Now settled in Portland, Oregon, the CFP and president of Mexico Advisor says the American financial and legal community needs to become more multicultural in its approach. "One of my largest frustrations is seeing many professionals, not just CFPs, ignoring the fact that cross-border planning is very complex," Rodriguez Walters says. "It has the potential to cause serious damage to a client's dream if the proper planning is not carried out."
For now, he is one of a relatively small number of cross-border experts as well as being a founding member of the Cross Border Planning Alliance, a group of six financial planning firms. The potential market for cross-border specialists is huge. As of 2010, a Census Bureau survey estimated the number of foreign-born residents in the U.S. to be nearly 40million. In addition, there are 6.3 million non-military Americans residing overseas, according to the Paris-based Association of Americans Resident Overseas. And then there are intermarried couples and American couples with foreign residences.
Of course, not everyone in that group falls into the economic bracket targeted by many traditional planning firms. Rodriguez Walters says he manages assets for only about 10 clients. The rest of his business is based on hourly fees; he charges $275 an hour to help individuals and their other advisors in moving abroad (what he calls "outbound planning") or in returning home ("inbound planning").
A lot of his business develops from partnerships with CPAs, attorneys and other financial planning professionals who bring him in to tackle the knotty problems facing clients whose financial interests go beyond U.S. borders. "I don't emphasize AUM so other planners will trust me as an advisor," he says.
Rodriguez Walters started Mexico Advisor in 1998 with offices in Mexico City and Portland. The firm grew into a multidisciplinary practice with a staff of 12, but legal services became the firm's main revenue generator.
By 2011, Rodriguez Walters had sold his company's investment management and tax preparation book of business, as well as its law firm. He retained the name of the firm and returned to his roots, offering an array of financial planning services.
One reason other professionals seek Rodriguez Walters' advice is the complexity of his subject matter. For example: The dramatic tax impact of buying a home in Mexico.
CROSS-BORDER TAX BOMB
Although Mexican accountants often advise foreign clients not to file Mexican tax returns - "it's too much hassle and then you're on their radar forever," Rodriguez Walters says - many foreigners who own a home in Mexico are liable for taxes from the moment they buy. Catching some by surprise, they are subject to tax on their worldwide income - a potential tax bomb that even includes income from tax-qualified accounts in the U.S. (IRAs, Roths, etc.). Rodriguez Walters advises Americans with homes in Mexico to pay Mexican taxes. (Some tax relief is available, he notes, because the U.S. grants tax credits for every dollar paid by an American in foreign taxes.) And so-called tax residents who retain a home in the U.S. (even a room they rent from their children) and who receive more than 50% of their income from the U.S. need not file a Mexican return.
Tax residents also face other estate-planning challenges, including a 25% estate tax on all of their Mexican assets. Mexico does not recognize joint ownership with rights of survivorship, so Americans might be shocked when they transfer a home (by sale or inheritance) in Mexico due to a death and find the attorney will actually withhold 25% of the home's fair market value for the Mexican government.
Life for Mexicans moving to the U.S. can prove equally hazardous financially. Mexicans are subject to U.S. taxes on all income earned and property purchased in the U.S. Moreover, the U.S. estate-tax exemption for nonresidents living here is not $5.12 million, but a paltry $60,000 in 2013. And Americans married to foreigners do not have an unlimited marital deduction in gifting property to their foreign spouse, even if the couple lives in the U.S.