension Income
Educational Savings: 529 Plans
Finding Good Advice Is a Challenge
Part IV: Real Estate
Chapter 8: Renting, Owning, and Investing
Crazy for Real Estate
Real Estate Appreciation Likely to Slow in Future
Primary Residences and Vacation Homes
Real Estate as an Investment
To Rent Out or Sell a Former Home
Chapter 9: Real Estate Taxation and Other Considerations
Basic Tax Treatment of Real Estate
Foreign Properties Often Not Reported to the IRS
Owning Property Inside of an IRA
Other Cross-Border Considerations
Part V: Cross-Border Taxation
Chapter 10: Understanding the Three Types of Cross-Border Families
The Unique Complexities of Cross-Border Taxation
Tax Profiles: Three Types of Cross-Border Families
Becoming a U.S. Resident for Tax Purposes
Tax Treaty Basics
Chapter 11: U.S. Tax Overview: Federal and State
Taxing Worldwide Income: The IRS Is Different
State Income Taxes
Chapter 12: Additional Tax-Planning Considerations
Investing Outside of the United States—Avoiding PFIC Rules
Foreign Asset Reporting and Tax Evasion
Other Forms of Taxation in the United States
Prearrival Planning
Part VI: Retirement Planning
Chapter 13: Planning for a Global Retirement
Where to Retire? A Common Dilemma
Investing for Retirement
Having Enough Money to Retire
Organizing and Optimizing Worldwide Income and Assets
Chapter 14: Considerations for Cross-Border Retirees
Tax Planning for Retirement
Cash Management and Account Administration
Social Security and Foreign Government Pensions
Drawing on Tax-Deferred Accounts
Conclusion
An Overview of Key Points
Final Thoughts and Words of Encouragement
Index
End User License Agreement
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Guide
Cover
Table of Contents
Begin Reading
List of Illustrations
Chapter 1: Who Are These Cross-Border Families?
Figure 1.1 Who's who for the purposes of this book
Chapter 3: Building a Strong Foundation
Figure 3.1 A balance-sheet approach to diversification and asset allocation
Figure 3.2 Determinants of Portfolio Performance
Chapter 4: Investing in the Markets: Stocks and Bonds
Figure 4.1 The chart on the left shows an example of stock allocation for a younger, growth-oriented investor. The chart on the right shows an example of stock allocation for a retiree who is more conservative.
Chapter 11: U.S. Tax Overview: Federal and State
Figure 11.1 How U.S. federal income taxes are calculated
The Cross-Border Family Wealth Guide
ADVICE ON TAXES, INVESTING, REAL ESTATE, AND RETIREMENT FOR GLOBAL FAMILIES IN THE U.S. AND ABROAD
Andrew Fisher
Copyright © 2017 by Andrew Fisher. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions.
Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.
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Wiley publishes in a variety of print and electronic formats and by print-on-demand. Some material included with standard print versions of this book may not be included in e-books or in print-on-demand. If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com. For more information about Wiley products, visit www.wiley.com.
Library of Congress Cataloging-in-Publication Data:
Names: Fisher, Andrew, 1971– author.
Title: The cross-border family wealth guide : advice on taxes, investing, real estate, and retirement for global families in the U.S. and abroad / Andrew Fisher.
Description: Hoboken, New Jersey : John Wiley & Sons, Inc., [2017] | Includes index.
Identifiers: LCCN 2016039868 | ISBN 9781119234272 (hardcover) | ISBN 9781119234296 (ePDF) | ISBN 9781119234289 (epub)
Subjects: LCSH: Americans—Foreign countries—Finance, Personal. | Aliens—United States—Finance, Personal. | Families—Finance, Personal. | Estate planning. | Wealth—Management. | International finance.
Classification: LCC HG179 .F53378 2017 | DDC 332.0240089/13—dc23
LC record available at https://lccn.loc.gov/2016039868
Cover Design: Wiley
Cover Image: © Ian McKinnell/Getty Images, Inc.
This book is dedicated to my three wonderful children—Ella, Mack, and Vivian. I love you guys like the whole world.
Foreword
Tim Kochis JD, MBA, CFP®
For well over 40 years, I have had the great professional gratification of helping clients to optimize the achievement of their personal financial goals. The first third of that time was focused nearly entirely in the United States, and for clients with virtually no tax or investment or financial issues that extended beyond the U.S. border. Times, of course, have changed dramatically. Business, capital flows, and, importantly, human talent are increasingly globalized. Our clothes, our cars, our food, our neighbors, even our spouses and partners, often come from some other country; the same is true for residents of Italy, or Malaysia, or Chile. But, awareness of related financial issues and the optimization of financial consequences for those whose lives cross-national boundaries hasn't kept pace. In recent decades, I've been privileged to be a small part of a large effort to develop a global profession of personal financial planners, under the certification rubric of the CFP® mark. The number of these professionals and those on a pathway to this certification around the world now exceed well over 200,000. But this is a still tiny response to the immense global need—and, sadly, almost none of these have genuine competency to practice outside of their own country's laws and domestic financial structures. There remains a huge challenge and lots of room for further professional development ahead. Perhaps ironically, due to its size, prominence, and highly unusual and exceptionally complex tax laws, the biggest part of that challenge exists in, and because of, the United States.
So, here, finally, is a book that speaks to this most underserved set of personal financial planning issues! Andrew Fisher's Cross-Border Family Wealth Guide comes to the rescue of those many (perhaps 30 to 40 million people around the world, with 20 to 25 million of them in the United States) who may not even realize that they need to grapple with tax, financial, and investment requirements and opportunities that are extraordinarily complex and often surprising, where mistakes are usually costly, and for which there is, today, almost no competent, comprehensive assistance readily available. This guide sets out an easy-to-grasp understanding of how to recognize the unique problems faced by non-U.S. persons with any financial connection to the United States (residence, job, inheritance, property, etc.) and by U.S. citizens with any parallel connection (residence, job, inheritance, property, etc.) outside the United States. But more than just entering into this sometimes nightmarish terrain, The Cross-Border Family Wealth Guide reveals proven pathways out.
Fisher is quick to acknowledge that he doesn't have all the answers; but then, no one person does—and there are very few who are even somewhat conversant with some of them. That is one of the core problems this book attempts to solve. Fisher shares decades of experience of practical solutions to very common issues and some that are uniquely challenging. And, he points the reader in the direction of more in-depth assistance where more specialized resources are required. For the many individuals and their families in need of this guidance, none of their issues are “common.” For each of them, the problem of navigating these challenges is direct, unique, and very often urgent. For many, this book will provide the complete answer; for others, it will permit a better-informed, more self-confident use of the additional advice that might be required.
The Cross-Border Family Wealth Guide makes an important contribution to the achievement of better financial outcomes for potentially very many people. The author's combination of talent and specialized experience is quite rare, but there is no attempt to self-promote or self-aggrandize here. Andrew Fisher's book reflects a genuine commitment to help.
Preface
The goal of this book is simple: to help cross-border professionals and globally mobile families to understand their personal long-term wealth management goals and align their assets and strategies to best achieve those goals, while minimizing taxes and other expenses, and reducing and controlling risk.
Whether you scan the table of contents, look for a specific issue in the index, or just read each chapter straight through, you will likely find information in The Cross-Border Family Wealth Guide that will shed light on critical financial questions and issues facing you and your internationally oriented family, including:
Relocation, expat assignments, and immigration
Banking, currencies, and cash management
Real estate—both residences and for investment purposes
Taxation in the United States and abroad
Entrepreneurialism and business ownership
Investments and asset allocation
Retirement planning
Estate planning
Every attempt has been made to make the information in this book as accurate, timely, and usable as possible. But since (a) every family's situation is unique, (b) financial rules, regulations, and treaties are constantly changing, and (c) international financial issues often involve great complexity, in almost every case it will make sense for you to seek out qualified, competent, and caring professional advisors to assist you. At least have someone look over your shoulder and check your assumptions; in most cases, it's worth spending the time and effort to find an individual or firm to work closely with. Please allow us to take this early opportunity to say a little about our firm and its founder.
Our Firm: Worldview Wealth Advisors
The members of our professional team here at Worldview have a passion for all things international, from travel and languages to culture and, of course, investing. That is, we were drawn to cross-border wealth management because we had a passion for international people, culture, and financial matters in the first place. We also enjoy learning and seeking answers to questions, which is a good thing, because wealth management laws and strategies for cross-border families are always changing and evolving. There is always something new to learn and apply.
Along with our international focus, our firm is dedicated to being a true holistic wealth advisor. We do not have commissioned salespeople who are always angling to make the next sale or otherwise generate a commission. Instead, we specialize in advising clients through a personalized financial planning process, for which we charge a fixed one-time fee. For clients who want our ongoing help with managing their investments, we work on a fee-based model—charging a small percentage of the total amount of financial assets that we oversee—which allows us to better sit on the same side of the table as our clients.
We abide by a fiduciary standard; we do what is right for our clients and put their best interest first. Because we employ a professional advisory approach rather than the more traditional sales-focused approach of most financial advisors and stockbrokers, we are able to focus our time on first understanding our clients challenges, and then finding solutions and answers for them. Furthermore, our professionals have the highest level of credentials in our industry, including CPA (certified public accountant), CFA (chartered financial analyst), and CFP (certified financial planner).
For over a decade now, we have operated in this advisory manner and professionally dedicated ourselves to learning about all of the issues and questions facing cross-border families. Over time, we have worked hard to consolidate much of what we have learned into the volume you are now holding. What you find in The Cross-Border Family Wealth Guide, then, is the result of our research and experience in working with hundreds of families with cross-border issues, as well as what we have learned from interviews held with dozens of cross-border experts working in this area.
Worldview's Founder, Andrew Fisher: A Personal Pledge
As a CFA (chartered financial analyst) and a CPA (certified public accountant), there are many directions I could have taken my career. I chose to focus on advising cross-border families not only because I enjoy the intellectual challenge and constant learning that is required, but also because I love meeting and getting to know the many exceptional people who come my way.
Our firm's clients tend to be extremely interesting, globally oriented, multicultural, highly intelligent, and well-educated people. They are generally very appreciative not only of the quality of the investment, tax, wealth management, and long-term planning advice that we provide, but of our inherent appreciation for who they are and what they have accomplished.
For all these reasons, I have personally dedicated myself to doing whatever it takes to make sure that we give our clients the best possible advice. For example, we consciously cultivate and rely on a large network of trusted professional partners and colleagues in many different fields, an absolutely necessity given that no single professional or firm can keep track of it all.
In just the same way that I have dedicated myself to helping my clients, I have also pledged myself to putting together the best possible, most understandable, and most useful book that I could. If you are reading this, I want you to know that I am committed to your long-term financial future and to helping you and your family not just survive, but thrive, wherever you are in the world.
Andrew Fisher
Acknowledgments
I want to first thank my dear friend and long-time business partner, David Colvin, who is with CLVN Tax and Financial Advisors in Amsterdam, The Netherlands. His friendship and our intellectual banter have been a constant part of my life since we met at university in 1989, and it was with his encouragement that I began to specialize in cross-border wealth management so many years ago. He taught me the basics of cross-border taxation, and our wealth management brainstorming sessions have been the single most important contributor to my growth over the years into an expert in this field. Thanks DC!
I would like to express my gratitude to Tim Kochis, who in addition to writing a terrific forward for this book, has been a wonderful supporter and mentor to me since we met in San Francisco. He is a big picture thinker and a true visionary for our industry. I really appreciate him taking an interest in me and in my vision for Worldview.
I have been fortunate to have gotten to know many respected professionals working in various fields of cross-border advice, including business and estate planning attorneys, tax advisors and accountants, bankers, HR professionals, immigration attorneys, association leaders, insurance brokers, and relocation providers. I'm glad to have been welcomed into the world of cross-border advice by these professionals, and many of them were very generous with their time by allowing me to interview them for this book. During these interviews I was able to learn about the most common questions and challenges they see among their clients, which helped me to expand the advice within this book greatly.
I want to make a special mention of the contributions of Russell Mansky, who is with Spott, Lucy & Wall CPAs in San Francisco. He has a vast and technical knowledge in the area of cross-border taxation, which he so generously put to use in his review of certain chapters of this book. Other professionals who generously contributed their knowledge to this effort include: Jordi Argente, Shaun Dublin, Ming Fang, Stephen Foster, Jacob Glickman, Michael Gottschalk, Jason Graham, Scott Jones, Gary Kaplan, Eng Khoo, Vince Lau, Gopal Shah, Carol-Ann Simon, Carole Jodi Trent, Mark Walters, Mark Weaver, and Ajay Whitmore.
I'm lucky to have found a small but passionate group of employees and colleagues who've shared in my journey of building Worldview into the leading wealth management firm serving cross-border families. I want to acknowledge my current and former team members for their significant contributions to this effort, and for their genuine and unfailing concern for serving our clients and their best interests.
The cross-border area of wealth management is highly complex and is always changing. As such, to be successful one must be energized by the need to constantly research and learn new things. I've been fortunate to have a wonderful community of wealth management peers to rely upon throughout my journey. I'd like to especially thank all of my friends at the CFA Society of Portland, and in particular the people with whom I served on the Board of Directors for so many years. Also, I very much appreciate the FPA and financial planning community around San Francisco for welcoming me and for inspiring me to continue to make financial planning a larger element of my firm's core value proposition.
I want to recognize the significant contributions of my writing partner, Jordan Gruber, to this project. His professional skill and passion for doing good work, combined with the personal interest he took in my project, without question made this a far better final product. Throughout the two years it took to finalize my manuscript, Jordan never waivered in his commitment or his optimistic outlook for what this book would become. We did it!
Thank you to my parents for inspiring me to seek out new challenges and international experiences, and for instilling me the confidence that with hard work I can accomplish anything I put my mind to. And finally, I'd like to thank my family for their wonderful support throughout this project. My wife and three wonderful children have always been there for me, and their love and support make me tremendously happy.
About the Author
Andrew Fisher is widely regarded as a leading wealth advisor to cross-border families. He frequently writes and speaks to the unique financial planning and investment complexities faced by international families, particularly when an individual is a tax resident of the United States.
With a broad base of experience in international investing, taxation, and wealth planning, Andrew enjoys helping clients find creative solutions to complex financial problems. More than having all the answers, he prides himself on being able to identify the most critical financial questions clients face and then build a team of experts to find solutions.
Andrew is the president and founder of Worldview Wealth Advisors, an independent wealth management firm advising globally oriented families—both Americans living abroad and foreign citizens living in the U.S. In addition to leading the investment team, Andrew serves as senior client advisor. In this role, he assists families with their complex, multinational affairs, seeking to optimize wealth, which is often located in multiple countries.
Prior to founding Worldview, Andrew was an international stock research analyst for Montgomery Asset Management in San Francisco. Previously, he worked in international research at Donaldson, Lufkin & Jenrette (now Credit Suisse) and HSBC Securities, both in New York City. He began his career with PriceWaterhouseCoopers in Los Angeles.
Andrew graduated cum laude from Cal Poly University, San Luis Obispo, with a degree in finance and a minor in Spanish. He also completed a year of study at the University of Madrid in Spain. He holds CFA and CPA credentials, and is actively involved with FPA and STEP organizations.
When out of the office, Andrew can be found enjoying the San Francisco Bay Area with his wife and three children.
PART IThe Financial Challenges of a Cross-Border Life
CHAPTER 1Who Are These Cross-Border Families?
There remains little doubt that in the twenty-first century, capital—the factors of production and the resources that make it possible to grow wealth—has become fully globally mobile. Like water seeking its own level, capital invariably flows to where it will be most valued and provides the greatest returns. We tend to think of capital first and foremost as financial capital, but financial capital is not the only kind of capital. In fact, globally mobile financial capital is almost always supported by something else: globally mobile human capital, that is, cross-border professionals and their families—people with the skills, talents, and drive to succeed and rise to the top, and who are willing to go wherever in the world they find the most opportunity.
Put differently, the large, powerful international companies and interests who deploy their financial capital where it is most advantageous also know that the best and most effective professionals, managers, and other high-level employees for any given situation usually do not come from only one country, including the country the company is headquartered in. These companies regularly recruit, hire, and redeploy professionals to assist, enhance, and even anchor their efforts in different countries depending on the company's overall strategic and tactical needs and the situation at hand.
As a result it is increasingly common to find top-notch individuals who start with a company in one country (usually where they are born), then move to work in another country (often but not always with the same company), and then go on to yet another country or perhaps back to their country of origin. Over time (and sometimes very quickly) these individuals invariably accumulate assets of various types in more than one country; and, over a decades-long career arc, things can—and usually do—become very complicated.
International professionals have families, parents, children, and other relatives. They have dreams, goals, desires, and long-term plans. And like everyone else, they have personal responsibility for making many significant decisions regarding the long-term management of the wealth they accumulate.
But these individuals must also face a bit of a quandary. On the one hand, the spirit that led them to excel and become desirable professionals, thought leaders, and managers of all types is the very same spirit that makes them want to achieve the very best for themselves and their families in the financial long run. On the other hand, the desire to intelligently grow and manage personal wealth can be frustrated or outright quashed by insufficient information, overwhelming details, and a dramatic shortage of places to turn for help.
The purpose of this book, then, is to assist cross-border professionals and their families, and in particular those with a financial connection to the United States, to make better, smarter, and more optimal personal financial and wealth management decisions, both in the short term and long term. Managing wealth efficiently and effectively is never easy and always takes careful thinking and planning, but cross-border professionals and their families—even the best and brightest of a class of individuals who are by definition at the top of the international class—find themselves in a particularly tricky and potentially problematic situation.
The Growing Need for a Definitive Guide
In 10 or 20 years, perhaps, we will look back and wonder with amazement how it was that as late as 2014, when initial drafting on this book began, there was no comprehensive guide to help cross-border families with personal financial decisions and the long-term effective management of their wealth. That is, as made clear throughout this chapter, cross-border professionals and other globally mobile families wishing to align their financial assets and strategies with their long-term goals and life planning objectives currently face a distinctly uphill battle.
Not only do they face three unique challenges—lack of uniformity, complexity, and scarcity of helpful resources—but also, they find themselves smack dab in the middle of the rapidly changing legal, financial, and regulatory landscape described in the last section. And then, on top of all that, while the community of cross-border professionals and globally mobile families is growing dramatically, the number of firms and individual advisors qualified to help them is simply not keeping up.
More and more, talented professionals from all around the globe are found working—all around the globe. If nothing else, the increasing economic expansion of emerging nations in Latin America, Eastern Europe, and emerging Asia, as well as the continued long-term expansion of China and India, is only going to create more opportunities for education, advancement, and cross-border work scenarios for exceptional and successful individuals living in all those places.
At the heart of this trend, of course, we come back to where this chapter started: to the global mobility of capital, including the human capital that goes along with it. This growing global mobility of capital, then, is coupled with the fact that outstanding individuals of all types, whether they are from a small village in India with only dirt roads or from a privileged background in London, are being sought out by companies and organizations and asked to relocate—often to the United States, which is still the world's strongest economic engine. So then, just as there has never been more global mobility of capital, there has also never been more global mobility of talented individuals of all kinds, from programmers and coders to security experts to managers and marketers to entrepreneurs and those who support them.
At my firm, Worldview Wealth Advisors, we have long recognized the lack of good information, advice, and places to turn to related to wealth management for cross-border families. Given the growing need, we simply felt that now was the time to pull together what we've learned about all of these issues and put it in a place where successful cross-border people from around the globe can access it and benefit from it.
Put differently, the need for a definitive guide at this point in time simply felt obvious to us. This volume is our response to that need by attempting to pull information together and provide usable, practical answers for those who are not in a position to afford to bring together their own high-level advisory team of financial advisors, attorneys, and tax professionals. And even for those folks who can afford to pull together their own professional team, we believe this book will provide a tremendous head start, because it looks at issues comprehensively and systematically. That is, when an expert is consulted with deep knowledge of a single cross-border relevant area like tax, real estate, investing, or immigration, he or she may not have a sufficiently robust understanding of the big picture to be able to offer advice that is digestible, relevant, optimal, and usable. With The Cross-Border Family Wealth Guide at your side, you'll be better informed, better able to work with the professionals you consult, and more able to achieve your goals in the long run.
Who's Who: Who This Book Is Meant to Serve
This book is intended to serve globally mobile families who have a financial connection to the United States, either by being a citizen or resident of the United States or by simply having assets located here. There is a relatively large community of people throughout the world who have financial affairs in both the United States and at least one other country. International or cross-border knowledge workers and other middle- and senior-management professionals, usually working for large corporations, constitute the majority of this community, but of course there are retirees, students, and children as well.
Some of these individuals are originally from the United States, and their knowledge and skills have brought them overseas. More often, people born outside the United States with substantial knowledge and skills are brought here and then stay for a while, and some stay permanently.
Often, top-notch individuals (and their families) move from one country to another, and then to still another, so that before coming to the United States they may have previously lived and worked in one or more other countries. Along the way, these cross-border professionals may accumulate personal relationships as well as financial accounts, real property, and other assets. And then, one day, these individuals may end up inheriting property or money from their parents—or their parents' parents—money and property that is located in a country other than the United States.
Examples of Who Might Benefit from This Book
For example, suppose a brilliant young Swiss marketing executive works for a major company in Switzerland. She is then brought over to the Hong Kong office before being further promoted and transferred to U.S. headquarters. Along the way, she leaves certain bank accounts, retirement funds, and other assets in both Switzerland and Hong Kong. Before coming to the United States, though, she falls in love with and marries a Chinese man, with whom she has two children. The whole family then moves to the United States, and while the children will obviously be of Swiss-Chinese descent, they will grow up in the United States.
Education is often a strong priority for international professionals, given their exposure to language, cultures, history, and travel. It's not surprising that by the time they are done moving through the U.S. school systems, their children will talk like, think like, and act like Americans. But at the same time, these children will also have their national history and background, and in some cases, their citizenry, in more than one country. Whether or not the children grow up in the United States, it is very common for cross-border professionals to want their children to get their college education at U.S. institutions, which are very well-regarded internationally.
Let's consider another example: a high-level programmer from India who works for a while in London, and then gets transferred to Chicago, New York City, or the Silicon Valley. Regardless of whether he ever moves back to India, he will likely accumulate assets of various types along the way. Bank accounts, retirement accounts, brokerage accounts, real property, and business interests might be part of the equation, not to mention such things as precious metals, collectibles (paintings, antiques, jewelry), and other items of value.
Something else he is likely to gain along the way is a family—a wife and children. Successful young people with busy lives often do not spend a great deal of time focusing on their assets and planning for the future, but with family and increasing maturity generally comes a heightened sense of awareness and responsibility. As the need to intelligently plan for the short, medium, and long-term economic future becomes clearer, our Indian programmer may find the following:
He faces unique financial challenges of which he wasn't previously aware.
He is immersed in, and must necessarily deal with, a complex and changing legal, financial, and regulatory landscape.
Very few authoritative, reliable, and comprehensive sources of information are available to help guide him.
Diagramming a Cross-Border Person: Residency and U.S. Income Tax Status
In some cases, the cross-border professionals (along with their families) who come to the United States will get a Green Card, and will then decide to stay here permanently and become dual citizens. In other cases, they will return to their country of origin or to some other third country. Similarly, many U.S. citizens will decide to stay abroad permanently—in some rare cases even renouncing their U.S. citizenship—while others choose to come back to the United States. What's common to all of these scenarios, however, is that there will be assets—financial accounts, real property, and other tangible assets—in more than one country, and thereby subjected to the tax laws and other rules and regulations of more than one tax authority.
Traditionally, many individuals would hold onto their Green Cards for many years after they had more-or-less permanently exited the United States, since the ability to return to the country at some point is highly valued. Recently, however, the rules and regulations that make it possible to hold onto a Green Card—for example, how regularly the individual must spend time in the United States—have tightened. Additionally, there is greater awareness today about the need to continue to file tax returns in the United States as long as a Green Card is held; previously, this requirement was often not as well known or followed.
To help clarify things, please consider Figure 1.1, which illustrates a kind of “Who's Who” for purposes of this book—that is, it shows the six main categories that people fall into, based on whether they reside in the United States or abroad, and their U.S. tax status (either tax resident or non-resident).
Figure 1.1 Who's who for the purposes of this book
Moving left to right, the Who's Who chart begins by dividing individuals into those living in the United States and those living outside the United States. Individuals living in the United States are U.S. citizens, permanent resident aliens (with Green Card), or temporary visa holders (either tax residents or nonresidents). We will return to this in detail, but note that a U.S. citizen and a permanent resident alien generally receive identical tax treatment by the IRS, although permanent resident aliens are more likely to have foreign income or assets that are also subject to foreign tax liabilities (like a rental property). Temporary visa holders may or may not be U.S. tax residents, based on whether they have a substantial presence in the United States. Also, temporary visa holders who must pay taxes in the United States may or may not owe taxes on their foreign income, depending on their specific situation. (They may only by subject to U.S. tax on their U.S.-sourced income.)
For those living outside the United States, there are three main categories. The first is the permanent resident alien, generally someone who lived in the United States but no longer does, and still has permanent residency in the United States (possesses a Green Card). Next is the U.S. citizen living abroad, someone who receives virtually identical tax treatment as the permanent resident alien living abroad. Finally, we have someone who is not living in the United States, and who is not a tax resident of the United States, but who has assets in the United States. The U.S. tax code considers such a foreign citizen to be a nonresident alien (NRA), or more simply a nonresident with assets in the United States.
Note that while the six main categories of individuals are based on tax status, the book ultimately goes far beyond taxation issues. Still, taxes are inevitable, and in many ways they form a core background against which each and every one of us has to be aware of and navigate. So while taxes aren't the only issue, and shouldn't necessarily be allowed to be the financial tail that wags the wealth management dog, they also are a vital part of the analysis and recommendations throughout the book and therefore provide the best possible starting point for describing “Who's Who.” Moreover, while tax considerations are found throughout the book, all of Part V is devoted to taxes and will review, synthesize, and clarify points about taxes made elsewhere.
Having looked at Figure 1.1, you should be able to fairly easily identify which category you fall into, although your category can change over time if you change your physical residence (moving into or out of the United States), or if you change your work status and therefore tax status in relationship to the United States (Green Card or not, work visa or not, etc.). If you are married, it might be the case that you fall into one category and your spouse or children fall into another, a possibility we'll stay attuned to throughout the book.
How Many Cross-Border Professionals and Families Are There?
How many individuals and families fall into the different categories? Although there are no definitive numbers, a variety of estimates have been made. To begin with, there are estimated to be over 40 million foreign-born immigrants currently living in the United States, whether permanent resident aliens or temporary resident aliens, based on U.S. Census Bureau data. We further estimate that roughly 10 million to 15 million of these people could be considered cross-border professionals living in the United States (with higher education and income levels).
In addition, the State Department estimates that there are nearly 8 million nonmilitary Americans living abroad.1 Although not all of these people can be labeled cross-border professionals, we estimate that roughly three million of them are either working professionals or retirees (again, with higher education and income levels).
It is impossible to know the exact number of foreign-born individuals who once lived in the United States and now live somewhere else—whether permanent resident aliens or nonresident aliens—but the number might easily be between 10 million and 20 million people. Although there are once again no definitive statistics here, we can assume that the number of cross-border individuals who may benefit from this book is very large (perhaps as many as 30 million or 40 million people).
Unique Challenges Faced by Cross-Border Families Connected to the United States
There are three main unique challenges faced by cross-border professionals with assets in the United States:
Lack of uniformity
: The asymmetric nature of tax regimes and reach—that is, U.S. federal and state tax law reaches much farther than the tax laws of almost any other country.
Complexity
: The complexity of U.S. and foreign laws and regulations.
Scarcity of resources
: Lack of sufficient help and information, especially for those who are not ultra-affluent.
These challenges are further outlined in Chapter 2.
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1
The Association of Americans Resident Overseas (AARO). “8M Americans Abroad,” AARO.org. Available at:
https://aaro.org/who-we-are/8m-americans-abroad
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CHAPTER 2Unique Challenges and the Regulatory Landscape
The Unequal Nature of Tax Regimes and Reach
To begin to understand how different the United States is when compared to other tax regimes, let's take a step back and consider things from the perspective of cross-border families from the past. Traditionally, it has been fairly common for certain types of professionals, especially those in Europe, to have a fairly high degree of mobility and find themselves living and working in multiple countries over time. A Frenchman might work in London for a while, or a Spaniard might find himself in Zurich for a few years before returning to Spain or going elsewhere.1 Generally speaking, these individuals did not need a great deal of tax planning or other guidance with respect to how living in multiple countries might affect their personal financial and long-term wealth planning decisions, because much of their tax responsibilities to the former nation would end upon their move to a new location.
For example, suppose two Spanish brothers move to Germany to start a business building fine guitars. Upon leaving Spain, they were no longer required to report to the Spanish government on their financial affairs, nor were they required to pay any taxes to the Spanish government unless they left some kind of income-producing asset there, like a business or a rental property. Likewise, when they moved to Germany, they did not report to Germany on assets that they held outside of Germany—that is, those back in Spain (or held in offshore accounts). This may or may not have been technically correct under German tax law, but this has been common practice for decades, if not centuries.
Put another way, most countries tax on residency: If you are living and working in Germany, then you will be taxed by Germany. But if you are German and you are not living there—let's say you are living in New York City—then even though you are a German citizen, Germany claims no right to tax you on what you are doing in the United States.
The Unique Worldwide Reach of the U.S. Tax System
On the other hand, once an internationally mobile individual touches the United States in his or her working life—whether that is made possible by a short-term work visa or a permanent assignment with a Green Card—then that person generally becomes a U.S. tax resident, and things become both different and more complex. The United States is the only major nation to tax all citizens and residents on their worldwide income, regardless of whether they currently reside in the United States. So, once an individual becomes a U.S. tax resident, the person is mandatorily subject to the worldwide nature of the U.S. income tax, and the IRS will seek to tax him or her on worldwide income and assets, no matter what country that income occurs in or where those assets are found in. This is even the case if you were to sell highly appreciated property, where the appreciation occurred before you even moved to the United States (like a rental property in London that you purchased 20 years before moving to the United States).
Fortunately, a fairly complex system of foreign tax credits ensures that there is little or no double taxation—if you are working in the United States on a visa or Green Card, income from a business in a foreign country will often be taxed there first, and you will be given credit for the amount paid there when the amount of tax you owe in the United States is determined. However, there are many tricks and traps that the unwary can fall into, and a little bit of information and planning with regard to minimizing tax can go a long way and make a big difference. Similarly, with regard to assets such as bank accounts, brokerage accounts, retirement accounts, and real property, there are a wide variety of long-term planning possibilities and ways of leveraging and managing one's wealth for the long-term that are made more complex by U.S. tax law and regulations.
Complexity in Taxation and Other Regulations
Most cross-border professionals are quite surprised when they learn about the many financial requirements that go hand-in-hand with residing in the United States. Becoming a U.S. tax resident brings with it a great deal of potential complexity, both with regard to U.S. tax laws as well as other allied rules and regulations affecting things like moving funds from one country to another, opening accounts in more than one country, investing, business ownership requirements, and retirement planning. The U.S. system, then, is generally more complex both with regard to its tax code (many European countries have flat taxes or tax codes that are much simpler than the U.S. code) and the many other rules, regulations, and requirements that the United States imposes. For those cross-border professionals and globally mobile families with the most interest in wealth planning—which involves not only taxation and tax minimization strategies, but also questions of investment structure, asset allocation, savings and retirement plans, currencies, and so on—it can be a truly daunting task.
Why is the U.S. tax code—which takes over 70,000 pages to explain—so much more complex than that of many other countries, with many more deductions, rules, alternative rules, and so on? It's partly because the U.S. tax code, unlike those in other countries, makes more of an attempt to achieve certain social goals by encouraging and discouraging certain types of behaviors. However, the effectiveness of the U.S. tax code in achieving these goals is not always clear.
Likewise, for U.S. citizens living abroad, the long reach of the U.S. tax system complicates things—as you will remember from the discussion of Figure 1.1 earlier, a U.S. citizen living abroad is treated for tax purposes nearly identically with a permanent resident alien living abroad—but for a number of reasons, this has not troubled too many people or been seen as much of an issue. Why not? Well, first, many U.S. citizens abroad haven't been aware of their requirement to file. Upon becoming aware of the requirements, such individuals generally must seek professional tax assistance and come to an arrangement with the U.S. Internal Revenue Service (IRS) for missed taxes. Second, many U.S. citizens living abroad are doing so because they are working in Western Europe, and most countries there have substantially higher tax rates than the United States has, which means that by the time a tax credit offset is given (along with the Foreign Earned Income Exclusion which will be discussed later in Part V), they likely do not owe any U.S. taxes.
Consider, for example, a software coder from California who has moved to Germany indefinitely and is aware of his need to file with the IRS (since he is still a U.S. citizen). To begin with, in most cases he won't have to file a California state tax return. This is because, like most states, California bases its taxation on a person's intent and residency, and allows you to break residency should you move to another U.S. state or internationally. Now, without California tax in the picture, this software coder might be subject to a top U.S. tax rate of 28 percent (after applying the foreign income exclusion), but he will first be paying approximately 45 percent in tax and various withholdings on his earnings in Germany (since he physically resides there, Germany gets to go first). With the tax credit he gets for what he paid in Germany, he is likely to end up owing no additional U.S. taxes.
Scarcity of Professional Help and Information
In addition to the lack of uniformity and the significant complexity, there is a third unique challenge: the lack of—the scarcity of—readily available help and easily accessible information
