Expert Back-Up Planning for Security & Peace of Mind

The next year and a half may see much change in the US. There is much uncertainty about how things may change in the run-up to the January 2021 inauguration of the 46th POTUS and 117th Congress. Formulating effective Back Up Plans for High Net Worth Americans are becoming more important than ever. 

A time of change and uncertainty

I recently had a conference call with a wealthy American client and his advisory team of banking, tax and accounting experts in banking, tax and accounting.  We were discussing the possible ways that the various political, economic and tax issues would play out in the run-up to the January 2021 inauguration. Specifically we were considering whether our client should:

  1. Trigger his Back-Up Plan for US expatriation in 2020; or
  2. Wait until after the inauguration and the actual introduction of future negative tax legislation.

The situation is undoubtedly unclear. On the one hand there is non-stop news regarding President Trump’s political future. And on the other we have the one-upmanship on ‘Tax the Rich’ policies of the candidates for the Democratic nomination. Our client finally stated in exasperation, “I just can’t model this anymore with any confidence of the probable outcome!

Back Up Plans for High Net Worth Americans - WHAT TO DO WHEN YOU CAN'T PREDICT

The solution? Back Up Plans for High Net Worth Americans.

The result was that the client acted decisively. He decided to have all of his tax structuring, loans (for liquidity to pay his Exit Tax) and renunciation documentation in place immediately. As events unfold he will be in a position to determine what his own triggering event will be. This might be an impeachment vote. It could be the inclusion of a wealth tax in the Democratic platform, or Democratic wins of POTUS and both houses of Congress in the November election, etc. This way he can decide to ‘pull the trigger’ within days of any of these or other events.

Back Up Plans for High Net Worth Americans BRING PEACE OF MIND

This client is at a distinct advantage over most wealthy Americans. Over the previous few years he has acted to get all of the elements of a Back-Up Plan in place ‘just in case’. He has calculated that the ‘Tax the Rich’ proposals of even the most modest Democratic candidate (i.e. Biden) represent a significant future tax hit. Moreover, if the most ambitious (i.e. the Warren or Sanders) proposals were adopted, his Exit Tax hit alone would jump to 40% of the significant capital gains on his privately-traded founders shares. In short, he has prepared himself to avoid the full range of possible outcomes.

Unlike our client, most HNW Americans are not prepared to avoid any imminent worst possible tax outcomes. I see them in three groups: over-confident, in denial or in panic mode – as to the real possibility that the worst may come to pass.

 

However, I am also seeing that increasing numbers are taking the advice that I gave in my March 2019 blog. (Now is the time for America’s top 1% to start preparing their Back-Up Plans?). Therefore they are starting the process of taking control over their future.

Back Up Plans for High Net Worth Americans don't be in denial

How to start planning your Back-Up Plan

Like the HNW UK residents I described in a previous blog, wealthy Americans should immediately prepare a Back- Up Plan. They need to engage a small team of advisors to prepare a quote for a plan that will meet their personal and family needs.

This team should include their current and specialized US tax advisors. They will estimate their future potential tax burden and outline the strategies involved in minimizing their one-time cost of permanently leaving the US tax system. The other half of the team will be responsible for securing a second citizenship (if they do not have one). They will identify a potential new tax home that will meet all the family’s needs and preferences. Included in this work will be the steps, costs and timing to acquire a second citizenship; renounce US citizenship (generally only required by one family member) and move the family to their new chosen tax home.

Back Up Plans for High Net Worth Americans keep calm and pull the triggerThe result will be a comprehensive Back-Up Plan. It will detail costs and timing and the future potential tax burden. Now the client can make an informed decision. They can therefore decide whether or not to put the elements in place that would mean they could ‘pull the trigger’ should they need to.

That ‘triggering event’ may never occur. However, like having fire insurance, they’ll have the confidence that comes from knowing they have a Back-Up Plan in place. They will be prepared for the full range of worst possibilities….

If you would like to talk to us about formulating your own Back-Up Plan get in touch.

 

 

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