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  1. On the assumption that Fred is a covered expatriate solely by reason of having a net worth of not less than $2,000,000, one real-world solution is that he could have avoided covered expatriate status by divesting himself of $500,001 before expatriating. Incidentally, this case study highlights one of the unfair aspects of the expat rules. If Fred had simply retained his citizenship (another very plausible real-world solution), he could have transferred the entire $4,000,000 to his kids with no transfer tax. There’s no legitimate reason why the $5,000,000 exemption shouldn’t be permitted after he expatriates. (Indeed, I had a client — who unfortunately came to me only after the fact — with a similarly unfortunate fact pattern.)

  2. Presumably this also means you need to expatriate before you become rich enough to be “covered”.

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