The Cross-Border Family Wealth Guide: Advice on Taxes, Investing, Real Estate, and Retirement for Global Families in the U.S. and Abroad

Content: Foreword by Tim Kochis, JD, MBA, CFP(R) xvii    Preface xix    Acknowledgments xxiii    About the Author xxv    Part I: Financial Challenges of a Cross-Border Life 1    Chapter 1 Who Are These Cross-Border Families? 3    The Growing Need for a Definitive Guide 4    Who   s Who: Who This Book Is Meant to Serve 6    Examples of Who Might Benefit from This Book 7    Diagramming a Cross-Border Person: Residency and    U.S. Income Tax Status 8    How Many Cross-Border Professionals and Families Are There? 10    Unique Challenges Faced by Cross-Border Families Connected to the United States 11    Chapter 2 Unique Challenges and the Regulatory Landscape 12    The Unequal Nature of Tax Regimes and Reach 12    The Unique Worldwide Reach of the U.S. Tax System 13    Complexity in Taxation and Other Regulations 14    Scarcity of Professional Help and Information 15    A Changing Legal, Financial, and Regulatory Landscape 17    The Far Reach of the Foreign Account Tax Compliance Act (FATCA) 19    Recommending Against Secretive Offshore Wealth Strategies 20    Part II: Saving and Investing: Building Your Personal Net Worth 21    Chapter 3 Building a Strong Foundation 23    Retirement Destination Unknown: Invest Globally 23    Spreading It Around 24    Wealth Creation and Accumulation 25    Saving from Earnings 25    Real Estate Ownership 26    Stock-Based Compensation 27    Entrepreneurs and Businesses Ownership 27    Investment Gains and Reinvestment 28    Inheritance 28    Diversification: Protecting and Growing Wealth 28    Considering Your Entire Balance Sheet 29    The Meaning of    Diversification    versus    Asset Allocation    30    Spreading Thing Around 30    Asset Allocation in Investment Portfolios 30    A Well-Allocated Portfolio Can Still Lack Diversification 32    Allocating Your Net Worth: A Balance Sheet Approach 32    Six Primary Asset Categories 33    Three Additional Items of Importance 33    Cash and Cash Equivalents 33    Personal Residences 34    Income Property 35    Publicly Traded Securities: Stocks and Bonds 36    Bonds and Bond Funds (Fixed Income) 36    Stocks and Stock Funds (Equities) 37    Downsides of Owning Stocks 38    Concentrated Business Ownership 39    Personal Debt 40    Collectibles and Other Hard Assets 41    Other Private Investment Vehicles 41    Conclusion 42    Chapter 4 Investing in the Markets: Stocks and Bonds 43    Three Important Attributes 43    Easy Diversification 43    No Active Involvement 43    Source of Growth and Risk Control 44    Stocks and Bonds Work Better Together 44    Setting a Risk Objective 45    Managing Emotions While Focusing on the Long Term 45    Stock Picking   Maybe Not 46    Investment Advice to Live By 47    Avoiding the Herd Mentality 48    Staying Calm in Times of Change 49    Determining Investment Goals and Objectives 49    Four Common Investor Objectives Defined 50    Fundamental Investment Guidelines 51    Low-Cost Passive Investing 52    Tax Efficiency Is Huge 53    Global Diversification for All 53    Risk Control Through Asset Allocation 54    Regular Rebalancing Adds Value: Don   t Invest and Forget 54    Strategic Versus Tactical Asset Allocation 55    Strategic Asset Allocation (SAA) 55    Tactical Asset Allocation (TAA) 55    Take It Slow 56    A Jurisdictional Review: Where to Hold Investments? 57    Large Foreign Banks in Europe or Asia 58    Have You Earned Your Own Private Banker? 58    Not World-Class Investments 58    Not World-Class Advice 59    Tax Reporting and FATCA 59    Large Offshore Private Banks 60    Smaller Offshore Banks and Insurance Companies 61    U.S. Brokerage Accounts 62    Problems with Maintaining Accounts in the United States 63    Foreign Residents with U.S. Accounts 64    The Best Choice for Many People 65    Part III: 401(k)s, IRAs, and Other Pensions and Savings Plans 67    Chapter 5 A Global Approach to 401(k)s and IRAs 69    Investing Your Serious Money 69    401(k) Plan Basics 70    Key Benefits of 401(k) Plans 70    Global Investing for a Global Retirement 72    The Location of Underlying Assets Is What Matters 72    401(k) Plans Lack a Global Perspective 74    Inherent Currency Risks 74    Target Date Funds: A Lot to Like and Dislike 76    IRA Rollovers 76    IRAs Offer Distinct Advantages 77    Owning Real Estate Within an IRA 78    Leave It Alone and Let It Grow 78    Chapter 6 Unique Cross-Border 401(k) Issues 80    A Lack of International Tax Agreement 81    Do the Benefits of a 401(k) Follow You? 82    International Tax Law Is Unclear 82    The 401(k) Gets Respect 82    Benefits May Travel with You, but Your Account Stays Put 83    Taking It with You 84    Must I File a U.S. Tax Return Because of a 401(k)? 84    How Are Distributions Taxed? 85    What If You Are Living Abroad When You Draw Out Money? 85    Tax Withholdings on Distributions to Nonresidents 87    Many U.S. Institutions Will Overwithhold Tax on Distributions 87    How Are Foreign Residents Recovering U.S. Withholding Tax? 87    Unreported Income Isn   t Right 88    Contributions to IRA Accounts While Living Abroad   Be Careful 89    Chapter 7 Foreign Retirement Plans, Pensions, and Other Savings Accounts 91    Foreign Retirement Plans 91    U.S. Tax Treatment of Foreign Retirement Plans Is Often Unclear 92    What Is Really Happening Now? 92    Contributions by U.S. Citizens and Residents to Foreign Plans 93    For U.S. Taxpayers: Foreign Contributions Typically Do Lower Taxes 93    It Is Likely Not Being Reported to the IRS at All 94    Best Planning of All   Save Now and Save Later 94    Existing Foreign Retirement Accounts: The Real World 95    Better International Reporting and Coordination Is Needed 96    Investing Inside a Foreign Retirement Account 96    High Fees and Poor Investments: A Headwind Against Growth 96    Roth IRAs and Roth 401(k)s 97    How to Get Money In 98    Foreign Implications of Roth IRAs and Roth 401(k)s 99    Roth Accounts Don   t Speak Foreign Languages 99    Traditional Pension Income 100    Pensions Paid Across Borders 100    U.S. Taxpayers Abroad with U.S. Pension Income 101    Not Reporting to Foreign Authorities Is Risky 101    U.S. Taxpayers Abroad with Foreign Pension Income 102    Nonresidents Living Abroad with U.S. Pension Income 102    Don   t Claim to Be a U.S. Tax Resident When You Are Not 103    Proper Tax Treatment 103    Educational Savings: 529 Plans 104    To Maximize Benefit, Start Very Young 105    Foreign Residents Beware 105    Finding Good Advice Is a Challenge 106    Part IV: Real Estate 107    Chapter 8 Renting, Owning, and Investing 109    Crazy for Real Estate 109    Real Estate Appreciation Likely to Slow in Future 109    Primary Residences and Vacation Homes 110    Advantages to Owning Your Home 110    Owning a Vacation Home 111    The Process of Buying a Home in the United States 112    Selling Expenses and Property Taxes 113    Buy or Rent upon Arrival? 113    When You Should Probably Own 115    Real Estate as an Investment 115    Before Even Considering an Investment 115    Benefits (and Some Negatives) to Investing in Real Estate 116    Property Types: Single-Family Homes Versus Commercial 117    Types of Commercial Real Estate Assets 117    Owning Property: Directly or with Other Investors 119    Real Estate Partnerships 119    To Rent Out or Sell a Former Home 120    Why Turn Your Old Home into a Rental Property? 120    Do You Like Fixing Toilets? 121    You Have Three Years to Decide 121    Cross-Border Situations Where a Home Is Left Behind 122    Americans on the Move 122    Foreign Nationals with U.S. Residency 122    Foreigners Might Sell Before Becoming a U.S. Tax Resident 123    Selling Before Entering the United States, When Gains Are Very Large 124    Sale and Lease Back 124    Chapter 9 Real Estate Taxation and Other Considerations 125    Basic Tax Treatment of Real Estate 125    Taxation of Primary Residences 125    Tax-Free Gain on Sale of a Primary Residence 126    The Treatment of Vacation Homes 127    Taxation of Rentals and Other Investment Property 127    Reducing Income Tax   A Shelter from the Tax Man 128    Selling Investment Property   Calculating Taxable Gains 129    Tax Basis and Accumulated Depreciation   Shifting Income Down 129    Foreign Properties Often Not Reported to the IRS 130    Go Ahead, It Won   t Hurt Too Much 131    It   s Not Really    Forever      But It Might Be 131    Global Transparency Is Coming 132    Foreign Property Gifted by Family Members 132    Owning Property Inside of an IRA 133    Rules to Be Carefully Followed 133    Be Careful to Read the Fine Print 134    Other Cross-Border Considerations 135    Tax-Free Exchange of Investment Property   Doesn   t Travel Well 135    Sorry, This Only Works for U.S. Properties 136    Avoid Owning Foreign Real Estate Through a Foreign Corporation 136    Unique Currency Risk When Owning Property Abroad 137    Strange Gains and Losses on the Retirement of Debt on Personal Residence 137    Nonresident Aliens: Investing in the United States and the EB-5 Program 139    Nonresident Aliens Investing in U.S. Real Estate 139    Becoming a U.S. Resident   EB-5 Visas 140    Estate Taxes on U.S. Property Owned by Nonresidents 140    Risk of Estate Taxes with Foreign Property 140    Part V: Cross-Border Taxation 143    Chapter 10 Understanding the Three Types of Cross-Border Families 145    The Unique Complexities of Cross-Border Taxation 145    Tax Profiles: Three Types of Cross-Border Families 147    Type 1: Foreign Nationals in the United States 147    Learning the U.S. Tax System 148    Type 2: American Citizens and Permanent Residents Living Abroad 148    Foreign Citizens Leaving the United States for Short-Term Assignments 149    Expatriate Assignments and Tax-Equalized Employment Packages 150       Localized    Employment Contracts in Another Country 151    Reducing U.S. Tax for Taxpayers Living Abroad 152    Foreign Earned Income Exclusion 152    Foreign Housing Exclusion 152    Foreign Tax Credits 153    Revoking the Foreign Earned Income Exclusion 153    Likely U.S. Tax Liabilities for U.S. Taxpayers Abroad 154    Type 3: Foreign Nationals with Assets in the United States 155    Taxation by the IRS   On Passive U.S. Investments 156    Interest Income, Dividends, and Capital Gains 157    Rental Real Estate Property In the United States 157    Overwithholding Tax on Bond Interest Inside a Fund 158    Estate Tax Exemptions for Nonresidents 159    Becoming a U.S. Resident for Tax Purposes 159    Two Tests to Determine U.S. Residency 160    Lawful Permanent Resident Test (the Green Card Test) 160    Substantial Presence Test 161    Situations When Taxed Only on U.S.-Sourced Income 162    Tax Treaty Basics 163    Chapter 11 U.S. Tax Overview: Federal and State 165    Taxing Worldwide Income: The IRS Is Different 165    Filing Deadlines 166    Income Tax Overview 166    Gross Income 167    Deductions from Gross Income 168    Itemized or Standard Deductions from AGI 168    Personal Exemptions 169    Final Taxable Income 169    Understanding Marginal Tax Rates 169    Lower Tax Rates on Capital Gains and Dividends 170    Real Estate Rental Income 171    Stock-Based Compensation: Options 173    Stock-Based Compensation: Stock Grants and RSUs 173    Exchange Rate Issues When Taxing Foreign Income 174    State Income Taxes 176    State Tax Returns Often Based on Federal Returns 176    Different Treatments of Long-Term Capital Gains and Qualified Dividends 176    State Tax Residency: Requirements and Termination 177    When States Come Looking for You 178    U.S. Tax Residents Living Abroad with State Tax Liabilities 179    Avoiding Unnecessarily Becoming a State Resident in the First Place 179    Chapter 12 Additional Tax-Planning Considerations 181    Investing Outside of the United States   Avoiding PFIC Rules 181    Passive Foreign Investment Corporations (PFICs) Explained 181    Complex Reporting and Punitive Tax Treatment 182    Advice on Foreign Accounts and PFIC 184    Three PFIC Scenarios to Consider 185    Foreign Asset Reporting and Tax Evasion 186    Foreign Bank Account Reporting (FBAR) Requirements 187    FBAR Penalties 188    Other Foreign Asset Reporting: Form 8938 188    Additional Foreign Asset Reporting 191    Voluntary Offshore Disclosure Programs (OVPD) 191    Other Forms of Taxation in the United States 192    Social Security Taxes 192    Social Security Tax Calculation 192    Totalization Agreements 192    Special Taxes on High-Earners 193    Additional Medicare Taxes on Ordinary Income 193    Net Investment Income Tax (NIIT) 194    Gift and Estate Taxes 194    Gift Taxes 195    Estate Taxes 196    Estate Taxes for Nonresidents 197    Expatriation Tax (Exit Tax) 197    Prearrival Planning 198    Accelerate Gift Planning 199    Accelerate Income When Possible 199    Distribute Deferred Income When Possible 199    Consider Realizing Gains Before Moving Here 200    Review Existing Asset Structures Before Arriving 201    Review Immigration and Visa Alternatives 201    Part VI: Retirement Planning 203    Chapter 13 Planning for a Global Retirement 205    Where to Retire? A Common Dilemma 205    Being Near Family Is Most Important 206    Plan to Retire Anywhere, to Maximize Flexibility 206    Worldwide Planning Is Also Inherently More Complex 207    Investing for Retirement 207    Having Enough Money to Retire 208    How Much Money Will You Need? 208    First Question: What Will You Need to Live On? 208    Second Question: What Are Your Sources of Ongoing Retirement Income? 209    Third Question: Will Your Retirement Savings Make Up the Difference? 209    Safe Withdrawal Rates: The 4 Percent Rule 210    What Is a Successful Retirement? 211    The Important Role of Financial Planning 211    Longevity Risk Is Alive and Well 212    Inheritance: Plan for It, But Don   t Count on It 212    Organizing and Optimizing Worldwide Income and Assets 213    Assessing Sources of Income in Retirement 213    Organizing Your Assets 214    Cash and Cash Equivalents 215    Qualified Accounts: 401(k)s, IRAs, and Other U.S. and Foreign Retirement Accounts 215    Nonqualified Investment Accounts   Generally Holding Stocks and Bonds 216    Concentrated Stock and Stock Options 217    Real Estate 217    Alternative Investments 217    Currency Exposure: A Real Retirement Risk 218    Chapter 14 Considerations for Cross-Border Retirees 219    Tax Planning for Retirement 219    Taxes on Pension and Social Security Income 219    Taxes on Investment Income and Gains 219    Taxes on Distributions from Qualified Accounts 220    Taking Retirement Accounts with You 221    Cash Management and Account Administration 221    FATCA Fallout: Harder to Deal with Big International Banks 222    Accessing Your Money 222    Foreign Exchange Costs   Minimize Translations 223    Efficient Cross-Border Money Transfers 223    Social Security and Foreign Government Pensions 224    Social Security Benefits Earned Are Usually Yours for Life 225    Possible    Windfall Elimination    Reduction to Benefits 226    Long-Term Viability and Ongoing Changes 226    Filing for Benefits Early, on Time, or Late? 227    Foreign Government Pensions 228    Drawing on Tax-Deferred Accounts 228    The Ordering of Withdrawals 229    Conclusion 230    An Overview of Key Points 230    Final Thoughts and Words of Encouragement 234    Index 235