Welcome to the inaugural issue of these monthly Notes! Since I founded my RIA four years ago, I have found that there is a paucity of information available with respect to cross-border planning in general, and with respect to cross-border tax issues in particular, and especially geared toward an audience of financial planners. So I decided to write these Notes to provide a high-level overview of various cross-border financial and tax planning topics for new-but-curious advisors, experienced practitioners, and all souls in between. I welcome feedback and questions for future issues and have already received many great ideas - thank you! My inner academic is rejoicing.
Among the suggestions, I wanted to start with these two:
- What are the 2-3 foundational topics I need to get up to speed on in order to become a specialist at this?
- How to ethically advise clients in the absence of clear cut rules that address their situation.
To address the first question, I would recommend focusing on understanding the “foundational” topics and building out from there. Unfortunately, there are no 2-3 subjects to master as a shortcut to becoming an expert; in reality, you really need to work through all the different financial planning areas (cash flow, investments, tax, estate planning, insurance, etc.) through the lens of cross-border considerations, and this takes years of direct experience. For myself, I worked at a Big Four accounting firm for a decade consulting for the global mobility programs of multi-national corporations, handling US tax preparation and coordinating with the foreign offices on payroll and tax reporting, I serve cross-border clients in my RIA and have a separate tax practice dedicated to serving individuals in cross-border situations – and I do not consider myself an expert. Every time I meet with a prospective client, I hesitate about taking them on, knowing how complicated the work can be.
To address the second question, because – as I've tried to highlight above – working with clients in these situations is extraordinarily complex, I wanted to offer some basic guidelines to help non-specialist planners decide what topics you might be able to figure out on your own, those for which you would need intermediate-level knowledge, and those for which you should call in an expert. But in all cases, if you are ever uncertain about an issue: reach out to others who are working in this space. As I do.
TL;DR – Make sure you know what you don’t know.
Green Light (lower risk scenarios)
The easiest scenarios are those that are both 1) of the shortest duration, and 2) with the most limited foreign ties.
Short duration: Generally, if your client or prospect is going on vacation abroad, or travelling for work, and will spend less than six months outside the US in a single country or less than a year outside the country in multiple foreign jurisdictions, there is not much of an impact from a US – or likely foreign tax – perspective. However, there are still important issues you might want to address with your client, such as: finding adequate travel insurance, picking the right credit card to use abroad, strategies for getting good foreign exchange rates, etc.
Limited foreign ties: For example, if a client has a foreign bank account, previously worked abroad in a single country, or has relatives outside the US and is anticipating receiving a gift or inheritance, these are the types of scenarios that you might be able to address through some diligent online research.
I would consider both these types of scenarios to be lower risk because you would likely not need to consider the interplay of multiple financial planning areas when providing advice to a client.
Yellow Light (proceed with caution)
The next tier of complexity I would categorize as those situations involving movements between two countries for employment or retirement, for example if your clients or prospects move to Portugal with a golden visa or retire to Costa Rica.
If your client is being transferred to a foreign country for 1-5 years through their employer, with the intention to return upon the end of the assignment, and he or she is receiving professional services through their employer as part of a secondment contract, this is generally the type of client that you may be able to continue to work with if you are willing to spend the time to develop a deeper understanding of the cross-border issues they might face, because they may not develop deep or long-term ties to the host country. Depending on the country, however, this may limit the services you could provide during the assignment period.
Red Light (advanced terrain, aka black diamond territory)
The most complex situations (in my mind) are those dealing with legal and corporate issues, and multiple jurisdictions with deep roots and over extended periods of time.
Such circumstances might include: repatriating to a home country of which they are a citizen, giving up a green card, owning a foreign corporation, holding equity compensation earned over the course of a career in multiple countries, etc. In such situations (and this list is by no means exhaustive), I would strongly recommend that you engage outside help and be prepared to potentially transfer the client to a more experienced planner.
NB: I guarantee that there are planners who are reading these Notes who object to my classifications because of a particular (or many!) situation they've encountered. To quote (incorrectly on purpose) Carl Richards, "I am often wrong but frequently in doubt." My intention here is to offer a loose framework for assessing the complexity of a situation, not for definitively categorizing them. And of course, I welcome feedback on how to better fine-tune these categories.
Additional resources: If you are a member of XY Planning Network, I gave an hour-long “Inside Experts” presentation in February 2022 which outlined some of these areas, but in much greater depth.
Also, the most active discussion board focused on cross-border planning for the broader financial planning community that I've come across is that run by the FPA – the International Cross-Border Knowledge Circle. Many professionals give generously, and regularly, of their time to answer questions for the benefit of our greater community, and the clients we serve.
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