Americans move overseas for a variety of reasons. Some fall in love with another land while traveling and decide to relocate permanently. Some, on the verge of retirement, believe their savings will last longer and afford them a better standard of living in a foreign country. Whatever the reason, the number of Americans heading overseas, especially for retirement, is increasing. The U.S. Department of State estimated in 1999 that there were between three and six million Americans living abroad. By 2016, that number had ballooned to about 9 million. If you're considering joining their ranks, here are some financial steps to take if you're moving overseas.
First things first: are you taking some money with you when you move? Of course you are. That means you may choose to have a foreign bank account. Why does this matter? Because of the Foreign Account Tax Compliance Act of 2010 (FATCA). This law, created to help avoid tax evasion, requires that all bank accounts held by U.S. citizens and having balances of $10,000 or more must be reported to the U.S. federal government. For this reason, some foreign banks shy away from doing business with Americans, which could make it more difficult for you to get a credit card or bank in your new country.
Also, while we take for granted the protections of the Federal Deposit Insurance Corporation (FDIC), there may or may not be an equivalent to protect your deposited cash in a foreign bank. Your best option for avoiding these hassles? Look for a foreign branch of a U.S. bank.
If you're keeping your U.S. citizenship, you will still have to file an annual U.S. tax return, even if you live abroad, and you will still owe U.S. taxes on your income regardless of where you earn it—or withdraw it, in the case of IRA and 401(k) withdrawals. There will be taxes on part of your Social Security benefits, too. You might owe state taxes as well, if you have a source of income, like rental property, in your home state.
Thanks to FATCA, filing your U.S. income tax from abroad is more complicated than it used to be, so make sure you have a tax professional who is familiar with the applicable rules to keep you from running afoul of tax laws.
What's more, there's a good chance that you will also have to file a tax return in the country in which you now reside. In order to prevent citizens from being taxed twice on the same income, the U.S. has treaties with dozens of countries which will allow you to get a foreign tax credit on your U.S. income tax return. If you pay taxes in your new country of residence, you will be credited for them. There is also a Foreign Earned Income Inclusion available. This means that if you earn money in your new country of residence, you may be able to exclude over $100,000 of these foreign earnings from your total annual income.
You will still need to have an American estate plan to deal with any of your assets that remain in the U.S. after you move abroad. You should also be aware that no matter where in the world your estate's assets are located, they are included in your taxable estate in the U.S. It's possible, especially given recent changes to tax law, that estate tax will not be an issue for you, but you should still be aware of the risks.
You should have an estate planning attorney in the United States to oversee the planning for all of your assets. He or she can coordinate with an attorney in your country of residence.
For these reasons, you should have an estate planning attorney in the United States to oversee the planning for all of your assets. He or she can coordinate with an attorney in your country of residence regarding assets located there and to make sure that your estate planning documents will serve their intended purpose in that country.
Your estate plan should probably include a revocable trust in which your assets located stateside can be placed; a pour-over will to place other assets into the trust on your death; financial and medical powers of attorney, including an advance directive for end-of-life decisions; and a HIPAA authorization so that protected medical information can be disclosed to your loved ones. Again, your American attorney may be able to coordinate with your estate planning attorney overseas regarding how these documents will work in your locality.
Living overseas can be an enriching and broadening experience, a chance to meet new people, immerse yourself in a new culture, and gain new perspective on life. Having trusted advisors back in the United States can help you enjoy your time abroad without worry. If you are contemplating a move overseas, either temporarily or permanently, contact our law office for more guidance on how to make the move as smooth and stress-free as possible.
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