The financial planning needs of Americans living abroad are often very complex. While these can vary dramatically between families, we’ve compiled a top ten list that will be relevant to most families to help you get off to the right start.
1) Hire a competent CPA who has relevant experience.
This is one of the costliest mistakes we see people make. Whether it’s through us or another firm, it’s critical you select good tax counsel at the outset and follow their advice. A cheaper solution could be very expensive in the long run.
2) Avoid foreign mutual funds and other foreign investments.
Unwinding some of these structures is often the first step for new clients we meet. Tax rules make reporting foreign investments punitive and complicated, so be very careful before investing in these structures. This includes insurance wrapped investment structures and most foreign pension plans.
3) Review your estate plan.
US documents rarely work well outside of the US. You may not need a full set of wills, trusts, and other documents for your resident country, but you should evaluate this carefully and seek professional advice, especially if you have minor children or existing trust structures.
4) Review your insurance coverage and supplement where needed.
Benefits packages overseas may not have the same level of coverage and the quality of the coverage is often much poorer. You may need different liability and contents policies and your existing coverage might have exclusions for an overseas move.
5) Keep track of housing expenses.
Many American miss this tax benefit because they don’t keep records of their utilities, unreimbursed repairs, insurance and other costs for foreign housing.
6) Get advice on local pension plans.
Many of these are taxed unfavorably, sometimes resulting in phantom taxes (paying tax on income you haven’t earned yet). Even simple things like government mandated pensions can be problematic. You should seek tax advice prior to enrolling and ask your employer about the availability of US tax advantaged options. If you do not have access to a US qualified plan, you should be able to fund a traditional or Roth IRA and may be able to do other self-directed retirement planning.
7) Notify your CPA and financial advisor before setting up a company or trust.
Foreign corporate and trust structures have very different tax filing requirements and certain elections must be made quickly after a new entity is set up. Getting the right in advance is crucial. This includes taking a direct stake in a foreign business as an investment.
8) Keep good records.
The increased tax and financial complexity make it more important than ever to keep good financial records in case of an audit and to accompany the estate plan. Your CPA can provide guidance but at a minimum you should generally keep records for at least 7 years.
9) Avoid most foreign life insurance contracts.
These incur additional taxes and reporting and are often very expensive with more exclusions compared with US alternatives. Most American living overseas do buy US insurance. We specialize in this.
10) Don’t delay planning.
We meet clients who have done nothing because local institutions had no knowledge of US issues or refuse to accept US citizens as investors. We can help. Don’t delay your planning due to a lack of advice. We provide a comprehensive planning service for US families who reside outside the US or who have international interests and assets.