These are just a few of the wake-up calls U.S. financial advisors can expect to give as they deal with a growing number of foreign clients. The U.S. Census Bureau says there are 56 million foreign-born and first-generation U.S. residents. This number is likely to rise as recent immigrants form families.
Other advisors are finding out that the death or illness of a foreign client brings on an entirely new set of problems. Jeanne A. Robinson, CFP, co-owner of Marshall Financial Group in Doylestown, Pa., recently returned from visiting English clients who, with a child, were transferred to the United States by an employer. In a matter of months, the mother was diagnosed with breast cancer and the father with heart disease. Both parents were rapidly deteriorating. Robinson feverishly was working to obtain guardianship documents and help the family set up a trust. The family is worried that a U.S. claim on the couple's estate could hamper their child's guardianship and financial security. "The United States doesn't like to see money leaving its shores," Robinson explained. Also, non-U.S. citizens have no unlimited marital deduction when it comes to estate taxes. For such international issues, she says she turns to the Washington, D.C.-based law firm, Shaw Pittman LLP.
Even the simplest things, such as a client's change of address, can snowball into a major problem. Robert Keats, executive vice president of Keats, Connelly and Associates Inc. in Phoenix, says to expect your client's brokerage account to be frozen once a change of address to another country is filed. That's because registration requirements for financial professionals and businesses can vary by country and state or province. Rather than comply with millions of different jurisdictional rules, many brokerages just freeze trades.
To avoid this trap, Keats says he has familiarized himself with broker policies. He uses National Advisors Trust Co. in Overland Park, Kan., for several reasons, not the least of which is that trust companies are not subject to the same rules as brokerages, he says. He also found that TD Waterhouse will continue to allow trades from outside the United States, provided that the account is through a registered investment advisor.
Meanwhile, Canadians living in the United States must traverse a number of financial minefields. Keats started in the financial planning business in Calgary, Alberta, in 1976, before building his current practice in Phoenix. He estimates that 60% to 70% of his clients have "American-Canadian" issues. "I get stunned every day," says Keats, author of the Border Guide (Self-Counsel Press). "There is a lack of sources of information to help people," he says. Also, few advisors have taken the time to use the systems of more than one country. The Financial Planning Association now has a Web site devoted to cross-border issues at www.fpanet.org. Also, the International CFP Council has issued the CFP marks to 40,000 persons outside the United States.
Yet, besides the fact that the United States may be the only major country that requires its citizens to file their world income-regardless of where they are-many American and Canadian clients risk being subject to estate planning rules in both countries, he says. Sometimes the rules are quite different, and if you're not careful, that can result in a double tax.
How to get around this? The United States has tax treaties with more than 60 other countries, which you can read yourself at www.irs.gov. "The treaty is a very good planning vehicle," Keats says. "But most advisors in the United States have never even opened up a treaty to even see what's in there."
Tax treaties trump domestic rules, overriding the IRS in almost all instances, Keats says. Also, he notes, the treaty is fairly stable. The U.S.-Canada tax treaty, for example, has changed only about six times in 60 years, while the IRS tax code changes about once every ten days. "For cross-border planning, I just love it. You learn the rules and don't have to keep relearning them every year." Keats says the IRS tends to have a standard treaty package it tries to apply to every country.
Social Security is another major issue a financial advisor must deal with if a client worked in another country as well as the United States. Keats adds that you need to monitor Social Security treaties at www.socialsecurity.gov. The 20 Social Security treaties can be found by clicking on "International" under "Resources." Sometimes, if you know in advance where to go in the treaty, you can find a way for a client who worked for a period in another country as well as the United States to claim more benefits. At the very least, you can prevent your client from losing benefits he or she otherwise might obtain.
Canadian retirement plans can present a major problem that may or may not get resolved.