The Special Financial Needs of Expats
Key Financial Issues Living In Spain or Mexico
Investment strategies that worked in the US might not work in Spain or Mexico. For instance, the European Union has rules called MIFID II that may not permit EU residents to buy US-based investment funds, unless they have a US-based investment advisor.
Also, wherever you live, it's best for US citizens to steer clear of buying non-US investment funds that the IRS considers as Passive Foreign Investment Companies (PFICs).
Expat financial planning requires highly specialized, easy-to-understand, comprehensive financial planning solutions. Expats will avoid expensive financial mistakes and save time and money by working with a company like Cross Border Wealth Advisors.
Each country has its own unique tax laws. How Spain or Mexico will tax your US investment and retirement accounts may be quite different than how the IRS does.
For example, Roth IRAs are a great way to save for retirement and avoid future taxation in the US, but the unique tax-free nature of Roth accounts is not recognized in many countries, such as Mexico, Spain and Italy. 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 Mexico and Spain, allow you to take partially tax-free withdrawals on part of a traditional IRA, but assess a tax on the rest of the account.
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 will need to take definitive actions – sell property, close or move bank accounts, drop vehicle registration, even eliminate your library membership. You will likely also have to file a final part-year or nonresident state tax return, as well as possibly make a declaration to your state tax authority to formally cut ties.
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 US 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 therefore 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 in Mexico and Spain, which are countries with high economic integration with the US, an American trust does not carry the same tax and legal benefits that it has at home. Much of the world has strict forced heirship rules and high estate or inheritance tax rates. Before you leave the US, ensure that your estate plan does not make an already difficult situation worse for your loved ones.