Five Critical Estate Planning Considerations Before Moving Abroad

Five Critical Estate Planning Considerations Before Moving Abroad

NOTE:  Keith Poniewaz originally wrote about Three Estate Planning Considerations for Expats Moving Abroad in February of 2019. With Stan Farmer joining Walkner Condon as Director of International Financial Planning this September, Stan and Keith thought this might be a great topic to revisit and expand upon. There are many planning considerations that take on additional complexity when individuals move abroad and their wealth becomes subject to multiple, different, and perhaps even conflicting legal and tax jurisdictions. We consider five critical areas that every expat should examine before moving abroad.

As part of the 2017 tax reform bill (Tax Cut and Jobs Act of 2017), the United States estate tax exemption amount was raised to approximately $11.58 million per individual in 2020 or $23.16 million per couple. As a result, the estate planning and financial planning concerns of most Americans have changed radically. According to the Washington Post, only about 2000 individuals per year will end up owing estate taxes under the current limits. While they should still be worried about an effective estate plan to help ensure that minor children, spouses, and family are protected, under the current regime, few Americans have to worry about effective estate planning in order to avoid future tax bills.  

However, if an American decides to move abroad, they can bring local estate or inheritance tax laws into play and, consequently, be faced with a new set of complications– especially as their U.S. estate planning tools may not necessarily work in their new country. Below are five important items any American should consider before they more or retire abroad.


Will you still own a house in the United States? In your new country? A business? Or will you simply own stocks and bonds? Where are those located?  The answer isn’t as straightforward as one might suspect. Instead, Americans living abroad may have to consult the Estate Tax treaty between the United States and their country of residence to determine where the assets are located (situs is the legal term for the legal location of property) for estate tax purposes.  The United States has treaties with 15 countries currently.


Whether there is an applicable estate tax treaty or not, American expats should be aware that once they establish a long-term residence abroad (in the U.S., the legal term would be “domicile,” but in most foreign countries, the critical term is simply “residence”), they may have gift, estate and/or inheritance tax exposures based on the laws of their residence country, even on assets back in the United States. Those expats should then prepare a plan to handle such taxes when they come due.

Even U.S. tax exposures should not be completely dismissed for the affluent expat. Remember that the aforementioned 2017 tax reforms are due to sunset after 2025 (if they are not repealed in the interim), which means that federal gift and estate tax exemptions will be halved to the inflation-adjusted pre-2018 levels (somewhere in the $6 million range per individual and $12 million per U.S. citizen couple.  Moreover, if the U.S. expat marries a non-citizen spouse, the ownership (by sharing, acquiring, or inheriting) of U.S. situs assets by a non-citizen spouse may have dramatic implications for the couple’s overall U.S. gift and estate tax exposures. Such mixed nationality couples have distinct estate planning needs, which differ greatly depending on whether there is an applicable estate tax treaty and, if so, the specific language within each treaty regarding spouses.


The U.S. system for determining how assets are distributed by a decedent to the beneficiaries (commonly known as probate) is not universal and several countries do not allow people to simply determine to whom they wish to distribute their assets, but instead, the legal code may dictate who receives the assets.  However, in several cases, there are ways for Americans to have their wills accepted by local authorities.  For instance, in the European Union, there is regulation 650/2012 which allows for European Union residents to select their home country’s laws as those governing probate or the distribution of their assets.  Note, however, this doesn’t allow for Americans to bypass laws governing taxes! It also will require a new will in most cases, because this special EU provision and the election of U.S. probate law must be specified within the will itself.


Relatedly, not all countries recognize trusts and as a consequence, an American trust can cause large headaches from a foreign country taxation perspective.  For instance, in certain countries, distributions from the trust can be taxed both at the level of the trust and at the level of the recipient.  As a result, trust distributions taxes can approach 70% or 80%.  In other cases, a U.S. trust with a U.S. trustee may deemed to become a resident-country trust upon the trustee (e.g., the grantor of a living trust) becoming a resident of the country. When the trustee returns back to the United States, the trust itself could be liable to pay an exit tax that is effectively a realization of all unrealized gains within the trust! Consequently, Americans outside of the United States who need the protections of trusts should consider a wide variety of “trust substitutes” including direct gifting, 529 plans, or other strategies. 

Should the would-be expat try to avoid this problem by setting up a new trust upon their arrival in their adopted country?  Not so fast –This is almost certain to cause onerous U.S. taxes to be applied!  The U.S. Internal Revenue Code is particularly skeptical of “foreign trusts” with U.S. beneficiaries. Ultimately, distributions to such U.S. beneficiaries will face a very complex and punitive tax regime specifically designed to treat current-year distributions as only partially accrued income from the current year and inappropriately deferred income from prior years. The upshot is that the U.S. beneficiary will have to restate taxes over several years in each year they receive a distribution, pay ordinary income tax instead of capital gain rates (or return of capital, which would be untaxed in a domestic trust) on portions of each distribution, and interest and penalties for the portions deemed to be deferrals of income from prior years for good measure.


While the United States taxes the donor of a gift or the decedent’s estate, in most foreign countries that tax these wealth transfers, it is the recipient of the gift or inheritance that is taxed. This simple difference in legal cultures may have extremely profound consequences for the U.S. expat who receives a gift or bequest from a parent or other family member. Will property located outside of the residence country of the expat actually subject the expat to local taxation upon receiving it through a gift or inheritance? The answer varies not only from country to country, but, in certain cases (e.g., Spain or Switzerland) may even vary depending on the region (e.g., province or canton) in which the expat resides!

The implications described here are far reaching and the key takeaway is that the expat must not only be mindful of their own estate plan before moving abroad, but also the estate plan of those family members from whom they are likely to receive or inherit wealth in the future. Besides the potential tax exposures from direct gifts or inheritances, there may again be negative consequences flowing from the expat’s present or future interest in a family trust. The expat’s own trust may not travel well, but it’s not only their own trust that an expat needs to consider.

Stan Farmer, CFP® and Keith Poniewaz

Life Insurance For Expats

Life Insurance For Expats

Life insurance is one of the most important, but often least understood, tools for financial planning, especially as it relates to estate planning. However, its specific uses are often overshadowed by a marketing strategy that pitches it as a Swiss Army Knife for all financial situations– retirement, estate planning, etc. This is not the case.

While there can be many legitimate uses for whole, variable, or universal life policies for U.S.-based people (Confused? That’s partially the goal, I think, but for more information on the types of available policies, click here.), most Americans outside of the United States frequently find themselves shut out from these policies because of their address. Even if they find themselves able to buy an American life insurance policy outside of the United States, the need to schedule fitness exams, etc. may make actually buying the policy impossible or they will– upon investigation– discover that their whole life policy may run afoul of local regulations, causing major tax headaches.    

Some investors will consider buying a whole life policy in their country of residence: however, this may not be a great idea because the whole life policy’s underlying cash value is generally invested in investment funds that are tax toxic from a U.S. perspective, the dreaded PFIC.  As noted cross-border Tax specialist Phil Hodgen notes on his blog, the ownership of the underlying assets means:

  • You have to file Form 8621 to report all of the mutual funds held as part of the investment account in that insurance policy.

  • If, during the time the life insurance policy is active and you are alive, the insurance company buys and sells mutual funds, you will have actual taxable sales under the excess distribution rules.

  • When you die, your estate will be treated as having sold the PFICs inside the “insurance policy” for fair market value, again triggering tax under the excess distribution rules.

This information doesn’t include the additional reporting requirements. In his blog, Hodgen goes into more detail on the policy itself and the fact that if the insurance policy doesn’t meet IRS definitions of a life insurance policy, any estate planning benefits will be eliminated.

As we’ll discuss below– while this is annoying– not having a whole life policy is not necessarily a disadvantage for Americans (especially when one takes into account that some of the estate planning strategies embedded in Life Insurance and Life Insurance Trusts will run up against regulations in the country of residence– the dreaded PRIIPS/KIDS). In what has become a cliché, those providing independent advice about such policies for Americans who are not expats generally recommend to “buy term and invest the difference,” and the same holds true for Americans outside of the United States.

(Curious about the definition of term insurance? Click here)

In certain cases, and with a bit of legwork, Americans abroad may find themselves able to buy such a policy in the United States, and they will generally find that any “pure life insurance” product they purchase in the United States will not pose problems in their country of residence. However, Americans should confirm any purchase of such a policy with a tax and legal advisor in their country of residence as local regulations are always shifting. 

The second option is to buy such a policy in their country of residence. However, this can be a bit more complicated for several reasons. First, before purchasing, Americans should confirm the policy is a “Pure life insurance” product without additional bells and whistles. Second, it is always encouraged to verify the policy against U.S. regulations, and generally, major insurance suppliers can help with that. An additional concern is the “excise” tax the U.S. charges on Foreign Insurance Policy Premiums– this ranges from 1-4%, but is 1% on pure life policies. However, the U.S. maintains treaty agreements with 17 countries which means that insurers from these countries are generally exempt from the “excise tax,” and the United States maintains a list of foreign insurers who are also exempt from the tax requirements. Consequently, these insurers would be, accordingly, a good place to investigate term life policies. For more information on the tax-related implications of foreign life insurance, we’d recommend this article from U.S. CPA Virginia La Torre Jeker.

No life insurance purchase takes place inside a vacuum and anyone considering a purchase of life insurance should undertake to analyze such a policy in the context of their long-term plans and goals covering the amount of policy recommended (especially to analyze in terms of any public or private pensions available), long-term family goals, determinations regarding long-term residence, etc. While Walkner Condon doesn’t sell life insurance (or any insurance), such discussions and analyses are part of our long-term financial planning process.

For Americans within the United States, the conversation about life insurance can be rather involved, as a variety of options are available and all of these options can be used to solve a variety of issues.

Generally, these options are limited for Americans outside of the United States as while insurers will continue to honor whole or variable life insurance policies for Americans outside of the United States, it is generally much harder for them to write new forms of these policies for Americans living outside of the United States. This generally leads to their option in the United States being term insurance.

Likewise, Americans outside of the United States should likely not invest in more complicated insurance products in our opinion, because these will generally hold assets that are referred to as PFICs (or Passive Foreign Investment Companies) and are taxed at a higher rate.  

Keith Poniewaz

What is the Best Brokerage for Expats?

What is the Best Brokerage for Expats?

One of the challenges for expats that leave the United States and want to invest elsewhere is that the traditional investment options available to them in the US may not be available. (For more information on this topic, read our white paper on the topic). As a result, there are some custodians in our experience that are more “friendly” than others. Please note that not all brokerages will accept clients internationally: It is best to ask your financial advisor or contact the brokerage house directly to do some due diligence on your particular situation before moving forward with any of these options. For instance, some expats believe that they can just use a P.O. Box or a friend’s address, but in many cases, it is not that simple (and potentially not legal either!).

The following list of pros and cons originates from our perspective of financial advisors working with international clients. The tools may differ for someone that is trading on a “retail” platform rather than an institutional one. Because expat investing in many cases limits access to the use of mutual funds, often we are forced to use Exchange Traded Funds (ETFs). ETFs have grown significantly in popularity and offer in many cases a low-cost, tax-efficient, diversified manner in which to invest. Recently, regulations in the European Union have restricted access to ETFs for European Union residents.  Consequently, we use a variety of strategies in an effort to ensure our clients remain invested.

If you need help choosing a brokerage or have further questions about investing as an American abroad, schedule a no-cost, no-obligation appointment here.

TD Ameritrade

Pros: TD Ameritrade offers commission-free trading for ETFs. Their trading tools for financial advisors that custody assets with them, iRebal, is a robust rebalancing software for portfolio management. TD has rolled out a Model Market Center that helps advisors utilize model portfolios from investment managers at no cost. They also offer the ability to blend multiple models to help advisors diversify investments and customize the portfolio to meet their clients needs. TD is known for its integrations with other software programs, offering an open API that plugs in well with other tools. TD Ameritrade finished as the #3 online broker in Barron’s 2018 rankings.

Cons: TD Ameritrade tends to be a bit more stringent in who they can take on as clients internationally, especially now in Europe. TD may have a more limited selection of international individual bonds. Paperwork can sometimes take a little longer at TD, as they generally take a little more time to clear out not in good order (NIGO) items.

Interactive Brokers

Pros: Interactive Brokers (IB) is known for being a friendly platform in setting up accounts for expats. They offer a wide variety of funds across various countries as well as the ability to trade currencies at reasonable rates.  Barron’s ranked Interactive Brokers as the #1 Online Broker for 2018. IB is also known for having extremely low commissions relative to others in the industry. Additionally, IB allows multiple currencies meaning deposits can be made in many local currencies and do not need to be converted to dollars before deposit. If you have a unique situation and heard “no” from another custodian, there is a good chance that IB will get it done. IB promises a fully digital transfer process.

Cons: This platform, while robust, is difficult to navigate, as the user experience (UI) isn’t as easy to use as TD Ameritrade or Schwab. IB has a very paltry commission-free ETF list. Trades may carry ticket charges on them through their more robust trading platform, IBKR Pro, although Interactive Brokers has released a commission-free platform recently called IBKR Lite, which is currently only available to “retail” investors. (Although it isn’t a certainty that commission-free trading is actually less expensive than paying ticket charges. Read more on that here!) The impressive amount of choice and offerings they have tends to be overwhelming for new clients on the platform.


Note: We have recently published a FAQ related to Schwab no longer offering ETFs to EU retail investors. Read that here.

Pros: Schwab offers a wide menu of ETFs and no commissions on ETF trades. They are generally fairly friendly towards expat investors, although not to the level of Interactive Brokers due to some recent changes in offerings. Although they have a more closed technological interface relative to TD Ameritrade, their own technology is impressive. Schwab finished with the #4 ranking in Barron’s 2018 online broker rankings.

Cons: Although Schwab generally is a bit more friendly to opening accounts than TD Ameritrade, it still lags behind Interactive Brokers for ease of opening accounts for expats. Recently they have announced they are leaving select European markets including Italy and France. Additionally, it is a fully U.S. brokerage, which means they don’t allow deposits in foreign currencies and charge to convert assets from dollars to foreign currencies. Unlike Interactive Brokers, there is also a $25 dollar international wire fee. Moreover, like most mainstream brokerages, the list of permissible jurisdictions for account openings has shrunk in recent years.

Looking for help? Set up a no-cost, no-obligation appointment with Keith, our Director of International Advisory Services, to explore your investment and financial planning options.

Gifting and Cross-Border Estate Planning

Gifting and Cross-Border Estate Planning

One of the more complicated aspects of financial planning and wealth management for Americans outside of the United States is managing the distribution of their estates so as to minimize estate and inheritance taxes. While the United States currently has a relatively large Estate Tax exemption, many foreign countries have much smaller exemptions or apply the tax on the inheritor rather than the estate of the person who died (decedent).  

Consequently, one key strategy for management of the Estate is to gift assets to heirs. The United States Estate and Gift Tax places certain restrictions on these gifts. First, one citizen spouse may give to another citizen spouse an unlimited amount; however, if a gift is made to a non-citizen spouse in a country where the United States doesn’t have an estate tax treaty (click here for the list of countries), if such a gift exceeds $150,000 it must be reported. Likewise, gifts to non-spouses must be reported if they exceed $15,000.

These gift amounts are frequently misunderstood: these “limits” aren’t really limits. For instance, one can give more than $15,000 per year, but should they give more than $15,000, you will need to file a federal gift tax return form (Form 709). This amount would then be deducted from your total estate tax exemption. This exemption is currently quite significant: approximately $11.2 million for an individual; moreover, gifts given under current US estate tax exemptions would likely be grandfathered in should the current levels not be renewed when they are due to expire in 2025.  

Consequently, whenever possible gifting should be used to move assets out of an estate in those countries where inheritance or estate tax thresholds are much lower. This is frequently a popular technique in many countries. For instance, gifts in usufruct are often popular in Western Europe. “A Gift in Usufruct” generally involves giving heirs the ownership of a property while the original owners continue to own it. Such gifts are generally not considered “completed” gifts in the U.S. context, but for families with estates below the $11.2 million dollar exemption amount, the local considerations may take precedence over the U.S. ones. 

In all cases, however, before considering these sorts of estate management strategies, local tax and legal counsel should be consulted and such gifts should also be part of a larger estate planning strategy both to maximize their effectiveness and ensure compliance.

The preceding article is for informational purposes only and does not constitute legal or tax advice.  Estate tax rules and regulations are frequently subject to change and individuals should consult legal and tax advisors before implementing any of these strategies.

Should I Contribute to an IRA as an American Expat?

Should I Contribute to an IRA as an American Expat?

Years of advice on retirement have left many Americans convinced that the only way they can save for retirement is through an IRA or a 401(k); however, this is not the case and in many cases, particularly for Americans abroad, putting money into an IRA can actually be worse for their retirement goals as these accounts may not provide the same benefits in U.S.-terms in the country of residence.  

There are many sources of information on the internet for this decision– however, all too often they focus on the American side of the decision. The key questions here are as follows:

Do I have U.S. earned income? If an American abroad is taking advantage of the Foreign Earned Income Exclusion on their non-U.S. income, then they have no earned income and cannot contribute to an IRA.  

If you use tax credits for foreign income paid or also have a source of U.S. earned income, then you may be eligible to reduce U.S. taxes owed by contributing to an IRA.

However, there are additional considerations for Americans abroad:

If the client lives in a country where the tax rates are higher than in the United States, they will essentially be putting after-tax income into the IRA and through tax credits may not actually owe taxes in the U.S. that need reducing.  

Does the treaty with the local jurisdiction cover IRAs?  If the treaty does not cover the deferral of earnings in pension plans, then it is possible that the earnings on IRAs would be taxed in the country of residence, which would be an ongoing nightmare from an accounting perspective and eliminate the chief advantage of the retirement account from a long-term planning perspective.

This only touches on the issues facing Americans abroad and their complications in terms of the traditional IRA account– such concerns become greater when the conversation begins to involve Roth IRA accounts, which are discussed in fewer treaties and may propose complications on the U.S. side as well.

Keith Poniewaz

Investing as an Expat: The Impact of Currency

Investing as an Expat: The Impact of Currency

A very important item for cross-border investors to understand in their investing lives is currency; moreover, it is an area where a full understanding of the risks and tools to mitigate those risks can make a substantial impact on a family’s financial wellbeing. However, in our opinion, the gradually strengthening dollar over the last 8 years has left many Americans abroad complacent about this risk.  

While the shift will not happen overnight, the Fed’s recent lowering of interest rates is an important reminder of factors affecting currency rates and how that might lead to a longer-term secular weakening of the dollar.  

Like all markets, exchange rates are shaped by supply and demand and predictions about supply and demand. In the case of exchange rates, when we speak of the dollar being strong it is because it is in demand. A big cause of global demand has been the large spread between U.S. interest rates and those of other global economies. In Europe, for instance, deposits often receive zero or even negative yields. This leads to greater demand for U.S. dollar-denominated yield, particularly for banks and other businesses with cross-border cash flows as they will hold money in dollars longer before moving it to another currency. However, lower U.S. interest rates could lower demand for the U.S. dollar as there is less benefit to keeping interest-bearing deposits in the U.S. dollar.

In these cases, moving money to, or keeping money in, dollars makes sense for these large companies particularly if one is storing cash in safe investments for the short-term. However, this is a case where strategies employed by large businesses are not necessarily the best for individuals.

In our whitepaper on portfolio management for cross-border investors, we discuss how to build a long-term investment portfolio to manage currency rates, but many investors can get themselves in trouble when dealing with short-term cash reserves. Currently, many American expats are frustrated by the low interest rates they face as they save towards shorter-term goals in their local currency and may be tempted to store interest-bearing deposits in the United States dollar. While keeping cash in dollars (particularly if the firm hedges the risk) for a few extra days can allow a global firm to earn a bit of extra interest, the risks and costs for individual investors can be significant.

By way of example, let’s examine the situation for a client holding 100,000 in Euros for a house project in one year in a completely stable currency exchange rate environment (that is the currency exchange rate never fluctuates). If they invest that at current interest rates in Europe (0%) one year from today they will still have 100,000 Euros. Instead, should they convert that same 100,000 euros to dollars at current exchange rates (1 EUR= 1.11 USD), they would start with 111,000 USD. They could then park it in a 12-month CD at current interest rates (approximately 2.35%), they would end the year with a total of 113,608.5 USD at the end of the year– earning approximately 2,608.50 USD in interest. If at that point, they then choose to return the money to Euros in 12 months at the same exchange rate as the beginning of the year (1 USD= .9 EUR) over the year, they would ultimately have 102,247.65 Euros (not including any fees) for their house projects. In a world where there is no change in exchange rates, moving money to the U.S. for its higher interest rate would make perfect sense. 

However, the world doesn’t exist in a vacuum of stable exchange rates. And while the U.S. dollar has trended up over the last eight years, it has not done so in a straight line and 2017 is an example of the significant currency rate risk that an individual investor can face. On January 1, 2017, an investor could have moved 100,000 Euros and received 105,600 dollars at the prevailing exchange rates (1 EUR: 1.056 USD). Again, if they had moved that money into a 12-month CD earning .4% (the approximate 12-month CD interest rate in 2017) they would have ended the year with 106,022 USD. However, the dollar declined during the course of the year and the investor moving money back to Euros on January 1, 2018, would have received back 88,351 Euros at the January 1, 2018 exchange rates (1 USD =.83EUR). Their “safe” investment would have lost roughly 11,500 Euros.  

In a sense, currency risk functions very differently from portfolio risk which lessens over time.  In fact, as the Fed’s announcement reminds us, thinking through the factors affecting currency can help us better understand the risks cross-border investors face and the benefits of fully understanding one’s own financial picture in order to help mitigate these risks.

In forthcoming blogs and a whitepaper, we’ll discuss additional tools investors can use to manage these various risks, so watch this space.

Disclosure: The above currency examples are made for illustrative purposes only and are not intended to encourage any investor behavior.