The Ultimate Estate Plan: How You Can Escape Taxes (and Possibly Tyranny) Forever
October 23, 2009 by Robert E. Bauman, J.D.
Americans find it difficult, in a nation with constitutionally guaranteed civil rights, to imagine that our freedoms could one day be taken away by government.
Yet in my lifetime, and that of many others now living, that is what we witnessed in Germany, Poland and the occupied territories during World War II. There was at first a gradual, and then the total, erasure of civil and economic rights. By war’s end in 1945, millions had died. But millions more, those lucky enough to survive, were displaced refugees who lost everything—property, homes and family.
Yet, when this turmoil began in the 1930s, there were those who were smart enough to realize early on what was happening. These people planned accordingly and escaped with their lives and their fortunes. They got out before asset confiscation, currency controls and financial restrictions were clamped down in their home country.
I don’t mean to belittle the heroic sacrifices of those who lived and died in that era. Nor do I want to overstate the seriousness of the current situation in the U.S. But I believe sovereign individuals have to accept the fact that our rights and liberties now are under attack by our own government. Equally alarming is the perilous economic state of not only our government, but our country as well.
Why You Need a Plan in Place
Consider the facts: Between financial rescue missions and the economic stimulus program, government spending accounts for a bigger share of the nation’s economy—26 percent—than at any time since World War II. Facing a $2 trillion deficit in 2009, a $12 trillion national debt and a declining dollar, the president calls for more and bigger programs for healthcare and just about everything else.
Higher taxes, inflation and economic collapse seem all but inevitable.
Given this dangerous state of affairs, common sense dictates that you should have an escape plan in place for your family and your assets. If the worst comes to pass, you will be ready.
While it may seem like an extreme step, expatriation—the process of giving up one’s citizenship—might not just save your wealth. It may save your life.
And the process, while dramatic, is relatively straightforward.
Every year about 250,000 U.S. citizens and resident aliens leave America to make a new home in some other country. More than 5 million Americans now live abroad. Only a tiny fraction of these people give up their U.S. citizenship, and of those, most do so for non-tax reasons.
Step #1: Find a New Place to Call Home
One of the first steps toward expatriation and escaping U.S. taxation is finding a new home country that best suits you and your personal tastes.
If you have a genuine interest in living offshore it’s best to take a “test drive” of at least several months by living in your chosen country before you make a final decision. Be sure to pick a country with a “territorial tax system” that does not tax offshore income—only income earned—within the country.
Most countries will welcome you as residents, but on their own terms. Some countries, such as Switzerland and Austria, prefer wealthy entrepreneurs willing to invest and create jobs in exchange for special tax and residency deals.
Other countries, notably Panama, Uruguay and Belize, take a different approach. They have special laws to attract foreign retirees of more modest means to take up residence. They welcome you, not just with a lower cost of living, by also with real estate and import tax exemptions, discounts on many goods and services, tax-free offshore income, and quick approval of resident applications.
While these so-called “pensionado” programs in Panama and Belize require minimal guaranteed annual income from established pensions, neither program leads to eventual citizenship. However, many of their immigration programs do. Uruguay’s retiree program does grant eventual citizenship.
Step #2: Secure a Second Citizenship
A second major step on the road to expatriation is acquiring a second citizenship. Simply put, this means that you are legally a citizen of two countries at the same time, qualified as such under each nation’s law. The U.S. Supreme Court has affirmed Americans’ right to hold dual nationality, although some countries do not permit it.
Millions of American citizens potentially qualify for various reasons—ethnic heritage, religion, country of birth or where their spouse was born. While it’s impossible to know exactly how many Americans have acquired another passport, experts put the number of U.S. citizens who either have, or are entitled to have a second passport at more than 40 million.
Based on your ancestry (parents, grandparents), several countries encourage foreigners to apply for citizenship. The most notable are Ireland, Italy, Poland, and with some qualifications, the United Kingdom, Spain and Israel.
If you don’t qualify for a citizenship thanks to your bloodlines, economic citizenships are available. If you want a fast second passport, two countries, St. Kitts & Nevis and Dominica, sell quick “economic citizenship” but at very high prices. However, both programs are perfectly legitimate.
It’s also important to note that dual citizenship might result automatically for some people. This can occur, for example, when a child is born in a foreign country or if a U.S. citizen acquires foreign citizenship through marriage to a person from another nation. Often these types of automatic options are overlooked, so check to see if you qualify.
Keep in mind that you can’t end your U.S. citizenship without having a valid second passport. You cannot be a proverbial “man without a country.”
The final step to freedom is to go to a U.S. embassy or consulate and hand in your U.S. passport. You will also need to sign an official document stating that you are renouncing your rights to U.S. citizenship.
Ultimate Estate Plan
Expatriation is indeed “the ultimate estate plan” in the very real sense that it gives you the legal right to stop paying U.S. taxes forever. However, it is a major step that will separate you from family and friends and treat you as a foreigner when you travel to the U.S.
Expatriation works best for those who have substantial liquid assets that can be transferred to the low tax country of choice. This process requires professional assistance for coordination of assets planning, assessing tax consequences and acquiring a second nationality.
A drastic plan? You bet. But for the person who wants a permanent and legal way to stop paying U.S. taxes, expatriation is the only option—and it could be a lifesaver in a crisis.
For information on offshore residence and dual citizenship, see my new 7th edition of The Passport Book. It covers some of the best offshore jurisdictions for whatever needs you have.
—By Robert E. Bauman J.D.