Four challenges wealthy families can face when moving country

Are you among the wealthy families on the move? After a slowdown in migration during the pandemic, it’s estimated that 125,000 millionaires will move to a new country in 2023, the highest-ever level of high-net-worth migration.¹

The top five destinations are projected to be Australia, Singapore, Switzerland, the UAE and the USA. The greatest exodus are expected from Brazil, China, India, Russia and the UK.²

Wherever you and yours might relocate, you’re likely to encounter not only new opportunities but also key legal, tax, financial and regulatory challenges. Often, there is no simple way for a family’s finances and wealth plans to work seamlessly across borders. When family members don’t all move to the same place at the same time, there can be additional hurdles to scale.

It is important to be aware of the potential problems—and then do the right planning with a team who can provide a global perspective and access to local implementation. The following four difficulties are some of the most common that global families need to avoid, or at least soften.

1. Suddenly, your ownership of assets and plans for wealth transfer can be upended.

Many wealthy families have set up legal structures to hold their assets and provide for transfers to next generations. However, what works in one country might not work in another.

Indeed, when you move to a new country, it can suddenly become unclear who, exactly, owns your assets and owes taxes on them. For example, say you live in a common law country such as the U.S. You have your wealth plan buttoned up with well drafted and administered trusts, structured such that the trusts legally own the assets and pay taxes on the income they generate. Then you move to France, a civil law country whose laws don’t easily recognize your trusts. 

Even if you haven’t set up structures or written a will, different countries’ laws can rewrite your plans for transferring wealth. You might not worry about estate planning in New York if that state’s intestacy rules would distribute your money as you want. But if you move to another country its forced heirship rules and the automatic disposition of your wealth could be quite different.

If you move without consulting with your advisors and taking precautions, your will and promises to loved ones could be unrecognized under local law.

2. The wealth you created in your homeland could get caught in the U.S. tax system.

Taxes can add another layer of complexity. One of the most easily overlooked and common complications occurs when the children of non-U.S. parents move to the United States: perhaps to attend college and start a career; perhaps intending to return home; possibly never returning to their home country.

Typically, parents of global families might gift assets to their U.S. resident or U.S. citizen children with no immediate U.S. gift tax consequences. But then those gifted assets could be trapped forever in the U.S. tax regime. That’s because the income generated from those assets could be subject to U.S. income tax.

Also, if your now-U.S. child later gifts or bequeaths those assets, they could be subject to U.S. gift or estate tax at a 40% rate (plus additional potential state taxes)³. Indeed, you could have your now U.S. grand and great grandchildren pay an effective U.S. estate tax rate of 64% on wealth you built in your homeland.⁴ Even if those sons, daughters, grand or great grandchildren come back to live in your native country, unless they relinquish their U.S. citizenship, they could continue to owe taxes on that wealth to the U.S. government.

There are ways to avoid this fate. Among the options worth discussing with your advisors: a U.S. legal construct that’s referred to as the “foreign grantor trust.”

3. Your carefully constructed portfolio could become far less tax-friendly.

The ever-changing banking and regulatory landscape can alter the investments allowed depending on where you reside or your legal structure is sited. It’s easy for your assets to be subject to tax in one country even while they’re subject to another country’s banking regulatory regime. Translated: you might be allowed to engage in some investments but those investments may no longer offer you the tax characteristics they did before you moved. 

For example: Say you’re living outside the U.S and buy a non-U.S. mutual fund. Then you move to the U.S. and sell it. Your U.S. tax rate on the gain could be significantly higher than it would be if you had had an equivalent U.S. mutual fund with essentially the same underlying investments.

Foreign currency fluctuations could further increase your U.S. tax on the sale. For example, you might acquire a Luxembourg mutual fund for €100 and later sell it for €100 after moving to the U.S. Although you had no gain in terms of Euros, you could still have a taxable gain if Euros appreciated over U.S. dollars during your period of ownership. Reviewing opportunities to “rebase” your investments before changing tax residence could be an important step to save tax.

In general, though, it’s probably wise to ask your advisors to comb through your entire portfolio to make sure your investments and country of residence work to provide the best results.

4. Local law can refuse to recognize your common-law and/or same-sex spouse.

Even your family’s legal relationships could be altered when you cross borders.

Let’s say you reside in a country where common law marriages allow partners to be treated as legal spouses so they qualify for tax, state benefits, medical and property law purposes. However, all such assumptions, and your plans, could be thwarted if you move to a country that requires ceremonial marriage. 

Same-sex marriages and adoptions by same-sex couples could face even more challenges. Same-sex marriage is recognized in 34 countries.⁵ Suppose a couple marry and adopt a child in one of those countries but then move to a place that has no such law. Guardianship of the child as well as property rights could be in jeopardy.

One solution might be a trust. You could transfer assets to a trust for the benefit of your same-sex spouse or adopted child. The trust agreement would then govern those asset’s disposition, not local law.

We can help

If your family crosses international borders, your best move could be to engage a team with global experience and resources to help you identify the challenges you might face. Speak with your J.P. Morgan team to explore your options.

¹Henley Private Wealth Migration Report 2023

²Ibid.

³https://www.cbo.gov/system/files/2021-06/57129-Estate-and-Gift-Tax.pdf.

⁴Assume G1 has $100 and it’s taxed at 40%, that leaves $60 for G2. If that $60 is taxed at 40% on G2’s death the tax on $60 will be $24. Thus the total tax will be $40 plus $24, so effective 64% rate.

⁵https://www.hrc.org/resources/marriage-equality-around-the-world