5 Questions to Answer Before You Move Abroad

These are the five questions I answer most often in a first conversation with someone weighing a move abroad.

Each one is cheaper to answer before you go than after. The fifth surprises people most.

What follows is general information, not advice about your situation.

1. Will your investment strategy still work?

Often not. The reason is regulatory rather than financial.

Under the EU’s PRIIPs regulation, a packaged retail product generally cannot be sold to an EU-resident retail investor without a Key Information Document in the prescribed format. US fund issuers generally do not produce one.

So many brokers will not let you buy US-domiciled ETFs once your address is European.

Meanwhile US tax law makes the obvious substitute expensive. Nearly every non-US pooled fund is a passive foreign investment company. That brings a punitive default regime and a separate Form 8621 for each holding.

So the portfolio gets squeezed from both sides at once.

What still works is US-domiciled funds in a US account that accepts your residence, individual stocks and bonds, and the retirement accounts you already hold. The PFIC Trap covers the tax side.

2. Will your custodian still hold your account?

This one catches people. It has nothing to do with your investments and everything to do with your address.

Some US institutions restrict or close accounts once the address of record becomes foreign. The trigger is usually the address change itself. And the policy can differ between the brokerage arm and the retirement plan arm of the same firm.

Ask each institution, in writing, what happens when a client becomes tax resident in your destination country. Keep the answer.

Ask before you change the address, not after. A closure notice typically gives 30 to 60 days, and opening a replacement account as a non-resident can take most of that. Why US Brokerages Are Closing Expat Accounts sets out what to do.

3. How will your new country tax your accounts?

Every country writes its own rules. They will not match the ones your account was designed around.

The clearest example is the Roth IRA. In the United States a qualified distribution is not income at all.

That treatment is a feature of US domestic law, not of the account. So another country is not bound by it unless a treaty says so.

The US treaties with the United Kingdom and with France contain express provisions preserving the tax-free character of a Roth. The US-Spain treaty contains no equivalent.

So the same account produces very different answers depending on where you land. The Roth IRA in Spain works through what that means.

The general lesson is to check your destination specifically. Advice written for an American in London does not transfer to an American in Valencia.

4. Can you break US state residency?

Federal tax follows your citizenship wherever you go. State tax does not. And some states are more reluctant to let you leave than others.

Breaking residency generally requires demonstrable actions rather than intentions. Closing or relocating accounts. Ending vehicle registration and a driver’s license. Giving up voter registration. Dealing with property.

You will usually file a final part-year or non-resident return. Some states expect a formal declaration.

California applies a facts and circumstances test rather than a day count. So a clean break needs documenting at the time. Reconstructing it years later, if the question is raised, is much harder.

5. Will your estate plan survive the move?

This is the question people are least prepared for. The consequences fall on their families rather than on them.

Most of continental Europe uses civil law systems with forced heirship rules. Those rules reserve a portion of an estate for certain heirs regardless of what a will says. So a US will that distributes an estate one way can simply be overridden in part.

Trusts are the sharper problem

A revocable living trust is an efficient instrument in the United States. Civil law jurisdictions generally have no equivalent concept.

Depending on the country, a trust may be ignored. It may be taxed unfavorably. Or it may be treated as a transfer from a third party, at a higher rate than a transfer between relatives.

In Spain specifically, inheritance tax is charged to the recipient rather than to the estate. Reliefs vary substantially by region.

Wills, powers of attorney, healthcare directives, beneficiary designations and any trust arrangements are all worth reviewing with professionals in both systems before you go.

The question underneath all five

Each of these has a specialist who can answer it. A US preparer handles the return. A gestor handles the local filings. An attorney handles the estate documents.

What tends to have nobody assigned to it is the interaction between them. That is where the answers change.

Breaking state residency affects your federal position. How the new country taxes your accounts affects the withdrawal order. The custodian question determines what the portfolio can hold at all.

Answered separately, the five answers can each be right and still not add up.

Frequently Asked Questions

How far ahead should I start planning?

Ideally a full tax year. Several of the most valuable decisions have to be completed before residency in the new country attaches. In Spain that generally happens at more than 183 days in a calendar year, applied to the whole year.

Will I have to sell my investments before I move?

Not usually, though some positions may need restructuring. The point of asking early is to make those decisions in a tax year you choose, rather than one forced on you by a custodian’s deadline.

Does my US will still work abroad?

Partly at best. Forced heirship rules can override distributions, and trusts may not be recognized at all. A review in both jurisdictions is the reliable answer.

Working with a cross-border adviser

Cross Border Wealth Advisors is a fee-only fiduciary firm serving US citizens living in or moving to Spain.

I hold both the CFP® certification and an Enrolled Agent license. So the tax return and the financial plan get decided in one conversation rather than reconciled afterward.

Everything above is general information, not advice about your situation, and not legal advice.

With a move on the horizon, book an introductory conversation at cbwealthadvisors.com or email info@cbwealthadvisors.com.

Sources

Disclosures

This article is general educational information published by Cross Border Wealth Advisors, a company of Gersten Financial Planning Inc., an investment adviser registered with the State of California (CRD 309890). It is not investment, tax, legal or immigration advice.

Rules and figures change. The ones here are stated as of the date above. Statements about the treatment of accounts in any particular country are general and may not apply to you. Cross Border Wealth Advisors is fee-only and receives no commissions. Registration does not imply a certain level of skill or training.

Please read the full article disclosures, which apply to everything published here.

Five Questions to Answer Before You Move Abroad