I'm an Estate Planner: Moving Family Assets to a Safe Haven Abroad Could Be a Huge Headache for Your Heirs

In times of great geopolitical and economic uncertainty — like the one we're living in — wealthy individuals and families have strategies to protect and diversify their assets.

Many asset management groups, private banks and multifamily offices are reporting a notable spike in interest among clients looking to set up banking and investment accounts in "safe haven" jurisdictions such as Switzerland.

Whether clients are motivated by portfolio diversification, geopolitical anxiety or simply personal ties abroad, international estate planning raises complex legal and tax considerations that should be addressed well in advance of any cross-border moves.

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The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

For tax professionals advising clients on outbound planning strategies, it's important to emphasize best practices, common pitfalls and actionable solutions to ensure their global assets complement — rather than complicate — their long-term estate planning and tax objectives.

Here are some of the most important factors for internationally minded high-net-worth individuals to keep in mind.

Who should hold assets abroad?

Holding assets abroad isn't for everyone. For one, individuals should be dealing with a large enough sum — typically $1 million as a minimum, but $2 million as a practical starting point — to justify the associated legal, reporting and compliance burdens.

They also should have a sufficiently compelling reason to move these significant sums overseas. To determine motivations, consider questions like:

• Are you seeking currency diversification?
• Do you have dual citizenship or spend significant time abroad?
• Are you investing in local businesses or real estate overseas?

If the answer is primarily "I'm scared of what's happening in the U.S.," it's important for tax advisers to offer a reality check.

Clients may think that holding assets abroad offers protection from domestic risks like asset seizure, without understanding the nature of U.S. tax and reporting requirements, not to mention international treaties.

If they're only interested in diversifying beyond the U.S. dollar, remind them that this can usually be accomplished domestically using international funds or foreign currency accounts at U.S. institutions, avoiding the headaches and complexity associated with offshore accounts.

For people who have dual citizenship, family overseas, travel frequently or invest in companies in other countries, however, this could still be a smart strategy.

Tax reporting and income considerations

Of course, outbound planning may dramatically increase tax complexity for Americans, who are taxed on worldwide income and their estate.

Advisers should be sure to explain to clients that they will need to meet foreign asset reporting requirements and to detail foreign income — such as interest, dividends and capital gains — on their U.S. tax returns.

Also be sure to remind them that inaccurate or incomplete filings can trigger substantial penalties, even for inadvertent violations, lest they try to hide income to safeguard against seizure.

Moreover, it is necessary to walk through the assets clients propose to move abroad, and also what they plan to invest in. Not all foreign investments are created equal.

Certain investments that may seem equivalent to securities in the U.S. may actually be mutual funds or pension funds that could be treated as passive foreign investment companies and come with considerably more legal complications.

Choosing the right jurisdiction

People may assume any stable foreign country will suffice for asset holding. In reality, estate planning consequences vary dramatically based on the chosen jurisdiction. Key factors to evaluate include:

• Treaty protections. The U.S. has estate and income tax treaties with many countries — including popular destinations like the U.K., Germany and Switzerland — that may provide relief from some forms of double taxation and clarify the treatment of foreign assets.
• Estate planning laws. Different countries can take markedly different approaches to estate planning and inheritance. It is vital to confirm that local law will recognize U.S. estate planning documents or draw up estate plans under the jurisdiction's laws.

U.S. tax professionals who aren't experienced with the jurisdiction in question should collaborate with local estate planning attorneys and financial advisers who understand the country's laws and reporting requirements.

This can help ensure compliance both in the U.S. and locally, protecting the client's assets while still aligning with their financial goals for moving assets abroad in the first place.

Coordinating domestic and foreign estate plans

One of the most overlooked elements of international estate planning is coordination between U.S. and foreign legal instruments. While some clients ask about using an "international will," these are often blunt instruments.

In practice, the better approach is to have local lawyers execute jurisdiction-specific wills for each country where significant assets are held.

These documents must be tailored to local probate procedures and tax rules to ensure assets pass smoothly and avoid unintended consequences, while also specifying the beneficiaries for these specific assets.

For people with a mix of international holdings, the cost of multiple wills may seem burdensome — but it pales in comparison to the time and expense of untangling multiple probate conflicts after death.

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A recent cautionary tale involved a U.S. client holding assets in New Zealand without a local will. Upon their death, the estate was forced into double probate — one in the U.S. that would not otherwise be required and another in New Zealand — nearly consuming all the assets in legal fees and considerably lengthening the process.

Had the client executed a simple will under local law, this could have been avoided.

Preventing practical hurdles

Legal compliance is only half the battle. Individuals and their advisers must also confront practical challenges in working with foreign financial institutions and local authorities.

A clear example of these practical hiccups came from a client with assets in a bank that did not have U.S. subsidiaries or ties.

After the client died, the bank imposed significant administrative roadblocks, delaying distribution for two calendar years, even though the law entitled the surviving spouse to the funds.

Local banks unfamiliar with U.S. estate procedures may also lack the infrastructure or appetite to facilitate smooth transfers, particularly after someone dies.

Banks with international operations or U.S. subsidiaries tend to be easier to work with.

Either way, U.S. advisers should proactively engage with foreign institutions or local adviser partners to understand their internal protocols and ensure that clients' heirs will be able to access assets without undue friction.

Planning for peace of mind

International estate planning is not for the faint of heart, but for people with legitimate reasons and the right advisers, it can offer valuable benefits — whether for lifestyle, family or investment purposes. The key is approaching it with rigor, transparency and careful coordination across jurisdictions.

Tax professionals are in a unique position to help clients navigate this complex terrain, ensuring that the client's global footprint does not become a posthumous liability.

With careful planning, families can preserve wealth across borders and generations.

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