Five key cross-border wealth management questions to answer before moving abroad

Hello! I’m Victor Gersten, an American expat living in Barcelona, Spain, and I’m a Certified Financial Planner with 14 years of experience in the financial services industry in San Diego, Ca. As an expat living in Spain, I have helped many expats to financially retire abroad by sorting out the complicated legal, tax, or investment questions that most expats have. I also like answering all your questions about moving and retiring abroad, specifically in Spain and Mexico.

In this article, I wanted to add some of the most common questions I’ve answered to clients when meeting them for the first time, normally when they are undecisive about moving aborad.

1. Will your current investment strategy still work?

Strategies and investments that worked well in the U.S. may not work after you move. 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 (whether they are EU citizens or not) to buy U.S.-based investment funds unless they are 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 tac-toxic PFICs (Passive Foreign Investment Companies) by the IRS.

2. Will your current advisor, custodian, or investment firm still be able to help you?

Expat Financial Planning offers highly specialized, easy-to-understand, comprehensive financial planning solutions accessible to most expats. Expats will avoid expensive financial mistakes and save time and money when working with us.

3. How will your new country treat and tax your 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 different from 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.. Still, the unique tax-free nature of Roth accounts is not recognized in many countries, such as Germany, Italy, and Japan. On the other hand, the UK and France fully recognize the tax-free nature of Roth accounts under the terms of their double taxation treaties with the U.S. Still, other countries, including the Netherlands and Denmark, allow you to take tax-free withdrawals, but assess an annual tax on the Roth account balance.

4. Can you break U.S. state residency and save on taxes?

If you are moving overseas for the long term, you will want to break state residency to avoid paying state income taxes. To ensure you do not get a surprise state tax bill, you must take definitive actions – sell property, close or move bank accounts, drop vehicle registration, etc. You will 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 cut ties formally.

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 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 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. The world has strict forced heirship rules and high estate or inheritance tax rates. Before you leave the U.S., ensure that your estate plan does not make an already difficult situation even worse for your loved ones. These five questions are simply the tip of the iceberg, but they are important considerations as you start your new adventure.