Expert Back-Up Planning for Security & Peace of Mind

Case Study: Brazilian HNW Family Almost Replicates Friend’s Poorly Conceived Back-Up Plan

Like many wealthy Brazilian families, this client had multi-generational experience with changing political environments and their impact on the economy, including the nationalization of family property under past regimes. He also realized the lax attitudes of Brazilian tax authorities had fundamentally changed in the past decade, resulting in the targeting of the highest profile Brazilians, including top international footballer Neymar Jr. 

This, combined with modern tools and techniques including whistleblowers, electronic records, international sharing of financial information, meant the family’s prior casual approach to tax planning was no longer viable. 

 

Increased criminal violence targeting the wealthy also signalled that, like many of his peers, the time to secure a viable back-up plan had arrived. The family travelled on vacation to Miami to visit family friends. A major Latin American financial centre, Miami was already familiar territory. While sipping Caipirinhas, the client began discussing the issue of back-up plans with his friend. The friend sympathized immediately, saying he had struggled with the same issues only two years before.

 

The friend explained how he had purchased a beautiful family home on Star Island and enrolled his children in local private schools as foreign students. On the advice of his real estate agent, the friend had also applied for an American Residence by Investment Golden Visa EB-5 Visa, requiring him to invest $500,000 USD along with various fees and commissions. While there was a multi-year processing time, the real estate agent had recently assured the friend his entire family would soon receive their resident alien/green card status. 

 

During the almost two years since making the Residence by Investment Golden Visa EB-5 investment, the friend’s children were quickly adapting to their new school and making a smooth transition to the US, helped by the fact that there were several Brazilian-born children in their class. The father of the family remained based mostly in Brazil, running the family holdings, which he planned to sell and move proceeds safely offshore, beyond sight of Brazilian tax authorities. By his rough calculation, it would take about five years to fully execute this withdrawal plan. Meanwhile, the mother split her time between being with her children in Miami and her husband in Brazil.

My client and his family quickly concluded his friend’s plan was perfect for his own family and decided to implement a similar plan immediately. The next day, a real estate agent had shown him and his wife the perfect home, only a five minute walk from their friend’s home. They also visited the school, which seemed ideal. By the end of the week, they had an offer accepted on the home and enrolled the children to start school the following term.

Back in Brazil, my client looked over the Residence by Investment Golden Visa EB-5 Visa program material given to him by the real estate agent. He noticed the agent would receive a (previously undisclosed) substantial commission, should he select this particular Residence by Investment Golden Visa EB-5 investment. After a bit more digging, my client discovered there were real problems with the whole EB-5 program, and with this specific project in particular. Along with potentially losing all his money, the client also risked not securing the resident alien status he desired at all. At this point, the client reached out to his tax advisor who put him in touch with our firm.

In our discussions, which included his Brazilian tax and financial advisors, I proceeded to review the client’s situation to determine his concerns and goals. At the end of the discussion, we all agreed on the following objectives, to be included within a Lesperance & Associates Back-Up Plan:

  • Physical safety and lifestyle for him and his family;
  • Access to the new Florida home, full-time for his children and spouse and part-time for himself until the children had finished secondary school;
  • Reducing chance of tax audit or nationalization of Brazilian assets;
  • Reducing on-going future global tax burden.

With these objectives in mind, I pointed out the most fundamental flaw in his current plan. Even if he successfully navigated the difficulties of the Residence by Investment Golden Visa  EB-5 program, the result for him and his family would be US Resident Alien status. While very attractive from a security of access and path to US citizenship viewpoint, it would also lead to instant full US tax liability on a worldwide basis! 

In other words, he would be jumping out of the Brazilian tax pan and into the far more intense US tax fire! And once the US was finished with taxing his worldwide income and capital gains, they would then share all of their findings on the family’s financial dealings with Brazil. 

We also discussed the dangers of having only one passport, should his Brazilian passport ever be cancelled or seized in a civil or regulatory matter in Brazil. At the same time, we talked about the opportunities available to him, his children and future generations of adding a second citizenship from an EU country.

At the end of the discussions, I recommended the following Back-Up Plan:

 

  1. CitizenshipByInvestment Passport and Non-immigrant US Treaty Trader/Investor Visa

Processed with a few months, this status would allow him and his family to live, study and work full-time in the US, if they wished. While his children and wife will probably spend enough time physically in the US to trigger US taxpayer status, he can avoid this status by limiting his physical presence to current levels. Since Brazil is not on the list of countries eligible for this type of visa, we first secured a CitizenshipByInvestment in one of the countries on the list. Along with allowing tax efficient access to the US, this also immediately gave the family a second set of travel documents, should their Brazilian documents become lost, stolen or revoked.

If the family wealth was kept in properly organized non-US structures, it would never become subject to US taxation. If at a later date it was decided that some or all of the family members wished to pursue resident alien status or even US citizenship, this could be organized.

  1. Portuguese Residence by Investment Visa (Leading To Naturalization)

This element provided several benefits including: 

a) A pathway to Portuguese citizenship for the whole family after 2 years (with resulting EU wide residence rights and ability to pass it onto future generations); 

b) A tax home which had limited tax liability by using legal pre-immigration tax planning; and 

c) A tax treaty position with both Brazil and the US which could be used to legally reduce the tax burden in eventually leaving Brazil and also extend the time he could spend in the US without becoming a US taxpayer.

The client was extremely happy with the results and even referred his friend to our firm. While it was too late to be able to recover his lost Residence by Investment Golden Visa EB-5 investment (or the commission paid to the real estate agent), we were able to correct his Back-Up Plan to meet his objectives and avoid a tax disaster in both the US and Brazil. 

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