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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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Tax laws change over time, and the information in this post above may be less accurate today than it was at the time of the last revision. This post is not tax advice for your specific situation. Please contact an international tax professional to get personalized advice for your situation.