On January 20th, 2017, Donald J. Trump will be sworn in as the 45th President of the United States. While new administrations often bring a level of uncertainty to the markets, this election promised a roller coaster of emotions based on the personal, political, and legal controversies. Even during the most contentious segments of the election, one reality remained true: one-half of the country wouldn’t like the outcome. So, while we at Donlevy-Rosen & Rosen, P.A. congratulate President-Elect Trump, we now address the half of the country uncertain about their future. What practical things can Americans do to protect their assets during a transition year? Is it possible to insulate assets from U.S. policies? Can you separate wealth from the performance of the U.S. Dollar? Can and should you “move to Canada”?
Separating from the Dollar – Foreign Diversification
To separate wealth from the U.S. economy and dollar performance, Americans are seeking diversification in foreign markets. Since the burst of the housing bubble in 2007, and the subsequent financial collapse of 2007 and 2008, Americans no longer view the domestic financial system, nor domestic investment opportunities, as superior to those available in foreign jurisdictions. Many wish not to bank all their investments in the U.S.
The truth is that banks in many foreign jurisdictions like Switzerland, Lichtenstein, and the Cook Islands, are more stringently regulated and have lower risk to account holders than the average U.S. bank. Many banks in those jurisdictions offer American customers (and their trusts) the option of holding accounts in various currencies. Investing through foreign brokerage accounts offers the option of purchasing U.S. securities as well as foreign securities not typically available in domestic brokerage accounts.
However, investment diversification does not provide protection from the U.S. legal system. While the account holders or their businesses remain in the U.S., they are subject to attacks from creditors and the jurisdiction of U.S. courts. To secure effective protection, Americans are settling offshore asset protection trusts. Holding currency and securities in an offshore asset protection trust combines the versatility of foreign market diversification with the protection, stability, and estate planning offered by the trust.
The Big Move to Canada – Renunciation of U.S. Citizenship
While Canada is thrown around as the popular destination for escaping the U.S., in reality, Americans looking to give up their citizenship are choosing countries like Nevis in the Caribbean. Setting aside the obvious weather advantages, smaller Caribbean jurisdictions have become a favorite due to the ease of obtaining citizenship, and favorable tax rates (unless Quebec’s whopping 53% income tax rate appeals to you). Unlike Canada, Nevis allows you to “buy” citizenship by investing capital in domestic real estate.
This most drastic option for protection is the one increasingly used. The number of Americans renouncing citizenship went up 20% from 2014 to 2015. Comparing 2015 to 2008, there was an 1800% percent increase. The total numbers remain small (4,279 renunciations in 2015), but the reasons are consistent. Americans are seeking ways to reduce their tax liability. Simply leaving the country to take up residence in a foreign jurisdiction isn’t enough—the IRS taxes American citizens on their worldwide income, regardless of residency status—so Americans are giving up their passports and seeking citizenship in jurisdictions with more favorable tax rates.
While the tax rates may be favorable in jurisdictions receiving former U.S citizens, the stability of the banking and legal system may not be ideal. An expatriated American (citizen or not) may not wish to hold his or her assets in the new country of residence, nor subject his or her heirs to go through probate proceedings in that country. An offshore asset protection trust allows for the secure investment of the assets, and guarantees the proper disposition of assets (free of probate) to heirs upon the passing of the settlor.
So, before you liquidate your assets, and cart a cash-stuffed mattress across the border to Montreal, consider the use of properly structured offshore planning and currency diversification. And, if you find that you simply cannot tolerate the U.S., skip the mattress and give Canada a pass.