Americans living abroad and non-U.S. residents with stateside investments likely have different wealth management needs and priorities than most U.S.-based advisory clients. They logically seek advisors with considerable personal and institutional experience who can tap into extensive, multijurisdictional networks to help keep their clients out of tax (especially estate tax) entanglements, and in compliance with national investing regulations.
These are five key questions prospective clients should ask of advisors about managing wealth for Americans abroad and foreigners living and investing in the U.S.
1. How much experience do you have, and is it your primary focus?
Building expertise on the most essential investing and taxation strategies for expats and non-U.S. residents can take years, even decades. For example, I have come to understand why clients from Mexico and the West Indies might have different views on the long-term value of their respective currencies and the relative liquidity of theirn respective portfolios. While cultural and national differences influence best approaches to wealth management for locals and expats, so too do differences in the history, government structure, and legal traditions of different jurisdictions.
2. What are some significant tax implications for non-U.S. residents?
Many non-U.S. investors give little thought to the sometimes profound effect of taxation on their estate. U.S. federal estate taxes can shrink the value of a portfolio, especially when parties sharing a joint account, like a married couple, have died. For non-U.S. resident clients, an exemption of $60,000 is typically allowed against the value of assets included in the U.S. taxable estate of a client who isn’t
domiciled in the U.S. Beyond that, the U.S. imposes a 26% estate tax on the assets of deceased non-residents, which gets even steeper for larger estates. In this light, managing and structuring a portfolio to minimize the impact of estate taxes may be more important than income, dividends, and capital gains taxes.
3. How is investing different for non-U.S. residents?
The U.S. estate tax is a game changer for expat Americans and nonU.S. residents. Clients in this category may want their investment holdings in “personal name,” which can limit investment choices mainly because of estate tax considerations. In such cases, advisors should emphasize a diversified portfolio that can be managed with the goal of minimizing the impact of U.S. estate taxes by having nonU.S. registered funds, also called offshore mutual funds. Advisors may have even more flexibility to invest in U.S.-registered funds where the assets are held in offshore trusts and/or corporate structures, giving the portfolio a potentially wider range of investment options. Investment location is also important for alternative holdings. In many cases, limited partnerships and private funds have parallel funds registered in offshore jurisdictions, like the Cayman Islands or the British Virgin Islands, to act as a shelter from U.S. taxation.
4. How robust is your network of tax and investment specialists?
An advisor doesn’t have to be a specialist in legal structures, account titling, and optimized distributions, but they must have ready access to a network of specialists in all relevant fields.
5. Do you have local contacts on the ground?
Knowing how dividends, interest, and capital gains are treated, when and how local pension funds or retirement accounts are taxed, can save time and money. A stateside advisor’s local contacts can help ensure decisions are in keeping with local laws and supportive of the client’s financial plans and investment goals.
Effective wealth management for expats and non-U.S. residents calls for comprehensive efforts that meet clients' evolving needs and take account of all aspects and sources of clients' wealth. Miguel Sosa is founding partner of Premia Global Advisors in Coral Gables, Fla.