Hey Expats: Come Home to Get Your Family’s Money
Despite the flaccid threats of political naysayers who threaten to leave the country after every presidential election (only to realize the United States is a markedly better place to live than countries with poutine, meme bans and gulags), some Americans actually do leave the U.S. on a near permanent basis. These novice ambassadors of American culture do typically maintain their U.S. citizenship for several reasons, some of which have to do with maintaining some financial benefit.
But being an expat – or having an expatriated citizen be a beneficiary or fiduciary of your Estate – can lead to a lot of Estate Planning challenges, and post-mortem difficulties that many people (including many attorneys) don’t foresee in advance:
- ☹ Setting Up U.S. Accounts with an Overseas Address
Once the government figured out that the “bad guys” liked participating in Uncle Sam’s investment potential, a tidal wave of legislation was passed making it increasingly hard for people without an official United States address to set up an account. This legislation has ramped up more over the last two decades to the point that many broker dealers and banks don’t want to open up an account for anyone living overseas, including citizens. And while expats used to be able to utilize a sibling’s address to receive mail, financial companies now occasionally ask to see updated government identification to prove an account holder’s actual address.
- ☹ Challenges Collecting Retirement Plans
If you thought setting up an investment account for someone overseas is a challenge, try transferring an IRA to that beneficiary. The largest problem with retirement plans is that when you have an IRA at one brokerage institution, the easiest way for it to be transferred to your beneficiary is to have them set up an Inherited IRA at the same investment company. But just as noted above: It is impossible at some large financial companies to open up accounts if you only have an overseas address.
- I have had more than one investment company (in this example it was Vanguard, but they are one of many) whose phone reps suggested we liquidate the deceased parent’s IRA and transfer the funds to the expat US citizen as a lump sum.
- In this case, this would have caused the beneficiary to pay income taxes on ~$700,000 of income in that one year.
- If the child had a US domicile, Vanguard would have allowed the beneficiary to set up an Inherited IRA so she could “stretch” income taxable distributions over 10 years, saving her as much as $100,000 in income taxes.
- I suspect the phone representative knew exactly how much this would financially impinge on the beneficiary, but it was likely the only choice available to the client due to Vanguard’s non-expat rule.
- And to be clear: Vanguard is hardly the only company to follow this practice.
- ☹ Serving as an Executor, Trustee, or Agent Under a Power of Attorney
Naming an expat as your Executor, Trustee or agent under a Power of Attorney should be done as a last resort, since their address would need to be in the United States to set up estate and trust accounts. Barring this problem, Expats likely have to show up at a US bank or brokerage company in-person to establish accounts, and US companies are likely to only allow this appearance to take place in The States. So, while it is legally permissible for an expatriated US citizen to serve as a fiduciary of your estate or affairs, it is usually impractical and burdensome. And unlike the burdens of having just a beneficiary being an expat, if you name an expat as a fiduciary you may be burdening a whole bunch of beneficiaries due to the fiduciary’s burdens.
There are not a lot of great options to avoid expat issue. And each bank or investment company may have its own cockamamy antics to fulfill when it comes to expats and accounts, so there are few hard-and-fast rules to rely on. But as general rules:
- If you have a beneficiary who is an expat, ask your financial advisor if their company allows expats to open Inherited IRAs upon your passing.
- Having an expat be a beneficiary of a trust is a good solution for many problems, but naming them as a sole Executor or Trustee can cause these problems for all of your estate’s beneficiaries.
- All things being equal, name a US-based family member as your Executor, Trustee or Agent under a Power of Attorney.
