Expatriation by minors--possible but difficult

We get questions. Some of them are answered on the weekly Expatriation Only email list (subscribe!). Here is one that I'll just answer here as a blog post. It is from reader N.

Hi Phil, I have an expatriation-related question for you:

I am a US citizen (naturalized at age 13) who moved to Canada as an adult, married a Canadian, and had two children in Canada. [Stuff removed from the question by me].

If I decide to expatriate myself (still deciding... my entire family and many friends are still in the US, and I visit regularly), should I expatriate my children as well, to make a clean break and keep them free of US tax reporting obligations as they get older and collect enough assets (RESPs, etc) to require the FinCEN (FBAR) reporting? Both are under 10 at the moment.

What are the pitfalls to be expected when expatriating children?

Sorry for the wordiness. I boldfaced the actual questions above. :-)

Man, this is a difficult decision. Thanks very much for organizing this list - I am learning a lot.

Answer

The answer we give--and this question comes up a lot--is to wait until the kids turn age 18. You might be able to have your kids expatriate before that, but you and they will incur a lot of brain damage in dealing with the U.S. government.

State Department: we'll make it really hard

The State Department has its Foreign Affairs Manual. The relevant portion is 7 FAM Section 1292 (PDF). I will reproduce the full provisions here:

i. Renunciation of U.S. citizenship and minors:

(1) Consult CA/OCS/ACS: Whenever you receive a request to renounce from a minor you immediately must contact CA/OCS/ACS. CA/OCS/ACS will not approve a Certificate of Loss of U.S. Nationality (CLN) for a minor without the concurrence of CA/OCS/L, and appropriate consultation with L/CA;

(2) Voluntariness and intent: Minors who seek to renounce citizenship often do so at the behest of or under pressure from one or more parent. If such pressure is so overwhelming as to negate the free will of the minor, it cannot be said that the statutory act of expatriation was committed voluntarily. The younger the minor is at the time of renunciation, the more influence the parent is assumed to have. Even in the absence of any evidence of parental inducements or pressure, you and CA must make a judgment whether the individual minor manifested the requisite maturity to appreciate the irrevocable nature of expatriation. Absent that maturity, it cannot be said that the individual acted voluntarily. Moreover, it must be determined if the minor lacked intent, because he or she did fully understand what he or she was doing. Children under 16 are presumed not to have the requisite maturity and knowing intent;

(3) Interviewing a minor: When conducting the initial interview with a minor and during the renunciation procedure, you should have at least one other person present. The parents and guardians should not be present. As noted, the interview should take place in the presence of the consular officer and a witness, preferably another consular officer, another Foreign Service officer (nonconsular) or locally employed staff (LE staff). You should also explain that upon reaching the age of 18, the minor has a six- month opportunity to reclaim U.S. nationality. See 7 FAM Exhibit 1292, A Sample Letter to Accompany CLN for Minor Renunciants, which should be provided to minor renunciants together with an approved CLN;

(4) Consular officer’s opinion: You should fully document every interaction with the minor and explain in your consular officer’s opinion the reasons you believe that the minor is, or is not, mature enough and sufficiently knowing to renounce.

State Department: minor's renunciation isn't final

There is also an important paragraph--encapsulated in a box to tell you how important it is--right above Section 1292(i). A minor who renounces citizenship can reclaim citizenship after turning age 18.

Renunciation is an expatriating act under INA Section 349(a)(5). The Foreign Affairs Manual says:

NOTE: INA 351(b) (8 U.S.C. 1483) provides that a national who within six months after attaining the age of eighteen years asserts his claim to U.S. nationality, in such manner as the Secretary of State shall by regulation prescribe, shall not be deemed to have lost United States nationality by the commission, prior to his eighteenth birthday, of any of the acts specified in paragraphs (3) and (5) of Section 349(a) of this title.”

Conclusion

A kid younger than age 16 is unlikely in the extreme to get a favorable result. The government presumes that such a person is too young to know the full impact of renouncing U.S. citizenship. I wouldn't even bother going to the Consulate or Embassy in this situation. The time and brain damage cost to the parents is too high.

For any child who is older than 16, I wouldn't bother with renouncing U.S. citizenship. My experience is that children have few assets and therefore few tax problems. It is easier to deal with the tax filings for a couple of years--until the child turns 18--than it is to bang heads with the State Department.

There might be situations where there is some pressing tax need to have the child expatriate. This might be where the child has significant net worth via inheritance or being named as a beneficiary of a trust. There are some circumstances where that child's later renunciation might trigger the exit tax.

Bottom line: unless there is a lot of potential income tax at stake, wait until the child is age 18 and can freely renounce U.S. citizenship using the normal procedures. For situations like reader N's, where the assets are normal RESPs and the like, I don't see any real benefit to early renunciation. And in her case, the kids are under age 10 so it's basically impossible right now, anyways.