Cross-border Wealth Management Questions for Americans Moving Abroad

by | Sep 13, 2024 | Investing for US Expats

When planning to relocate from the US to another country, there’s a lot to consider. As well as visas, accommodation, relocation logistics and adjusting to a new culture, equally important is ensuring that your wealth and financial strategies are protected and aligned with cross-border regulations. In this article, we consider seven wealth management questions you should address to help you manage the financial complexities of moving abroad.

1. Can your US financial advisor and brokerage firm still support you abroad?

Not all US-based financial institutions and advisors are able to serve clients living abroad due to regulatory constraints and US compliance challenges, and those that are may not have the cross-border experience and expertise to advise you regarding international limitations and opportunities. Before you relocate, it’s important to check with your financial providers whether they can continue to work with you after your move. Being proactive ensures you’re not left scrambling for new services or inadvertently find your US accounts frozen or closed once you’ve already moved.

2. Will you need to change investment strategy after moving?

The investment strategy that worked well in the US may require significant adjustments when you move abroad. Cross-border investing involves new hurdles, including restrictions on owning US mutual funds for non-US residents under the EU’s MiFID II regulations. Additionally, investing in non-US funds can trigger tax penalties from the IRS due to Passive Foreign Investment Company (PFIC) rules. Access to US Exchange-traded funds (ETFs) may also be limited in certain parts of the world. Seek advice from an expat specialist wealth manager to evaluate how your current investment strategy will be impacted by these regulations when relocating

3. How will your new country tax US retirement accounts?

Tax rules vary widely by country and can greatly affect how your US-based investments are treated. For instance, although Roth IRAs are tax-free in the US, this benefit may not be recognized abroad. Countries like the UK, Belgium and Canada respect the tax-exempt status of Roth IRAs due to clauses in their tax treaties with the US, whereas others may tax withdrawals or even earnings within the accounts on an on-going basis. However, some countries, such as Denmark, permit tax-free withdrawals from Roth accounts but impose an annual tax on the account balance itself. Understanding how your retirement accounts will be taxed in your new country, both in terms of distributions and ongoing contributions, is essential for effective planning and to avoid unexpected tax liabilities.

4. Will you face double taxation after moving?

While many nations have tax treaties with the US, they don’t intrinsically prevent double taxation. Instead, you can claim US tax credits to offset taxes you pay abroad. Seeking advice to fully understand your potential tax obligations under both US and local laws will help you plan avoid unexpected liabilities, make wise investment choices, and take advantage of available credits and exclusions for US expats.

5. What about US state taxes?

US citizens living abroad still have to file a US federal tax return, and they sometimes also have to keep filing US state taxes too, depending on the rules of the state where they last lived. This often hinges on whether they retain ties there after they move, such as financial accounts, dependents, property, or driving license or vehicle registrations. Some expats choose to sever ties with their home state, or move to a different state, to avoid ongoing state income taxes. Additionally, filing a final state tax return as a part-year or non-resident and providing formal proof of non-residency may be necessary. Being proactive helps ensure that you won’t face unexpected state tax liabilities after your move.

6. Is your US estate plan valid in your new country?

Cross-border estate planning involves understanding the inheritance laws in both the US and your new country of residence. Each country has its own set of inheritance rules and, in some cases, strict forced heirship laws that dictate how assets must be distributed, which may not align with the provisions of your US will. Estate planning tools such as revocable trusts, which are effective in the US, might not be recognized or could create complications abroad. For instance, some countries may levy higher taxes on inheritances received through a trust compared to direct inheritances from relatives, or they might disregard the trust entirely. To ensure your estate is managed according to your wishes, seek professional advice, update your estate plan and consider having a will drafted in both jurisdictions.

7. Do you need international health insurance?

When relocating abroad, securing appropriate healthcare coverage is vital. Many visas require proof of health insurance that covers medical expenses in your new country. US-based health insurance often doesn’t extend beyond national borders, and local healthcare systems may vary in quality and accessibility. Obtaining international health insurance helps you and your family stay protected against medical costs both in your new country and while traveling.

By addressing these wealth management questions for expats, you can better prepare for a smooth transition to expat life and safeguard your assets while ensuring compliance with both US and local regulations. With research, planning and professional advice, moving abroad can be an opportunity to broaden rather than limit wealth planning opportunities.

If you have any questions about financial planning or investing as an American living abroad, get in touch.

This article is for informational purposes only; it is not intended to offer advice or guidance on legal, tax, or investment matters. Such advice can be given only with full understanding of a person’s specific situation.

Tom Zachystal CFA, CFP, MBA

Tom Zachystal CFA, CFP, MBA

Tom Zachystal is President and Chief Investment Officer at International Asset Management, which specializes in financial planning and investment advice for Americans moving or living abroad. Tom has an MBA in Global Management from Thunderbird University in Glendale, Arizona, and holds the Chartered Financial Analyst (CFA) credential, and is a Certified Financial Planner™ (CFP™) practitioner. Tom has been providing investment advisory services to overseas Americans for over 20 years.

Ready to elevate your wealth management strategy? At IAM Advisors, we provide personalized financial planning that helps you secure your future while achieving your life goals. Let us guide you with expert advice, innovative solutions, and a trusted partnership. Contact us today to start your journey toward financial success.

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