Cross-border planning can evoke an aura of sophistication and romance. But the reality is more about the technical aspects of immigration, tax, investments, risk management, employee benefits, estate planning and social insurance between countries, says cross-border planner Jennifer Patterson.

Patterson, who launched Patterson Partners Ltd. in Bermuda in 2005, limits her client base to U.S. expatriates and dual citizens (Bermuda, Canada, Britain) born to American parents. As a dual citizen herself (via marriage), she has an insider's view of the issues clients face. And as more affluent Americans retire and leave the country, planners with her expertise will become more in demand.

Cross-border planning has been the domain of international tax, immigration and estate lawyers, but financial planners are bringing a unique perspective to the planning table. Clients get a more cohesive, multidimensional, integrated plan.

COMMON TRAPS

But planners considering this niche should be warned. While the demand for cross-border planning is significant (three to four million U.S. citizens live abroad, the 2000 Census says), this specialty is riddled with potential land mines:

Cash and investments. For clients with overseas investments or pensions, cross-border planners must determine the appropriate base currency. It's not as simple as converting those monies into U.S. dollars. "It comes down to planning strategy and what the client's lifestyle dictates. We have clients who have residence in more than one country with cash in different currencies. The investments are going to be multicurrency." Planners must also stay abreast of foreign government insurance or deposit guarantees.

Patterson reminds clients that there's no unlimited marital deduction for a nonresident alien (NRA) spouse. Money put into a joint investment account by a multinational couple could trigger gift-tax issues too. The maximum Americans can gift to an NRA spouse in 2009 is $133,000.

Retirement and insurance products. Many advisors assume retirement accounts abroad meet the U.S. qualified plan rules. Patterson sees this often with Canadian plans. For Canadians living in the U.S., the two most common Canadian retirement plans are fully taxable by the IRS. Unfortunately, the tax blade swings both ways. American IRAs and 401(k) assets may be subject to wealth (i.e., asset) taxes in other countries.

TAX TRIGGERS

In addition to tax codes and tax treaties, cross-border planners must be vigilant about taxation triggers. In countries like Britain, taxation is based on residency, which is determined by immigration rules like date of entry, number of days in a country, possession of a valid driver's license, etc. In the U.S., taxation is based on citizenship and/or residency. Wherever U.S. citizens earn money, the IRS is nearby. "Every country is different; there are few common rules," Patterson says. Hence, analysis of offshore structures and the nationalities and residence of beneficiaries is much of her practice.

Foreign countries and trust accounting don't always follow U.S. accounting procedures or a tax-reporting format. So Patterson and her partner do a pre-planning analysis to "triage the starting point" for comprehensive planning. Investments take a back seat until all other analysis is completed.

While Patterson's $125 million in assets under management are increasing, investment fees are only 30% of her revenue. Another 40% comes from annual retainers with long-term clients, and 30% from hourly or flat fees. The average net worth of her clients is about $5 million. "We bill more like a lawyer than a money manager," she says. "Of our 90 clients, many are limited engagements."

Patterson sees blue skies ahead and not only from her Bermudian vantage. Her business is growing, and while she currently has only one office, she and her partner hope to open offices in the U.S. and England to better serve clients.

Jim Grote, CFP, contributes regularly to Financial Planning.