Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
When you start working with a client, you must get a good handle on their financial situation: Understand what’s important to them, where they are coming from, and where they want to go.
With foreign-born families residing in the U.S., all of the above applies but with the added complexity of having financial ties elsewhere.
To be true fiduciaries, we need to take it up a step further and create a new planning framework for this group.
I use a set of five questions to create this framework.
What’s their visa/immigration status?
All visas are not created equal. Understand the type of visa they are on and understand its implications. Is it an immigrant (permanent residency) visa or a non-immigrant visa?
The most common non-immigrant visa is the work visa. Two examples are H-1B and L-1 (which is more suitable for multinationals). There are a few others based on the country of origin.
Understand the visa holder’s dependents’ status if in the country with them. For example, an L-1 visa holder’s spouse can work, turning the family into a two-earner household, while an H-1B spouse has to navigate a complex bureaucracy to get the same privilege.
There are things you can’t do on some visas. If recommending certain financial products, the type of visa is key. For example, there are custodians who won’t allow these visa holders to have accounts on their platform.
The permanent visa (green card) holder’s planning considerations are similar to a citizen’s but with the added complexity of having ties to another country.
Have a few immigration attorneys in your network to help you with some of the questions in this space.
What’s their tax-residency status?
The U.S. worldwide taxation is based on tax-residency status. This is based on the number of days you are physically in the country. It applies to those on non-immigrant visas.
You have a small window of opportunity to do some planning in the first year when the client gets into the country.
As tax non-residents, they are not required to report their worldwide income or their overseas assets. But at the same time, there are tax benefits, like tax deductions they’ll miss out on.
As tax residents, their worldwide assets are under IRS jurisdiction. There are financial implications to this.
As an example, there are tax considerations for foreign business owners who have just moved to the U.S. and are considering staying permanently.
What are their long-term residency plans?
If a prospect/client is in the country for a couple of years and not intending to stay permanently, there are things you are probably not going to recommend when it comes to the tactics and strategy.
A recent example was an executive who had come into the country on a work visa. His company wanted to sponsor his permanent residency (green card). He was not sure if he wanted to stay in the U.S. permanently. His main concern was how to deal with stock options, but it turned into the financial considerations of becoming a permanent resident.
We discussed the issue of exit tax if you abandon U.S. citizenship and/or permanent residency.
Understanding his long-term residency plans allowed us to help him make the right decision for his family.
If they don’t plan to stay here for long, understand where they plan to move.
What’s their home country/citizenship?
There are a lot of considerations on this topic. I’ll discuss two examples.
Tax treaties
The U.S. has tax treaties with these named countries.
A tax treaty is a double-taxation agreement that basically outlines how non-residents are taxed in each country. The main effect is to reduce U.S. taxes on residents of foreign countries while they live in the U.S. This goes hand in hand with the tax residency discussed above.
Green card priority date
When somebody is on a work visa like H-1B, and the company decides to sponsor them for a green card, they get into a visa queue.
Some countries have very short queues, while others, like India, have queues that extend years into the future.
For these families, it means being in the U.S. on non-immigrant visas for a very, very long time, at the mercy of their employer. There are quite a few financial implications for this, and every decision needs to be made with the understanding that they may not be in the U.S. forever.
One of the planning questions I see based on this issue is how to save for college if on an H-1B visa, with foreign kids without SSN, or foreign-born kids who don’t plan on attending college in the US.
Understand if a client/prospect has other countries where they claim citizenship, or their spouse claims different citizenship if married.
If they do, you are dealing with more than two countries, and estate planning considerations start making their way to the top very fast.
What financial ties do they have to other countries?
Due to the U.S. worldwide taxation based on tax residency, this is part and parcel of the planning considerations. You won’t be advising them on overseas assets due to regulations, but you can help them understand reporting requirements and ownership implications.
They have to report on foreign accounts by filing a Report of Foreign Bank and Financial Accounts (FBARS) and a few other forms every year.
Understand the types of accounts, investments, pensions, etc., in the other countries. Help them understand the implications of PFICs and earning income overseas.
Using this five-question framework will go a long way to help you be effective as you work with foreign-born families in the U.S.
Jane Mepham is the founder of Elgon Financial Advisors, a registered investment advisor in the state of Texas. She started the firm to work with foreign-born individuals after working at a well-known national planning firm. Prior to her financial planning career, she spent over 17 years working in the high-tech field. She holds a master’s degree in information technology and a bachelor’s degree in computer science in addition to being a CFP candidate.
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
