What are the most important challenges associated with tax issues and estate planning for U.S. expatriates? Are you planning to move out of the United States? Are you a U.S. taxpayer who lives and works outside of the country? What are some of the key issues you need to be aware of?
Key Takeaways About Tax Issues and Estate Planning for U.S. Expats:
- Tax issues are prevalent and complicated for U.S. expatriates. One of the first issues you will need to decide is whether you will claim the Foreign Earned Income Exclusion (FEIE) or the Foreign Tax Credit (FTC).
- Other tax issues include how to best claim children and related expenses, as well as awareness and compliance with all IRS and FinCEN reporting requirements, including the FBAR.
- The key points of estate planning for U.S. expatriates include protecting assets, minimizing tax impact, and avoiding U.S. and international probate issues and international inheritance laws.
The Transactional Aspects of Tax Issues and Estate Planning for U.S. Expats
What are the transactional aspects of tax issues and estate planning for U.S. expats? Tax and estate planning for U.S. expatriates must, by its nature, include an element of transactional planning. Transactional planning is designed to protect assets, mitigate risk, and minimize tax impact. The first step in any transactional plan is an evaluation of existing income and losses, including when, where, and how income and/or losses are realized. The next step is to develop a strategy that combines entities, investment vehicles, fiscal tax years (versus a forced calendar tax year), and the acceleration or deceleration of income, gains, and losses.
The discipline of “transactional planning” is a central component of this essential process.
Where (in terms of geography and tax jurisdictions) are income and losses realized? When (what month of what tax year) are income and losses realized? How (from the perspective of short or long-term capital gains or losses and/or Passive Income Gains or PIGs and Passive Activity Losses or PALs) are income, gains, and losses realized? Transactional planning should structure holdings, entities, income, gains, and losses in a manner that provides the greatest opportunity to secure and protect income and assets while minimizing the tax impact upon the portfolio of the U.S. expat.
Tax planning for U.S. expats involves an analysis of the U.S. taxpayer’s unique financial situation in an effort to manage income, gains, and losses while leveraging legal incentives, tax breaks, and deductions to reduce net taxable income. One of the first issues you will need to decide is whether you will claim the Foreign Earned Income Exclusion (FEIE) or the Foreign Tax Credit (FTC). These elections carry significant advantages, disadvantages, and limitations for the future. Other tax issues include how to best claim children and related expenses, as well as awareness and compliance with all IRS and FinCEN reporting requirements, including the FBAR. They require the insight and counsel of our experienced international tax attorney, Janathan L. Allen.
Estate planning is focused on the wishes and needs of the person(s) establishing the estate plan. How will existing assets be held? What is the best way to protect these assets while minimizing any associated risk? What happens if the grantor is incapacitated and unable to make medical or financial decisions? Who will be designated to step into these vital roles, and how will the associated decisions be made? What are the best strategies to avoid the cost and time delays associated with probate? How will your property and assets be distributed to those you care about and the causes that are important to you when you pass?
The key points of estate planning for U.S. expatriates include protecting assets, minimizing tax impact, avoiding U.S. and international probate issues, and complying with U.S. and international inheritance laws. The elements of a basic estate plan are a living will and/or trust, advance health care directives, and associated Power of Attorney (POA) documents.
The nature of the associated income and assets will determine the specific structures, entities, legal documents, and planning required to achieve the grantor’s goals. Each sovereign nation has different requirements for these crucial healthcare management and end-of-life documents and planning. This is why it is essential to work with an experienced international tax and estate planning attorney. Look for a firm that integrates these services with accounting and business advisory services. U.S. expats often have substantial personal and business assets and issues that require sophisticated planning, comprehensive reporting, and compliance.
You Need an Experienced Team That Integrates the Expertise and Services You Require as a U.S. Expat
Tax issues and estate planning for U.S. expats, as well as U.S. resident taxpayers with offshore investments and business interests, are substantially interrelated. These issues become even more extensive and complex when addressing the best interests of a U.S. expat (or an expat-to-be).
Finally, tax issues and estate planning for U.S. expats must include an acute awareness of the FinCEN Form 114, the Report of Foreign Bank and Financial Accounts, better known as the FBAR, as well as the IRS Form 8938, the Statement of Foreign Financial Assets, among others. U.S. expats may not realize they not only have to report income, gains and losses, they must disclose information regarding any non-US financial account to which they are a signator, a foreign grantor or non-grantor trust and your role as a beneficiary or trustor, life insurance policies, retirement accounts including offshore superannuation plans), as well as any holdings of the expat and/or their spouse in real estate, a foreign entity or corporation, stocks, bonds, mutual funds, and even life insurance.
This is why it is crucial to work with the experienced, proven international tax, estate planning, and transaction planning professionals at Allen Barron. Tax issues and estate planning for U.S. expatriates require integrated legal, tax, and accounting expertise in order to ensure compliance with the IRS and international tax authorities while positioning income and the portfolio of the expatriate to minimize or eliminate risk while reducing tax exposures.
We invite you review and/or download our White Paper “The Value of Integrated Legal, Tax, Accounting and Business Advisory Services” to learn more about the the integrated tax, legal, accounting and business consulting services of Allen Barron and contact us or call today to schedule a free consultation at 866-631-3470.
