Moving to America: Avoid These Costly US Tax Mistakes with Pre-Immigration Planning

For those moving to America, knowing what needs to happen before becoming a US tax resident can save you a lot of money. The opportunity can be enormous, but so can the tax mistakes. From foreign mutual funds that trigger punitive PFIC taxation, to offshore companies that become highly inefficient in the US, to pensions, trusts, and inheritances that create unexpected reporting obligations, many expats arrive without realising how quickly their existing financial setup can become problematic once they enter the US tax system.

Richard Taylor – dual UK/US citizen and Chartered Financial Planner – is joined by David Gershel – international tax attorney and Partner at Berkowitz, Trager & Trager LLC – to discuss why pre-immigration planning is one of the most overlooked but valuable parts of the moving process.

Drawing on real client examples, they explain how structures that work perfectly well abroad can become expensive liabilities in America, why California and other states can create tax problems beyond the federal system, and how failing to plan early can leave expats dealing with costly cleanup work years later.

In this episode of Expat Wealth, Richard and David discuss why foreign investments and pensions often create problems for new US residents, how offshore trusts and companies can trigger unintended tax consequences, what inheritance and reporting traps many expats miss, and why working with experienced US tax help and international wealth professionals before your move can save significant money and stress down the line.

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Expat Wealth is supported by Plan First Wealth. Plan First Wealth is a Registered Investment Advisor serving fellow expatriates and immigrants living across the US on matters such as retirement planning, investment management, tax planning and non-US asset management.

https://planfirstwealth.com/

 

Expat Wealth is affiliated with Plan First Wealth LLC, an SEC registered investment advisor. The views and opinions expressed in this program are those of the speakers and do not necessarily reflect the views or positions of Plan First Wealth.  

 

Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Plan First Wealth does not provide any tax and/or legal advice and strongly recommends that listeners seek their own advice in these areas.

 

ABOUT RICHARD:

Richard Taylor is a British expat, dual citizen (UK & US). Originally from Bolton, he now lives in Greenwich, CT, where Plan First Wealth has its head office.

As the firm’s leader, Richard launched Taylor & Taylor, now Plan First Wealth, and continues to fuel the firm’s growth. Richard is a Chartered Financial Planner (UK – CII) in addition to holding the IMC (CFA UK) and Series 65 (US – FINRA).

Connect with Richard on LinkedIn

TRANSCRIPT:

David Gershel: [00:00:00 – 00:00:09]

What’s the purpose? How are you coming here? Right? What kind of a visa are you coming on? And what is the intended duration? Which, of course, plans change. 

 

Richard Taylor: [00:00:09 – 00:00:27]

There is something in the water here. I, you know, I gotta prove this. I think a big part of it is it’s a nation founded by immigrants, people who left and took these big risks. And then. And that combined with the culture of hard work. God, Americans just work hard. 

 

David Gershel: [00:00:27 – 00:00:36]

But it’s like you said, right? It’s a different quality of life versus, you know, people in Europe have a very nice quality of life, but it’s just different. What are your goals? What is your purpose? So it’s not for everybody. 

 

Richard Taylor: [00:00:36 – 00:02:25]

Could we just take a minute to just, just highlight this issue? This is one of those things that blew my mind and still does, frankly. Welcome to Expat Wealth, a Plan first wealth podcast dedicated to helping ambitious expatriates in America and Americans overseas thrive. I’m your host, Richard Taylor, and Plan first wealth is the business I founded and run today. And we work with a successful expatri, patriots, immigrants and internationally minded Americans to make the most of their opportunity and avoid the expat landmines. First, a quick disclaimer. While Plan First Wealth, LLC is an SEC registered investment advisor, the views and opinions expressed in this program are those of the speakers and do not necessarily reflect the views and positions of Plan First Wealth. Information presented is for educational purposes only. Now, if you aren’t already receiving our emails, please go to our website, www.planfirstwealth.com and sign up. It’s free and you’ll be notified every time we drop a new episode. And so much more. Okay, let’s get back to this week’s show. Welcome to An Ask an expert show from Expat Wealth. My guest today is David Gerschel. David is an international tax and private client attorney and a partner at Berkowitz, Traeger and Traeger, operating out of big bad New York City, as well as the much calmer environs of Westport, Connecticut, which is just down the road from me. And we are here today to talk about pre immigration planning. In other words, if you are moving to the U.S. what do you need to be aware of and what do you need to do to avoid getting yourself into one of the many expensive pickles that David and myself routinely encounter amongst expats in the US So you can focus on maximizing your opportunity from the moment you land. Hi, David. Welcome to Expat Wealth. 

 

David Gershel: [00:02:26 – 00:02:28]

Hi. Great to be here. Thank You. 

 

Richard Taylor: [00:02:28 – 00:02:33]

Thank you. Thank you. Right, well that was my introduction. Would you mind just telling the folks who you are and what you do? 

 

David Gershel: [00:02:33 – 00:02:58]

Sure, yeah. Like you said, David Groeschel, based between New York and Connecticut, an international tax and private client attorney. So to oversimplify, international T and E, I suppose. Right. And so for me personally, all my clients have some cross border connection or issue and dealing with the tax planning to make their lives more tax efficient between jurisdictions as you deal with on a daily basis and myself as well,. 

 

Richard Taylor: [00:02:58 – 00:03:00]

What else does that involve? 

 

David Gershel: [00:03:00 – 00:04:31]

So of course, pre immigration tax plan like we’ll talk about today for those who are looking to move here to the United States from some other jurisdiction, you know, as we’ll talk about, the US can be a very complicated, all encompassing tax regime tax net. So trying to make it more tax efficient but also avoid those pitfalls. Right. Because you can have lots of compliance issues if you aren’t well advised moving here. Parallel to that, plenty of people don’t want to move to the United States, but they want to invest here. Right. They want that opportunity to exposure to U.S. markets or U.S. real estate, whatever the case may be. And again, looking to do that in a tax efficient way and making sure that they’re fully compliant with any reporting or tax obligations that they may have. I do tax regularization work which I know you’ve covered on prior podcasts. So for those who aren’t fully compliant for one reason or another, helping them become compliant, whether it’s through a streamlined filing or some other manner to fix any issues with the irs. And on the flip side of that, those that look to expatriate and give up the US citizenship or a long term green card, helping to navigate the exit tax on the way out. And finally on the outbound, right. Nobody wants to deal with US taxpayers. So if somebody wants to move abroad or invest abroad, helping them navigate that, what’s the right way or the right structure for them to achieve those goals. And for everything I’m doing right, working with co counsel in the other jurisdictions, so we make sure that the plan works globally across borders. Right. Because we don’t want to have something that works fantastic in the United States and disaster in the uk, Switzerland, Brazil, India, doesn’t matter. And so that’s what I’m doing, you know, each and every day. 

 

Richard Taylor: [00:04:32 – 00:06:09]

So the topic we’re going to talk about today, I mean look, you’re gonna have to come back on because there’s so much to talk about in everything you just listed there is a podcast episode and more in its own right. And you and I have actually had some other good ideas. But today we’re going to talk about pre immigration planning and I actually haven’t done a podcast on pre immigration planning yet, I don’t think. And yet it’s super important you touched on it before you touched on pitfalls. We call them landmines. Look, cross border tax is listed with landmines. But, but particularly where the US is involved. The. I say this time and time again, the US is a uniquely difficult and idiosyncratic tax regime and the penalties for getting it wrong are making even what I class as innocent mistakes can be catastrophic or punitive. So I think pre immigration planning is particularly important and I am astounded by how few people actually undertake it. So what I’d like to do today is I would like to do two things. What I’d like to, to cover some of the main points, some of the main things people should be thinking of with pre immigration planning to, to raise awareness of the points themselves, but also to raise the awareness of the need for people to pay some money to someone upfront to do this before you arrive because they will save themselves a. Of emotional and financial pain later down the road. Because when you and I often encounter it much later, you. I’m often encountering it. People who’ve been here a decade or two and starting thinking about retirement, those issues those landmines have calcified and it’s, it’s usually much more expensive to unwind them and fix them than it would have been at the outset. 

 

David Gershel: [00:06:10 – 00:07:00]

Almost always. Yeah, yeah, but. And it’s, it’s a good point. Right. And it’s not just for somebody who is ultra high net worth and be in excess of our, let’s say estate tax exemption. But it can be, you know, I’ve seen people run into problems with much more moderate net worth just because again, those compliance failures, those landmines, which aren’t intuitive, why would you think that you need to report? I mean, well, for us, we know this, but if I’m someone who’s no exposure to it or to report my account back home in country X or in some other jurisdiction and that the penalties may be so draconian. Right. And so to, instead of having that potential issue and trying to deal with having the penalty abated with the irs, yes, it’s better to talk to someone up front. You have to spend a little bit of money, sure. But then you avoid those headaches or perhaps sleepless nights if you have those problems hanging over Your head. 

 

Richard Taylor: [00:07:00 – 00:07:11]

Yeah, absolutely. Right, so let’s get into it. So where should we start? Like what’s the, where do you start when you’re talking to a client and. Or what’s the number one kind of like issue? 

 

David Gershel: [00:07:12 – 00:08:27]

Yeah, well, we’ll start at the beginning. Right. So you’re assigned to come to the United States. Why? Why? Yeah. No. Okay, so if you want to come here, what’s the purpose? How are you coming here, what kind of a visa are you coming on and what is the intended duration? Which of course plans change. So. Right. If somebody’s coming here to study, we see many times that, you know, maybe generation two is coming here to study. And the intention is, okay, you’ll go to university in the United States, you’re on a student visa, so you’re not a tax resident, and in four years or four academic years, you’re going to return home. But people fall in love, they get a job, whatever the case may be, they stick around and then the planning opportunities may or may not be available to them. Others are coming for a work transfer. So the intention is, okay, you come to the US for some experience and then you’re going to go back home. I mean, talking New York and London, there’s a lot of movement between the two cities and the financial services industry, for example. So if it’s a short term stint or, or envisioned to be a short term stint, the planning will be a bit different versus if somebody’s coming here, maybe they married an American or they want to be here. This is it. That’s the goal. I want to become a U.S. person, a U.S. citizen in the future. A long term plan is very different. So we try to get an idea of. 

 

Richard Taylor: [00:08:27 – 00:10:22]

Can I just jump in for a second? Well, so there’s two, I think there’s two interesting points to that. The first one was why are people coming here? So in my experience, the people we saw were, I know it’s very different, but oftentimes people we’re working with here got a top of the, they’re in the mid career, they’re doing well, they get a tap at the shoulder from their employer and said, do you want to try your hand in America? And people take the opportunity because America, for all its faults, is still the land of opportunity. And in my experience, people aren’t moving here for the good life. You know, we’re being a Brit, we’re on the cusp of Europe. If you want the good life, you go somewhere else. People come here to try and make it and I mean that career wise, financially, generally. And I think that makes this an even more critical conversation and piece of the planning jigsaw. Because if you’re coming here to really try and make it and change the quality of your life financially, don’t, don’t, you know, don’t kneecap yourself before you even land here. Like go into this with your ducks in a row so you don’t, 20 years later when you’re talking to me or you realize, oh damn, I should have done that 20 years ago and now I’ve got a more expensive problem. So I think this conversation is even more important. The second point you just made was people coming here temporarily, and I think it ties to the first one. In my experience, very, very infrequently are people coming here permanently. People are always like, you know what, I’ll try it for two years. I don’t like it. I can always come back and they come in with this temporary mindset. And you know, you, I know two years in, you’ve only just, you’ve only just got started. And I can’t tell you the amount of our clients who say they are here for two years. Twenty years later, I’m still here, I’m never leaving. And I, that, that two year mindset, I won’t change stuff around too much in case I end up coming home, because I might come home. I think that is, is a, is a blocker to the kind of planning we’re talking about and hopefully we can get this message out there. People realize. No, no, no. Even if you’re going with that mindset, one, know that things change and two, don’t neglect this. 

 

David Gershel: [00:10:23 – 00:12:42]

Well, so to your first question, why are people coming here? It could be many reasons, right? And yes, like you said, you know, whatever’s going on here, economically, politically, otherwise, it is still very much a land of opportunity. Right. A lot of people, for example, from, from Europe, from South America, whatever the case may be, they want to come here to start their business. We have a very entrepreneurial climate in the United States. We generally do have a rule of law, right. Versus, let’s say people or many countries south of us. You have a lot of opportunities for capital or financing, right. For people that want to start up companies here. So there’s many reasons to come. Some people come for security or safety. They’re leaving a less safe part of the world and they’re worried about their families being raised in such a place. Some come for education, others, yes. It’s a fantastic opportunity for experience to advance your career, to have on your resume you worked in whatever it may be, finance in New York, the tech industry in the Bay Area, entertainment industry in la, whatever the case may be. And so also the connections people can make for networking because then they can go back home and they have access maybe to venture capital or whatever the case may be for them to expand their business in the home market or to try to replicate something similar they experienced or saw here. There’s lots of reasons people are constantly coming and going. We have seen people leaving the United States maybe for retirement or otherwise. We have flow of people back and forth across borders. And as the world becomes smaller and smaller from a global perspective and people are more mobile, that’s great, but introduces complexity when you’re touching on multiple jurisdictions. Right. And so things that are intuitive or work or an afterthought in home country are very different here and vice versa. So we see those problems, but the US remains very attractive for people to start or advance their career, to have their family here, to raise their family here. So there’s many reasons to come. The problems are largely the same, but again, depending on the estimated duration, the planning may change. That’s what we try to nail down. But again, I don’t know, six, seven years ago, if I said, hey, we’re all going to be wearing masks at some point in the near future, you’d think I was insane. Who knows where any of us will be in five years or what the political or global climate may be. But for the moment, the US remains very attractive. So I see a lot of people moving here for various reasons. 

 

Richard Taylor: [00:12:42 – 00:13:02]

There is something in the water here. I gotta prove this. I think a big part of it is it’s a nation founded by immigrants, people who left and took these big risks. And that combined with the culture of hard work. God, Americans just work hard, in my experience. 

 

David Gershel: [00:13:03 – 00:13:43]

But it’s like you said, it’s a different quality of life versus people in Europe have a very nice quality of life, but it’s just different. What are your goals? What is your purpose? So it’s not for everybody, don’t get me wrong. And people that move here are confused and sort of flabbergasted about how health care works here, the lack of parental leave because it’s not run by the government, the fact that it’s a federal system. So we look at to talk about tax. All the different states may or may not have income taxes or estate or inheritance taxes. And so you have kind of 50 little countries within the big one. And so it can be very Complicated and confusing for somebody if they’re moving from a jurisdiction where it’s all at the national or federal level. 

 

Richard Taylor: [00:13:43 – 00:14:13]

I have been through all of those expert landing here wrapping my head around healthcare. I was in California. I still remember my utter shock and horror about trying to understand Kaiser Permanente. And now what I was looking at then is would be fantastically cheap compared to the costs we have now. But understanding about deductibles and co pays and just my mind being completely blown. And then the federal system and 50 little countries really I’ve been through all these stages of. I don’t know if I’d call them grief, but emotions. 

 

David Gershel: [00:14:14 – 00:14:24]

Well, if it makes you feel better for those of us who grew up here, it’s also confusing for us. So it’s not a user friendly system, probably by design, but that’s what we have for better or for worse. 

 

Richard Taylor: [00:14:24 – 00:14:32]

Yes. Right. So where were you? Sorry I interrupted you. People are coming here for whatever reasons are coming here and then whether coming here temporarily or permanently. 

 

David Gershel: [00:14:32 – 00:15:39]

Yeah, well because I mean if you’re coming here temporarily, then I think we don’t want to maybe do sort of complicated or sophisticated planning that may trap assets here. Right. Because once assets enter the US tax net, it can be complicated and costly to extract them from it. So if we’re talking about maybe you want to set up a trust to hold assets in the United States for you because you’re moving to the United States, perhaps you’re coming from a country without any sort of a gift tax in place. You can maybe fund a US irrevocable what we would call a non grantor trust with unlimited funds if that, you know, depending on what you want to put in. And you’re not going to use up any of your exemption. Whereas you know, like you said, you’re now a citizen. Right. And I am as well. We have which is very generous compared to let’s say the UK we have $15 million to play with during lifetime or death and that could be used to fund such a trust. But if you’re moving here and you have 50 or 100 or a million or even if you have less than that, you could put these assets that’s citing to a trust or make transfers if it’s even a gift outright without using up that exemption and preserving it. So wait, that’s the real. 

 

Richard Taylor: [00:15:40 – 00:16:12]

That has never occurred to me. I mean I guess you probably have to worry about the rules where you’re still based at that point. But putting that to one, which is your point about it all this is joined up. Every time we have a conversation on one section, you need to be thinking about the other section as well and that the other jurisdiction and that is going to change country to country to country, place to place. But if you have 100 million and you are coming to the US forever, you can in theory drop 100 million into a non grantor trust and not have to worry about the estate exempt. Wow, okay, yeah, that’s interesting. 

 

David Gershel: [00:16:12 – 00:19:23]

I mean, you can’t put all of your money in, we can’t leave you destitute. But yeah, if you want to put in a significant chunk, because hey, I can live off of, in that example, I’ll keep 20 million or me and my spouse, you know, 30 million. We have a 30 million exemption between us, we’ll spend that down. But this 70 million is going to be for generations two, three, four, five and so on. Because another thing, you’re coming from the uk, our law is derived from common law, but we diverged many, many years ago from that. And trust law works very differently here. And so we have perpetual trust. And so you could set up what we call a dynasty trust that’s going to last for however many generations until the funds run out or everything’s distributed out at some point in time to terminate it. So it’s, it’s, you know, that could make sense for a client. It may be though, that somebody has far less that doesn’t make sense. But perhaps they do want to make some gifts to family members and they think they’ll stick around forever. And the intention is they are coming here and they see a lot of upside in whatever they’re doing. And so maybe they will surpass our exemption, which is currently 15 million per domiciliary at the moment. But also that’s what it is today, right? In the past it’s been much lower and there’s no guarantee it stays at this level. Congress can reduce it, which is a possibility. So to think about, do you want to hedge that bet that it continues to be going up, an index for inflation accordingly and so on. Or hey, currently the Republicans expanded it, the Democrats come back to power, maybe they reduce it and it goes back down to 5 million like that was being proposed at one point. That’s a huge difference. Still, not to harp on the UK too much. Still much better than £325,000. As I understand, that’s the IHT exemption, but, but a big difference of one third of what it is today in that example. So not that we can predict the future, but to think about. Do you take advantage of that if you’re coming from a jurisdiction where a transfer into a trust wouldn’t trigger any tax for you to then have those assets in place for the benefit of children and grandchildren and whatnot. But that’s also fact specific on their financial situation. Do they have children or not? Some people don’t want kids. Some people are quite young, they don’t have them yet, but they think they will in the future. But you can’t set up the trust if you don’t have beneficiaries to name. So who else could be named? And not to go down the trust rabbit hole too much, but just to think about, you know, that’s something else that’s, you know, we’re going to discuss because you have a lot of opportunities for planning on the, on the income tax side and the transfer tax, meaning gift and estate tax side, before you become a U.S. income tax resident or a U.S. domiciliary, you know, a tax resident for, for our gift and estate tax regimes. So it’s a, it’s a, it’s a great opportunity if we have enough time to plan. Right. We don’t want to say, hey, I’m moving there tomorrow, or call me on December 25, I’ll be, you know, tax resident come January 1. But if you have sufficient time in advance, which is not always the case, as you well know, there’s a lot of interesting planning that can be considered. And you know, every client is different. So it’s fact specific. But to not take advantage of that is generally a foolish thing. Like you’re saying maybe somebody came here and then you missed that opportunity. Twenty years later we’re in a problematic state or kicking ourselves because, oh, I should have done that. But I just, you know, I ignored it because I didn’t think it was relevant or important at the time. 

 

Richard Taylor: [00:19:23 – 00:19:32]

That’s an interesting question, actually. What is kind of would you say the ideal length of time that you would have that someone involves you before they land here? 

 

David Gershel: [00:19:32 – 00:20:15]

Yeah. So I think you want to give your advisors as much time as possible. Of course, but to be on the safe side, at least six months. Just because there could be complexities. Sometimes people forget to tell you about certain assets or family members that may or may not be moving to the US with them. And also if it’s going to be based on the calendar year, the end of the year can be a bit busy with the holidays. We have Thanksgiving at the end of the year in the United States and then into Christmas and New Year’s and so other service providers that we may need to be part of the team to address everything before year end may not be available or may be overwhelmed with other clients rushing to do year end planning. So the earlier the better. Of course I’m going to go out on a limit. 

 

Richard Taylor: [00:20:15 – 00:21:08]

I’m going to say ideally at least a year. And the reason I say that is six months is, I’m sure, completely adequate. But in my experience working with people who are making this transition, there’s so much going on. There’s so much going on, especially if you have kids as well. The. It’s almost too much to, to comprehend. And this is one of those jobs that’s maybe important but not urgent and it gets knocked down and knocked down and knocked down and before you know it, we have clients who are like, all right, I’m moving. I may have spoken to you a year ago and you may have chased me repeatedly since then, but I’m moving in in a month, what can we do? And you’re like, oh, well, technically you reached out to us a year ago, but we don’t really have enough time now to do everything we need to do. So the more time you can give us, the better. And also if you feel that we’re hounding you and harassing you, sometimes we are. And that’s because we know there’s a deadline coming up and there’s lots to do before then. 

 

David Gershel: [00:21:08 – 00:22:25]

Yeah, that’s a good point because sometimes you have to walk a fine line between being persistent and being annoying, I suppose. But I have had situations where we’ve gone through the analysis, we’ve given the client the advice to do X, Y and Z before they become a US tax resident, which may or may not be January 1st of the coming year and they disappear. And so either there’s no time to have it done or now, if we’re into 27, if we’re doing it this year, we’ve lost that opportunity. Where’d you go? What happened? Of course life happens and people have different reasons and maybe a tragedy in the family. Who knows what the reason may be. But it’s not just, hey, here’s the advice we need to implement. So there’s also right to give enough time for implementation. So not just the analysis, that’s sort of phase one, phase two be implementation. And that’s where sort of the magic happens, right, that we get to have everything in place and we get to have you in a more tax efficient position. Have you properly advised as to what are going to be your obligations Once you’re a U.S. tax resident, advise you on when you’ll become a U.S. tax resident because there’s different tests as far as when your residency date starts and so on. So all this stuff is very relevant and if we don’t have communication if it, if somebody goes silent on us, that’s where mistakes can happen as well. 

 

Richard Taylor: [00:22:25 – 00:24:40]

I’m excited to announce that Expat wealth has its first sponsor, the Global Financial Planning Institute. The GFPI exists to provide education, community tools, resources and ongoing research for financial planners and other advanced financial professionals working with international and cross border clients in the US And Americans abroad. I’m a GFP Institute fellow and I’ve put all our employees through their GFPI programs when they join us. I’ve met some great people, I’ve learned a ton. It’s a genuine community of internationally minded folk doing their best to serve their clients properly and critically sharing what they know in the oftentimes challenging and ambiguous US cross border environment. And as anyone in this sector will tell you, you’re always learning. So if you work with international clients and, or Americans abroad or, or if this is an area you’re looking to get into, check out the gfpi@www.gfp.in stute you will be glad you did and I hope to see you there soon. I’m going to jump the gun a little bit and I’m going to, I’m going to just give a perfect example of this about the implementation. So we’ve got a client moving to California or soon to be client moving to California and one of the things that we’ve said to them is like right, organize your UK pensions before you le leave, before you leave the UK because whilst you can, there’s, there’s not, there’s a position that California taxes, pension rollovers, pension transfers, you can. So just to, to take that out of the equation, organize your pensions beforehand. Oh, and also take your PCLs, the 25% lump sum entitlement you get in the UK because they’re over 55. That might not be an option for you if you’re under 55, but if you’re over 55, take them before you land here because number one the, it’s not clear whether it’s taxable or not in the US and number two, it’s almost universally agreed it is taxable in California. So you can save actual money and like debatable money on just not taking a position by doing it before you arrive. But both those things take time rolling over UK pensions, taking PCLs. That takes time and if you don’t give us enough time to do it, there’s not much we can do. 

 

David Gershel: [00:24:41 – 00:25:46]

Yeah, we could dive into UK pensions in a moment or any pension for that matter because they always present issues. But something else to note with that because well California is a very California and New York are probably the two worst states from a state tax level. But we’ll have people also move to let’s say California perhaps are on a student visa so they can exclude days of presence not becoming a federal income tax resident. Or maybe they’re taking advantage of I don’t know if it’s gone over or been covered in pre prior pack that’s podcast but the closer connection exception are taking a treaty position that you’re not in a tax resident in the US but rather let’s say the UK California doesn’t follow federal on these things. You could end up being not a federal income tax resident but still California state income tax resident which again is a very crazy sort of confusing situation to be in. But you may owe tax there in California, unlike let’s say the same situation can happen in New York for example but New York generally follows your federal adjusted gross income to calculate your New York state and city if it’s applicable. California doesn’t do that. So you could have tax owed in California and not to the federal government, the irs. So you can have a very strange result. 

 

Richard Taylor: [00:25:46 – 00:26:36]

Could we just take a minute to just highlight this issue? This is one of those things that blew my mind and still does frankly. We’re talking mostly from a federal perspective. We’re talking about moving from anywhere to the US and by the US we generally mean federally. However, to your point earlier, there are 50 individual states and they also have their own way of doing things. And particularly California. And there are others, but particularly California and a lot of people move to California, they don’t follow the federal dta. So just the federal government go to all this trouble of negotiating and putting in place a dual taxation agreement and California just opts out. It blows my mind. But that means you can end up in this this situation where you have no issues federally, but you do on a California level and California is not low tax. 

 

David Gershel: [00:26:36 – 00:28:37]

No, not at all. But you know there’s jurisprudence in place at the federal level that the tax trees don’t apply to the states. So a state could choose to allow that to be applicable to them, but generally don’t. So you can have that California, it’s easy to knock on it but many other states that have a state income tax, that can also be your result. It’s just that they, a lot of states will track the federal return. And so if you’re going to have a bunch of zeros on there because you’re not a federal income tax resident, okay, you probably zeroed out your, your local return, but not always the case. California’s going to be very different in that regard. And also beautiful weather, there’s a lot of business opportunities there, you know. But right now a big political issue is the push to have a wealth tax on the ballot out there. And so it makes it less attractive for somebody who is ultra high net worth. But in any event, if you think that you may be starting the next unicorn and you may have an explosion in wealth, there’s a reason why companies and individuals are moving to, let’s say Texas or Florida or somewhere else. So hopefully California doesn’t shoot itself in the foot too much. But I understand they want to have a degree of equality across their constituency or citizenship there or residents. But you know, yes, state level taxation and rules are very, very relevant when somebody’s moving here. And so that’s always a question, where are you moving to and why? Right. Because also New York City, for example, is also a very attractive place. But you’ll have New York State and New York City tax. And when you add those up, it can be in excess of what the California state income tax is. And so do you want to be in the city or could you be just outside in the suburbs of New York or Connecticut or New Jersey? Not that those are low tax jurisdictions either, but it could may make sense for somebody beyond maybe you want a house and not to be in an apartment or otherwise. But so, you know, some certain factors, we don’t want tax to drive your life, of course, but we want to make your life as tax efficient while helping you achieve whatever your goals are from a professional or personal perspective. 

 

Richard Taylor: [00:28:37 – 00:29:05]

Well, as one Connecticut resident to another, they may not be low tax, but they are certainly lower tax, meaningfully lower tax. And did you see that New York article, article yesterday about the bomb fight from Upper east side bums to get their kids into kindergarten? Yeah, yeah, I saw that and I just. Because I sometimes pine to be back in New York City because it’s where everything’s going on. I read that and I was like, nope, I do not want to be involved in that. 

 

David Gershel: [00:29:05 – 00:29:43]

No, you’re boomerang back when your kids are, I guess, in college or something like that. Right. But no, it’s too bad because it’s a great place, but it’s very expensive to raise a family there. And so again, if people are moving here to then think about, you know, there is a handful of good public schools, you know, but Otherwise private school, 60, $70,000 a year is the same as college or university tuition is. It can be cross prohibitive. It’s unfathomable for many people. Right. So it’s wild again what works for you. And those are things that aren’t taxed, but it’s very relevant to where you’re gonna, where you’re gonna live. And then the tax follows. Right. Based on where you’re a resident. 

 

Richard Taylor: [00:29:43 – 00:30:06]

Okay, so look, let’s say you’re not, heaven forbid you, you don’t have 100 million to drop into a trust, you know, so because after all these people are coming here to make it so they, they’re coming here to make that 100 million, so they’re coming here without it. So to the regular person successful, but you know, not, not 100 million to drop into a trust successful. Like what, what are the things that, what’s on our bingo card that, that they should be looking out for to do before they arrive? 

 

David Gershel: [00:30:07 – 00:31:47]

Sure. And all these things kind of will come together in that we don’t need to dive into the specifics of CFCs and PFICs, which I think you have done. But very briefly, a CFC or a controlled foreign corporation is when we have a non US entity that’s classified as a corporation from a US perspective where at least 50% of the voter value is held by US shareholders. A US shareholder defined as a 10% or greater shareholder that happens to be a US tax residential. And that can happen if somebody has an offshore holding company, they may be using that to invest into the United States. And that worked well because it was in, let’s say the British Virgin Islands or the Bahamas or Jersey or Guernsey somewhere without a corporate income tax. And it also blocked US estate tax perhaps. And then they move here. And now it’s very income tax inefficient in that you’re going to have current year income pickup regardless of distributions coming out. You’re going to lose preferential long term capital gains rates and you have very burdensome reporting obligations on what is called IRS Form 5471. And so it makes a lot of headaches for somebody. And I’ll talk about what we could do to plan for that accordingly. And also the other one is passive foreign investment companies or PFIC interests Again, entities that would be viewed as a corporation from a US Perspective because everyone has limited liability and it has again, a couple of regimes. That’s a whole separate podcast, but becomes very tax inefficient and burns some reporting obligations. And so we want to think about how to maybe get rid of those or make them more efficient. And sometimes if it’s a personal holding company, you can make an election, right, what we call a check the box election to make it tax transparent for US Purposes, it would have no bearing anywhere else in the world. 

 

Richard Taylor: [00:31:48 – 00:31:54]

It does have to be timely. Does it have to be done like in year one or can you do that? If you realize you’ve not done it for 10 years, can you then go back and fix it? 

 

David Gershel: [00:31:54 – 00:32:41]

It doesn’t have to be timely prior to US Tax residency. So the company may have been formed a decade ago and now you’re moving here next year. We can make the election some point this year, end of the year because when you do this, it’s a deemed liquidation of that company. And the basis of the assets held in the company are stepped up to fair market value. So, right, if you bought those shares at $10 a share, now they’re worth 20. When you’re in the US now you have a $20 per share cost basis. So only appreciation beyond that would have U.S. capital gains tax exposure. Once you’re a U.S. tax resident, the general rule is you can go back in time 75 days. So retroactive 75 days there is what we call late election relief. We can go back three years and 75 days. But there’s a number of criteria to allow you to take advantage of going back beyond 75 days into that window. 

 

Richard Taylor: [00:32:41 – 00:32:58]

Let’s say typical pattern here, someone’s landed in the U.S. they haven’t done appropriate planning. They five years in, 10 years in, they have a conversation with me, they have conversation with you, they realize they’ve missed the boat on this. They can’t go back and check the buck election. They’ve got to just. That’s passed. Is that what you’re saying, the opportunity’s passed? 

 

David Gershel: [00:32:59 – 00:34:12]

Well, again, it depends on the specifics of that situation. So if it’s more than 75 day window, you can go back further if you fit certain criteria. One of them being that you haven’t had to file a tax return. That would be contrary to the position you want to take in that, in that window, for example. So, right, you can’t have filed and reported as, let’s say, a controlled foreign corporation. And now you want to check the box retroactively and make it into a tax transparent entity, a partnership or disregarded. And you’ve already filed in opposition to that fact. So that’s an oversimplification of course, but so there are chances to have a longer period of time to fix that. But again when we go back to kind of that, that six months year long window to do the planning, ideally we already have everything ready to go and we’re going to make it timely in that first month or so of the following year or whatever is relevant to not have to worry about going beyond that 75 day window that has the ability to do this without issue. So short answer, yes, you can go back further in time, but there’s a lot of caveats. Right. So it’s not advisable if you don’t have to rely on that. I wouldn’t do it. 

 

Richard Taylor: [00:34:12 – 00:34:22]

This like Pfix is just one of those things where if you sort this out before you arrive, it’s a non issue or a very small issue, sorting out later can be a massive issue. 

 

David Gershel: [00:34:22 – 00:35:19]

Yeah. And right, both of these are anti deferral regimes, right. To take away the benefits of offshore tax deferral that Americans used to be able to get. These regimes have been in place since the 60s, so it’s been a long time. But Pfix, very briefly, that’s if you have an asset. I mean to oversimplify, a non US mutual fund is the most classic example and it’s because it’s just held for the derivation of a passive income to the holder, if you can. Again, we have to see what the tax impact is in the other country. But if largely it makes sense to offload those before you come here, maybe replace it with US equivalents or do something else with that money because the tax drag is so high, including if you hold the PFIC for so long and it’s under the default excess distribution regime, you could have more than 100% taxation on disposition of a PFIC. You’d have to, I don’t know of any investment that would really beat the tax impact of that. 

 

Richard Taylor: [00:35:19 – 00:36:41]

Can I just bring this to life? So what we’re talking about here, David, is people who have got mutual funds, ETFs in their home country, you know, which, which most people do and will have. And the classics I referred to before about people moving here temporarily thinking yeah, I might come back one day, they don’t want to liquidate these holdings, you know, they so they so. And especially common we see in the US And I’m sure there’s, there’s, there’s many versions of this elsewhere in the world is ISAs. Because an ISA is a tax free wrapper that allows you to accumulate these funds. Tax free people do not not want to and then take money out. Tax free people do not want to give this up. So they want to hold on to their investments and hold on to their ISAs. And they do so not realizing that the moment they land in the US these are PFICs and they go from being either non tax if they’re an isa, or, or you know, subject to capital gains tax, which is usually lower. And suddenly they are part of this PFIC regime which means they now have reporting requirements and possibly very, very to your point, very punitive taxation. And this taxation gets worse and worse as time goes on because the excess distribution regime, and we’ve had situations, real life situations, where we have spoke to people who have been here for 20, 30 years who have held a portfolio of pfix since the 80s and had no idea that this problem was just growing and growing and growing and growing. And it’s pretty devastating. 

 

David Gershel: [00:36:41 – 00:37:37]

Yeah. And there’s three different prefect regimes that could be applicable. But right now I’m dealing with somebody. She’s not ultra high net worth by any means. She’s from the uk. This all came about because the bank that she was working with in UK decided they didn’t want to have Americans as customers anymore and said, okay, we’re kicking you out and okay, great, she’s talking to somebody and they realize that you’re sitting on a PFIC, this UK mutual fund equivalent, and she’s held it since 1987. So when we think about, because if it’s under the distribution regime, you have that throwback interest charge going back to over the course of the holding period. So probably if this whole thing was liquidated, which this bank was going to do, you would have to give more than that was worth in tax. So we don’t want to do that. Right. We want to transfer it in kind so that we can unwind it in a more tax efficient manner at our behest. 

 

Richard Taylor: [00:37:37 – 00:37:41]

Hey, don’t give away the baby. This is a future podcast episode. 

 

David Gershel: [00:37:41 – 00:37:41]

Okay? 

 

Richard Taylor: [00:37:41 – 00:38:11]

This, this is, we talked about this. So folks listening, there is this PFIC problem. This is, this is so pernicious. This is so common and it’s so, I think it’s so unfair that when David and I were thrashing around for topics to talk about, you mentioned this to me and I think that. I think this is an episode in its own right because I think there are people out there sat on massive gains in Pfix and they need to know about this. So definitely cover this one. 

 

David Gershel: [00:38:11 – 00:39:15]

No, sure. But not even that. Right. And again, the regime becomes, or tax rules are very hard to address because if you have a pension, okay, great, you have to report that and maybe that’s going to be viewed as what we call a foreign guarantor trust, maybe it’s not, maybe you have to pick up the income currently, maybe you don’t. But that itself may be holding Pfix and often you don’t have any visibility into what your pension is invested in. And how do you report that properly? And it creates a problem of a practical issue of what do you do? And so again a pension, you’re not going to cash out because there’s going to be some sort of penalty if you’re not at retirement age. But these are things that you talk about. The UK we have a treaty in place so that blunts a lot of these negative impacts, but not all of them. Of course, you’re coming from a non treaty jurisdiction. It could be a huge disaster, particularly if you weren’t advised in advance. And now you have possibly income pickup on a pension that you can’t access, so you have to pay tax on money you never actually received. And then when you do take it out, you’re going to get taxed again. We can’t afford tax problem so there’s. 

 

Richard Taylor: [00:39:15 – 00:39:16]

No treaty in place. 

 

David Gershel: [00:39:16 – 00:39:17]

And the underlying piece you’ve gone from. 

 

Richard Taylor: [00:39:17 – 00:39:27]

Thing you have this retirement account, deferred growth, Pfix fight to all the problems, you’ve got to pick it up, you got to, you got Pfix, you’ve got reporting, you’ve got all the problems. Oh man. 

 

David Gershel: [00:39:27 – 00:41:01]

Exactly. Yeah. So it could be a huge mess. And the rules, they come I guess from a good place of trying to stop offshore tax deferral. But then they think that they’re so broad that they end up capturing things that perhaps the legislators at the time weren’t really thinking about. Especially again, as people become more mobile and the nature of investments and being able to do things online have all changed. Now, don’t get me wrong, there’s a whole industry of advisors to help you invest in things that are not problematic. But if you already have it in place and you can’t touch it because you have to wait until age X in that country to take it out, you’re sort of stuck. And we see the same thing with people leaving the United States, you know, they always ask if they’re going to cease US tax residency, do I cash out my IRA or 401k? You’re under 59 and a half. That 10% penalty is pretty punitive also. But oh my, my new country, my new tax residency is going to do something similar and you’re going to have taxation on assets you can’t access and so on. So countries, they don’t talk so nicely. They haven’t quite figured out how to deal with pensions for people who move between jurisdictions. And when we say pensions for everybody listening, I guess for the Americans perhaps listening, we just mean retirement accounts. Not a classic pension or it could be too, but not just a classic pension that pays you X per month because you worked at a, you know, a factory or company for however many years. So any sort of retirement account can create issues even though it’s supposed to give you those tax advantages or you thought they would, you know, because you happened to change your tax residency from country A to country B. So something else to always be aware of. 

 

Richard Taylor: [00:41:01 – 00:41:25]

And you know it’s, it’s, it’s super basic as well. But also just if you’re working with professionals from the get go, just knowing that you need to report these. Yeah. Subject to certain limits, but they’re very low. But you need to threshold. Sorry, you need to report these every year from the get go. I mean just knowing that and getting that right from year one will cause you like a lot of emotional heartache in future years when you realize you’ve not been doing. 

 

David Gershel: [00:41:25 – 00:43:09]

Yeah. And certain things you don’t think about. Right. Because you’re worried about the big assets. Again, you know, that’s why you have to be as forthright as possible with your advisors because even small things that you don’t think are problematic or relevant, they may be. So I had a client, he moved from here to London for a fintech startup and he was put into a UK pension. The company didn’t have a way for him to opt out. They didn’t know that being a U.S. person has different results because I think it’s just an Eritrea that have citizenship based taxation. So very unique in the world. And so even though it only had £7,500, it hadn’t been reported. And oh, now we have a big problem of having to clean this up for a very small amount. The cleanup cost way more than £7,500. But that was something to worry about. Also the fact that for us person, this guy moving there, people Coming here, EMI options are quite common I guess as I’ve learned in sort of the tech space over there which are granted at 0.0001 pence blessed by HMRC. That’s disastrous on the US side because it’s not 409A compliant compliant with our deferred compensation rules. So again things that you’re going between countries, you know, you’re following what career opportunities, great. You’re getting some deferred compensation stock options. That’s awesome. If this company does well, I’m going to have a nice jump in wealth or liquidity event. But oh, the tax man’s going to come knocking and you have a big problem and the tax bill may outweigh a lot of that upside. So again, right, that’s more on the UK side for people going there. But it could be you’re coming here with those issues and we want to make sure it works in both countries. Right. What are the options to address that and blunt that negative tax impact and of course and make sure we report everything properly. 

 

Richard Taylor: [00:43:09 – 00:43:35]

You know, it’s so brutal because so much of this stuff is just like not 101 but in one jurisdiction. No one thinks about it, it’s just a given. You know, there’s no, there’s no problems with it. It’s just. And then unwittingly it just creates a world of pain in the other jurisdiction. And I have enormous sympathy for people. I live in this world and sometimes even I don’t connect the dots. I don’t realize it’s only when I’m having a conversation with someone else and they point out oh yeah, you do that as a problem and even I’m still taken by surpr. 

 

David Gershel: [00:43:36 – 00:44:30]

But yes, US tax is very complicated but from a one on one perspective I suppose, which again we see plenty of problems with this all the time. I know you do too. You have to report your non US financial accounts on the F bar and it has a low threshold of $10,000 and people don’t know about that because in your home country maybe you didn’t have something similar or you haven’t been advised. That’s where an international accountant, a CPA is of the utmost importance because if you somebody purely domestic, you’re likely to catch yourself off guard because perhaps they don’t know and they may know and they can be wonderful, really good accountants, but they’re not well versed in that universe. Likewise, a similar IRS form is the 8938 for what we call specified foreign financial assets which is broader than the fbar, and it can capture other items. And if people don’t report it, either of these forms, the penalties can be quite punitive, as you know, and fixing it can be very expensive. 

 

Richard Taylor: [00:44:31 – 00:44:32]

And they can keep your tax returns open. 

 

David Gershel: [00:44:32 – 00:45:28]

Yeah, so that’s a very good point. Right. If you don’t file, the informational reports due that year remains open for audit in perpetuity until you do file. So you didn’t do it in 2012. The IRS could go back today and say, we’re going to look at 2012. Oh, Richard, you had these accounts or you didn’t file an fbar, and you should have. Now they can look into the whole picture and you’re not going to have the records from 10, 12, 15, 20 years ago, or very unlikely. The banks aren’t going to have that information, I imagine. And so you’re sort of at the mercy of the IRS at that point, which is never where you want to be. So again, it’s complicated. It’s less expensive overall to do it right from the start to get the proper advice. And don’t be pennywise pound foolish, I want to say, just because maybe you’re saving a little bit this year, but then that can of worms or that landmine may be sitting around, it could blow up down the road. 

 

Richard Taylor: [00:45:28 – 00:45:31]

So is there anything from a real estate perspective? 

 

David Gershel: [00:45:32 – 00:48:08]

Real estate’s a tricky one because we have, and I don’t know if this has been covered or not previously, but our, our Foreign Investment in Real Property Tax act or FIRPTA regime, which is relevant for non US persons, if they’re going to transfer or sell US real estate now, somebody’s moving here, they become a US tax resident. Okay, we can buy real estate, we can do as we wish. We don’t have to worry about these problems. But if they’re only going to stay short term and they’re going back to the UK or anywhere else in the world, having that real estate could create some complications as far as dealing with firpta, which people sometimes fail to do so, which again, can be very significant penalties. But also having U.S. real estate is a U.S. cITUS asset, so you have U.S. estate tax exposure. So whether you’re living here, but temporarily or long term, or you’re not living here at all, that’s going to be an estate tax risk for that person. Now, I mentioned the UK because you’re from there. We do have an estate tax treaty, quite comprehensive one with the uk. Great. But there’s a lot fewer estate and inheritance tax treaties that the United States has versus double taxation or income tax treaties. So we have to be very cognizant of what is your US estate tax exposure currently while you’re abroad and when you’re here. Just because. Not to go on too much of a tangent, but income tax residency people are quite familiar with. I think if you’re a citizen or a green card holder, you’re a tax resident green card holder almost always. But there are some exceptions if you take a position. But then if we have our substantial presence test, our day counting formula, we count every day in the current year as one full day. The prior year is one third and the year before that is 1/6. Add them up and do you have 183 or more days. If so, you’re a tax resident. Okay, that’s pretty black and white. For transfer tax purposes, gift and estate tax, and generation skipping tax. The test is are you a domicile, which is you’re presently living in the United States with the intention to remain indefinitely. And so it’s subjective. Right, that second part. And so it’s not always clear, are you or are you not a citizen? You’re always a tax resident. For transfer taxes, a green card holder. It’s a rebuttable presumption that you are a US Domiciliary, but you can rebut that. And then for someone else it’s a bit fluid. Right. So it depends the downside of being a domiciliary. You have worldwide taxation on any transfers during lifetime or death. But the upside, you get that $15 million exemption. If you’re not a domiciliary, you have U.S. gift tax exposure. And what are U.S. cITUS assets. So that’d be U.S. real property, intangible property located here, artwork, jewelry, cars, what have you. 

 

Richard Taylor: [00:48:08 – 00:48:12]

Including. Right. Including stocks and shares. So if you have US etf, not. 

 

David Gershel: [00:48:12 – 00:49:07]

For gift, not for gift tax purposes, so you could transfer it and maybe you’re planning to protect it. But for estate tax purposes, it does pick up intangible assets. So whether it’s publicly or privately traded securities, interest in partnerships, LLCs, corporations, that all comes in. And so it doesn’t matter if you hold it in an account in Switzerland or Singapore or Hong Kong, if it’s shares of, let’s say Apple or Amazon, Nvidia, those are all US Cities assets. And on death there’s a tax bill due because the exemption generally is just 60,000 to play. 60 Only 60,000 nothing. It’s quite low. Yes. And then, you know, common client question, how would anybody know it’s over in Country X. Yeah. But all the banks are aware, right? Because in 2008, 2009, the Department of Justice went into Switzerland. Americans were hiding money. So all the banks have been put on notice that if they release the funds and they shouldn’t have, they’re secondarily liable for that tax. So they’re very conservative on this point. 

 

Richard Taylor: [00:49:07 – 00:49:13]

I need you to ask you a question here. Does a little part of you die like it does in me every time a client asks you that question? 

 

David Gershel: [00:49:13 – 00:49:59]

Yeah. Then you’re like, well, then you need to explore that because I don’t know if I want to work with you. Right. No, I mean it’s a fair question because it is an intuitive, you know, same thing. I, I hear people who’ve left the UK or at the IHT tail for 10 years, they ask, how would they know? It’s that these are the tax rules in place. Do you really want to play that game? And also if you’re going to be non compliant, I can’t work with you. But why take that risk? Because then you’re engaging in actual tax evasion and you can have criminal liabilities and that’s, that’s not my world at all. And I don’t want to be involved in that. And I wouldn’t want to be on either the client or the advisor in that scenario. But I guess I understand. How would they know? It’s a fair question, but that’s how they’ll know. 

 

Richard Taylor: [00:49:59 – 00:50:31]

Yeah. I’m going to throw another issue with real estate. So fx and I know that’s not really the realm we’re talking about, but you have to be aware of FX issues. We have a client right now who is trying to remortgage an interest only mortgage in the UK and they’re going to get a tax hit on it because the FX rate, the pound, again, it’s a pound interest only mortgage in the UK and the pound dollar has moved since they took it out and it’s classed as a re, you know, a changing of the terms and they’re going to get taxed on this phantom gain in dollars. And that is painful. 

 

David Gershel: [00:50:32 – 00:52:52]

Yeah. And it can go either way. Right. You could also have a loss here, that’s a gain there and vice versa. So it does become complex. And for reporting obligations, you think you’re below the threshold, but. But we have to price everything in dollars at the appropriate exchange rate. You may have a reporting obligation even though you think you don’t. Foreign currency gains or losses is also Another tricky piece. Again, that’s why you need to have somebody who can calculate that for you so we have the returns done properly. You mentioned loans. Another thing that’s common in many countries are interest free loans or undocumented loans. That doesn’t fly in the United States. So if you’re coming here, we need to either think about should it be considered actually it was a capital contribution to the company rather than a loan. Was it truly a gift? Do we need to make it into a true loan with an interest rate that will be accepted by the irs? So things that work in country X may not work here or in civil law countries. Often, particularly when we look to continental European people make use of use of frux. Right. Which is similar but not the same as what we have with the life estate and a remainderman. But the original owner retains the right to use the property and the income being generated. And then usually the children, they get the bare legal title like the remainder interest and so they own it on death. Because it doesn’t line up so neatly in a common law jurisdiction. It can be tricky as to classifying that properly and reporting it properly. And also a downside is that it works well, let’s say if you’re an Italian or a Frenchman or whatever the case may be. But on the US side we lose the benefit of a step up in basis on death, which is what happens regardless of whether the person is a US person or not, the assets are in the United States or not. When you die, anything in your personal state is going to be stepped up. And so maybe that’s a very valuable property. And okay, it’s going to have inheritance tax in country X. But if that tax rate is lower than what the US rates may be for that person. Again we’re thinking about globally what’s going to leave that individual, that family in the best net after tax position. Not just from the US side, not just from the counterparty jurisdiction. We want to think with everybody on board. So again it goes back to your earlier point. If we want to have as much time to plan as possible so that we can do everything properly and get them the best result. 

 

Richard Taylor: [00:52:52 – 00:53:00]

Lots to think about, lots to think about, lots that I’m aware of and lots that I’m not as well. Is there anything else that springs to mind immediately as like a. 

 

David Gershel: [00:53:01 – 00:54:46]

Well, I guess I don’t want to harp too much on it but just that compliance of the utmost importance. But also that our rules concerning what’s considered a trust or not can be tricky. Right. So Something you wouldn’t think is maybe and something that you would think is a trust is not perhaps or how the US would classify it is quite different and that can lead to certain unfavorable results. Particularly if it’s a non US trust that we have a US beneficiary of because of certain other anti deferral rules that apply to trust. If you’re a beneficiary of a foreign meaning non US non grantor trust. Because when income is accumulated and it comes out later, it could have very negative tax consequences, burdensome reporting obligations again and in the worst case scenario, 100% taxation. So everything goes to Uncle Sam instead of anything to you. Alternatively, in the past people would set up a trust right before they moved here and have it benefit, let’s say their kids or something. Rules have been in place for many years now, but that can make it into a grantor trust from a US perspective meaning that the individual who set it up, the settlor, he or she is picking up all that income even if they can ever access it or they’re not permissible beneficiary which is not what they want. And then if they depart, it may trigger a certain mark to market tax on the way out. So you may get whacked on the way out. Then you pay tax on this trust that you thought was set up to kind of have that sort of offshore tax deferral, keep it outside the US tax net. But that’s not what occurred. So trusts can be very complicated items. And what else on the outbound, if somebody’s only here temporarily, I’ll mention the UK again just because it’s relevant. A very common estate plan in the United States would have a revocable trust as your will substitute that’s going to dictate disposition on death. 

 

Richard Taylor: [00:54:47 – 00:54:47]

Death. 

 

David Gershel: [00:54:47 – 00:55:42]

We like it because it minimizes the time expense of probate. It preserves privacy versus a will. I’ve had clients land in the uk, they didn’t speak to somebody there. And now because you’re the trustee of your own revocable trust, it’s now a UK resident trust and has tax being levied there. Oops. So you know again, if you’re leaving the U.S. also your stint is actually only temporary. Make sure you speak with your advisor and the other company country even if you’re going back home because whatever you’ve accumulated here, whatever your holdings are from the US side may cause problems going the other way back home. So again we have to think globally, right cross border so that we’re not going to have you falling into any of those traps in either direction or I don’t know, it keeps it interesting for you and me. But yes, it’s a huge headache and cause of anxiety from an many people unfortunately. But those are the rules and we’re just helping you comply with them. 

 

Richard Taylor: [00:55:42 – 00:56:23]

Those are the rules, you know and you know, we didn’t make them. Oftentimes we don’t like them. But they are what they are. I mean I’ve kind of built a career around it. So in some respects I guess I’ve benefited from it. But I don’t like a lot of them. I the to underscore your last point, the the value in having a cross border team of professionals around you who are communicating, who have a relationship, who are working together because you can put together different silos. But you I think to do it properly you need them all to have a relationship to be communicating about this. That that’s really the only way I can. The only feasible way I can see. 

 

David Gershel: [00:56:23 – 00:57:45]

Yeah. And I’ll mention two more points because I know I’ve taken all of your time. But right before you’re coming here, if you can maybe accelerate receipt of income if you have any sort of deferred comp or bonus sitting around if it’s going to be taxed lower in the other country versus here and consider deferring losses to recognize them here to offset other income here. A final note from a compliance perspective. Again, IRS form 3520 and 3520A if relevant. But if you are receiving distributions from a non US trust or you receive a gift from non US person and it can be, you know, families can be allocated right. So husband and wife can’t split it going to the kid to get around this rule. But if you get more than $100,000 in a calendar year you must report it. No taxes due for the recipient. But you have to report otherwise again you may have very draconian penalties. And that’s a very simple return or informational report. And so the IRS is very unforgiving in most cases if you fail to do so. So if you’re getting an inheritance, for example the parents pass away or grandparents you shouldn’t have taxed due on receipt generally. But you have to report if we’re having more than $100,000 of value and if not, you know a portion of your inheritance may end up with the US government. So please be sure you’re advising everybody you know you’re getting the inheritance so that we make sure that you’re reporting it properly. 

 

Richard Taylor: [00:57:46 – 00:57:48]

This has been great, David. Thank you so much. Where can people find you? 

 

David Gershel: [00:57:48 – 00:58:04]

You can find me our website, btt-law.com yes, I’m in New York and Connecticut, but of course, like we’re doing now. Happy to have a call with anyone across time zones. That’s how it goes and that’s largely it. 

 

Richard Taylor: [00:58:04 – 00:58:30]

Great. This has been awesome and I’m going to put you on the spot. Will you come back and can we investigate this PFIC issue? Because expats fall into all these traps we’ve talked about, but this PFIC issue is the one that is the most pernicious, I think. And I think you have a great. Not solution’s the wrong word, but like a way of avoiding the worst of the worst outcomes. So I’d love for you to come back on and maybe we can talk about that. 

 

David Gershel: [00:58:31 – 00:58:48]

Yeah, sure. I mean PFICs are headache for everybody and a very complicated tax regime. So yeah, I would love to come back. We can discuss that. May. We’ll try not to get too technical and have people’s kind of eyes glaze over, but it’s a very important topic. Yeah, so happy to do so. 

 

Richard Taylor: [00:58:48 – 00:58:50]

Excellent. All right, great. Well, thank you so much. Thanks for coming on Expat Wealth. 

 

David Gershel: [00:58:51 – 00:58:52]

Thank you. Thanks for having me. 

 

Richard Taylor: [00:58:52 – 00:59:50]

All right folks, that’s another episode of Expat wealth under our belts. Thank you for listening. I appreciate it and I appreciate you. If you’re enjoying the show and would like to support the mission which is to help ambitious expats thrive in America and ask you to you to subscribe to the POD wherever you listen and also consider leaving a rating and review. This stuff really does matter. Please help us get this information to the people who need it. That is to your fellow expats. Just a quick reminder that this show is brought to you by Plan First Wealth. We are a US based financial planner and wealth manager and we help successful American and international families living across the US to make the most of their opportunity and ultimately to retire happier. If you’d like to know more about how we might be able to help you, you can find us on our website, www.planfirstwealth.com or you can look me up on LinkedIn. Do get in touch. We’d love to hear from you. As always, thank you to the podcast guys for their help producing this episode and the entire show. See you next week.