EXPATRIATION: STILL THE ULTIMATE ESTATE PLAN What is expatriation? Why expatriate? The mechanics of expatriation Are you a covered expatriate? Exit tax is only on UNREALIZED gains How to minimize or eliminate exit tax Exploding expatriation myths The imperfect alternatives to expatriation
How to Plan Your Own Escape from America Step 1. Move Your Assets to Safer Havens Step 2. Find a Suitable Residence Country Step 3. Get Another Passport Step 4. Expatriate from the USA
What is Expatriation? Prolonged period of non-residence (most countries) Prolonged period of non-residence plus relinquishing citizenship / passport (USA) U.S. tax on worldwide income of non-resident citizens upheld by Supreme Court Green card holders may be able to expatriate and keep U.S. residence status
Why Expatriate? No U.S. income tax on non-u.s. income No U.S. reporting and documentation requirements on foreign investments Possibly no income tax liability in any country Reduced vulnerability to future U.S. wealth confiscation Eligible for U.S. tax breaks available only to non-u.s. investors No U.S. estate tax on on-u.s. investments
The Mechanics of Expatriation Obtain second passport Set up legal residence in another country Carry out pre-expatriation tax planning Appear before U.S. consular representative/receive certificate of loss of nationality Retitle domestic accounts as expatriate Apply for U.S. visa or obtain visa waiver File final tax return and Form 8854
Are You a Covered Expatriate? Exit tax may apply if you are an expatriating U.S. citizen or long-term resident AND: You have a net worth exceeding $2 million; or Your average annual tax liability for five years preceding expatriation exceeds $155,000; or You refuse to certify compliance with all tax obligations for the preceding five years; or You fail to file IRS form 8854
Exit Tax is Only on UNREALIZED Gains Applies only to covered expatriates $668,000 of unrealized gains excluded (2013) Exemption doubled for a married couple who both expatriate Step-up in basis for persons not born in USA Tax rate generally 20% to 39.5% Special rules for retirement plans, some trusts Gifts and bequests from covered expatriates to U.S. beneficiaries penalized
How to Minimize or Eliminate Exit Tax Depressed asset values create gifting opportunities Lifetime gifts to $5 million Magnify lifetime gifts using valuation discounts Sell appreciated assets at tax rate as low as 20%, then buy back after expatriation Avoids possible double taxation of the same gain by your new residence country
Exploding Expatriation Myths Expatriation statistics aren t accurate No exit tax on your net worth No automatic denial of re-entry into the USA Same immigration and investment rules apply as any other non-resident alien No forfeiture of social security benefits No automatic targeting by the IRS
The Imperfect Alternatives to Expatriation Foreign earned income exclusion Must live and work outside USA Subject to all U.S. reporting requirements $97,600/year tax-free (2013) Working spouse also eligible Foreign housing exclusion: $13,000+ more Turning passive income into earned income Green card holders: tie-breaker provisions in SOME U.S. tax treaties
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