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The air in the United States is thick with the scent of smoke from a tax the rich wildfire. From the proposed 5% “Billionaire Tax” in California to federal pushes for a wealth tax in the “Make Billionaires Pay Their Fair Share Act,” and the Ultra-Millionaire Tax Act the target on the backs of UHNW families has never been larger.
At the same time as family wealth is under attack, the dangers to the well-being of family members are increasing. Along with prior concerns such as mass shootings and political violence, the escalating war in the Gulf is raising concerns about the return of military conscription. This dramatic increase in existential risk is causing a massive surge of interest in Backup Planning.
Real-world reality vs. academic theory
Academics promoting policies like wealth taxes claim that the targets of their proposals will never move. They cite ‘life inertia’, claiming that social ties and familiar locations will keep the wealthy anchored in high-tax or high-risk jurisdictions. This may have had some validity to mass affluent high income professionals in a pre-Slack/Zoom era but the ultra-wealthy clearly do not need to stay in a specific location to make and maintain their wealth and lifestyle. With many safer and less tax burdensome jurisdictions beckoning the decision to leave is easy. With professional advisors and a family office operating like a Formula 1 pit crew, the execution of a move is seamless. When a billion-dollar tax hit—or a military draft—looms, the academics are finding their assumptions crashing on the rocks of modern reality.
As the proponents of the California Wealth Tax discovered to their dismay, even the threat caused the targets to leave in a matter of weeks. Wealthy families do not wait until proposals become laws, or draft notices arrive to prepare for the real possibility of these threats becoming reality. Just as they do not wait until a fire is at their door before buying fire insurance or thinking about a fire escape plan, HNW families are getting the Fire Insurance of alternative residences and citizenships and setting up fire escape plans to leave quickly, smoothly and in such a way that their relocation stands up to any future legal challenge to its bona fides.
Lessons from the past
These stories bring to mind a profound discussion I had with one of my first Chinese clients from the early 1990s. His family was from Shanghai, the long-time home of international commerce in China. I will always remember what he told me:
“My ancestors lived through various Emperors, the Taiping, the Boxers, Chiang Kai-shek, the Japanese, Mao Zedong, and now the pro-business policies of Deng Xiaoping. The family motto is: ‘No matter how good things are… always keep a fast junk in the harbour, with some gold bars, a second set of papers, and permission to put into a friendly port.’”
In modern terms, this translates to leaving before trouble arrives with a second passport, international bank accounts, and the right to live in a country that will protect your family from the danger your country of birth may someday pose.
Why the US situation is unique
The US is the only developed country which taxes its citizens no matter whether they currently or even ever lived in the US. US Senator Bernie Saunders and Representative Ro Khanna have made endorsement of their federal The US is the only developed country which taxes its citizens no matter whether they currently or even ever lived in the US. Many Congressional Democrats have made endorsement of a federal wealth tax proposal a “litmus test” for their support for any Democratic 2028 Presidential candidate. If a federal wealth tax becomes reality and you are still a US passport holder, it won’t matter if you are living outside the US; the IRS will still expect a healthy slice of your global net worth every year of the rest of your life.
To avoid this annual tithe, your Fire Escape Plan must go beyond simply moving from California to Florida, Texas or Nevada. It must include:
- A second citizenship, possibly supplemented by a residence status which allows the family to move quickly during the citizenship acquisition period;
- Asset diversification which reduces US dollar risk and moves assets beyond the reach of the US applying currency controls or extra-territorial taxation;
- Tax planning to avoid or reduce the impact of the Expatriation Tax Regime’s Exit and Inheritance tax.
While many wealthy Americans have never previously considered expatriation as a possible strategy for themselves and their families, they often reconsider when I point out the following facts:
- The majority of the world’s wealth (and myself) have never held a US passport and still enjoy a very nice life; and
- while the Expatriation Exit tax applies a 23.8% Capital Gains Tax on unrealised gains, the new proposed federal Wealth Tax applies an immediate 40% or 60% tax on TOTAL NET WORTH to expatriates!
From this perspective, the wisdom of acquiring an Expatriation Fire Escape Plan becomes obvious. It is important to emphasise that the such plans take well over a year to put into place. While the November 2028 election may seem far away, prudence requires starting immediately to plan. The decision to trigger the plan can then be made as soon as the results of the election are known and finalised in the two months before a new administration is sworn in.
In closing, concerns about threats to your family exist. However family anxiety can be reduced by having a Fire Escape Plan in place in case these concerns become reality.
Remember that hoping for the best is not a strategy. Planning is.
