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February 4, 2010 - Phil Hodgen

Pre-immigration tax planning: introduction

I am writing a series of blog posts about pre-immigration tax planning. What should you do — for tax planning — if you wish to become a U.S. resident?

This is the first post.

If you have any questions or comments I would love to hear them. Send an email to phil-at-hodgen-dot-com, or leave a comment below.

Routine disclaimer: this is not legal or tax advice to you. Go hire someone smart before you make any moves.


Introduction

At the moment I am working on four similar projects for people who are not residents or citizens of the United States–they all plan to become residents of the United States. I thought it would be useful to write up my general approach to situations like theirs.

Who this is for?

I am writing this for very wealthy people who do not live in the United States but plan to do so in the near future. By “very wealthy” let’s assume $100 million and up in net worth. The same ideas will apply to people with less money, but now you know my target reader.

These people (and others I have helped in the past) have children who are either U.S. citizens or who live in the United States, and the families would like to spend more time together. Periodic visits on a tourist visa are not enough.
Wealthy parents living outside the United States, heirs in the United States. I’m talking to you, the parents.

Your money will eventually immigrate to the U.S.

You have U.S.-resident (or citizen) children. Sooner or later you will die, and your assets (currently outside the United States) will be inherited by your children—or grandchildren—who live in the United States. In other words, money will “immigrate” to the United States when you die, and as soon as that happens, it will be taxable in the United States.

You can reduce or eliminate these tax problems.

Will you immigrate?

So your money will eventually immigrate to the United States. Will you also move to and live permanently in the United States? You would like to see your children and grandchildren more frequently.

You are facing a life-changing question:

“Should I leave my home country and permanently live in the United States?”

If you answer “Yes” to that question, you trigger a set of tax questions. The United States will largely leave you alone for tax purposes while you are a nonresident of the U.S. But once you become a resident, everything you have, anywhere in the world, will be taxed by the United States.

Three answers to the life-changing question

Immigration is a life-changing event. The expected tax consequences that arise from immigration will generate three possible answers to the question of “Should I immigrate to the United States?” You might:

  • Abandon your plans to become a resident of the United States because the tax cost is too high, and use short-term visits as a tourist to see your children and grandchildren.
  • Decide that the tax cost is acceptable, and become a full-time permanent resident of the United States for the rest of your life.
  • Decide that the tax cost is acceptable, become a full-time resident of the United States, but change your mind after several years and return to your home country.

Each of these choices will call for different tax planning strategies.

My objectives

I know that making the “Should I immigrate?” decision is hard. I want you to be smart on the tax results of that decision. That’s the first way I want to help you.

I also want you to be a better shopper for tax advice. You will (I hope) understand the tax concepts so when you talk to me (I hope) or another tax professional, you will understand what is being done, and why.

Oversimplification and its consequences

I will use plain language—nontechnical as much as possible. That is deliberate. I want this to be easy to understand. I take an extremely complex topic and I cheerfully oversimplify it.

For everything I tell you, there will be a special case, an exception to the rule, or an exception to the exception to the rule. Tax success depends on applying extremely technical rules to your specific situation.

My simplified explanations here are excellent for general information, but hazardous to your wallet if you simply make decisions without looking for specific and obscure tax rules that might (or might not) apply to you.

Don’t take action without consulting with a tax advisor. Choose someone who is skilled and experienced in international tax questions.

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