For some clients, the complexities of juggling the financial rules of two countries isn’t enough to deter them from their goal of retiring abroad, so advisors must be prepared to address their situations that often require specialized planning and research.
“There is every pattern, and there are no patterns,” says Bryan Hancock, founder and principal of Birmingham, Ala.-based Timberchase Financial, who advises many expats.
“If somebody calls me and says they’re working in the U.S. and they want to retire to Belize because the cost of living is low and the water is blue, that’s a very different set of questions from somebody who already lives in Germany, is married to a German, has children who don’t know if they’re German or American and has got money in both places,” he says.
When a client raises the issue of retiring to another country, the first question financial advisors have to answer is whether they are legally allowed to provide advice to people in that particular country.
Even if there are no legal or regulatory issues preventing an advisor from working with an American who retires in another country, advisors may run into compliance issues with their firms or broker-dealers, says principal and advisor Raoul Rodriguez-Walters of Rodriguez & Shah in Portland, Ore.
“One of the big challenges is that more and more custodians are not working with Americans that live abroad,” he says.
Advisors who can work with clients who are retiring overseas need to make detailed cross-border plans that take into account differing tax, estate, insurance and health regimes in other countries.
The United States taxes its citizens all over the world, regardless of where they live, while most other countries tax based on residence. It can be complicated and expensive for advisors to get the dual-country tax planning right and even more expensive if they get it wrong.
In estate planning, some countries don’t recognize trusts as separate assets, while others have “forced heirship” where established percentages of estates are distributed by statute.
“You could have the most wonderful tax or estate plan that works for U.S. purposes, but it might not work for the country where the client is moving to,” says Rodriguez, who specializes in advising American clients moving to Mexico.
Advisors must carefully discuss health care plans because Medicare doesn’t cover Americans when they are in another country. But many clients will find excellent, affordable medical care, in countries with national health plans.
Among the questions that advisors must consider: Is the client moving permanently, or do they expect to return to the United States? Are there children involved, and are there cross-cultural family issues? Will there be currency risks? Does the client already have assets or real estate in the foreign country?
Advisors will generally need to put together teams of advisors, both in the United States and in the retiring expat’s country, who can consult with each other.
“Advisors need to know each other so there’s coordinated advice,” Hancock says.
Paul Hechinger is a New York-based freelance writer.
This story is part of a 30-day series on retirement planning strategies.
