the law presumes unlawful tax evasion by anybody who renounces his citizenship if he has a net worth of $500,000 or more or has had an average annual net income tax liability of $100,000 or more for the past five years.
Political realignments, global markets and technological sea changes have shrunk the world and increase the likelihood that you and your assets will be affected by foreign laws and taxes.
The most extreme case is that of the expatriate who's departed our shores for good, dead-set on avoiding U.S. taxes or other liabilities. But he has little reason to feel safe. The laws of comity and reciprocity vary widely from country to country, and most other nations have their own income and transfer taxes, too.
Moreover, our own laws treat the tax-avoiding expatriate harshly. The tax exile has always had the burden of proving that his exit was not motivated by tax avoidance. But now, the law presumes unlawful tax evasion by anybody who renounces his citizenship if he has a net worth of $500,000 or more or has had an average annual net income tax liability of $100,000 or more for the past five years.
Expatriates are hit with income and transfer taxes for ten years after they give up their U.S. citizenship or move out of the country. And estate taxes are payable, too, if they die within ten years.
Relinquishing our citizenship is unthinkable for most of us, but many of us own assets abroad which may be subject to foreign taxation and regulation in unexpected ways. Switzerland, for example, imposes death taxes on real estate, but not on corporate shares. In France, real estate is much tougher to transfer than personal property such as stock. So, it may be a good idea for a U.S. citizen who's concerned about estate planning and owns real estate in either country to transfer it into a closely held corporation.
Moreover, many advisors recommend that Americans with foreign assets sign country- specific, local-language wills dealing only with the asset or assets in that country. Probate in both jurisdictions may thus be simplified.
The affluent individual who moves her assets into a foreign trust to insulate them from liabilities presents a special challenge. Such transfers may be fraudulent and should offer little comfort against known claimants or creditors. However, off-shore trusts may effectively safeguard assets against unknown and unidentified future creditors.
Some taxpayers have lawfully arranged their qualified business interests to "trap" income in low-tax or tax-free jurisdictions, and we've helped many of them succeed. But, for most Americans, foreign adventures won't yield tax savings. In fact, a 35% excise tax applies to appreciated property transferred to a foreign trust. And a host of new information-reporting requirements and penalties applies to the creation of, or transfer of assets to, a foreign trust.
International tax planning, once reserved for the superrich and the multinational corporation, is now a part of life for more and more Americans. Every rule has an exception and every opportunity a pitfall. So, if your assets extend beyond our borders, seek savvy and competent counsel who is conversant with all the in's and out's.
About the Author
Marc Lane is a business and tax attorney, a Master Registered Financial Planner, a Registered Financial Consultant, and a Certified Investment Specialist. Marc is the author of 30 books on business organization, taxation, and personal finance. His newest book, "Advising Entrepreneurs: Dynamic Strategies for Financial Growth" draws from his experience working with those who have successfully built their businesses. Marc is an Adjunct Professor of Law at Northwestern University and an Adjunct Professor of Business at the University of Illinois. His practice areas include Individual Taxation, Corporate Tax Planning, Business Tax Planning, Estate Planning, Investments, Retirement Planning,Elder Law, International Trade, Business Law, and Wills, Trusts and Estates. Additional articles, case studies, and a free email newsletter are available at www.marcjlane.com.