What the Expat Stats Don’t Show

As you may know, the latest quarterly statistics on "expatriation" - i.e., renunciation of U.S. citizenship - were published just a few days ago.

A total of 1,130 names appeared in the latest list, which happens to be many more than any previous quarterly total, and more than the total number of expatriations reported in all of 2012.

There's a lot of media hoopla about the whole story, but I wouldn't trust them. The numbers aren't all that accurate, and neither is the commentary around it.

To start with, the real numbers of expatriation are much higher.

The IRS - the agency that releases the stats - doesn't believe in providing a full accounting. I've experienced this in my own practice: The names of only one-third of clients we've helped expatriate have ever shown up on the list.

In fact, based on my research and experience, I suspect the real number of expatriations is around 50,000 a year, and maybe even more.

But regardless of what the real numbers are, one thing is certain: They are rising and the U.S. government is the reason.

The Real Reasons Why Americans Expatriate

The mainstream media would have you believe it's all about taxes, and, to a certain degree, that's true. Taxes are part of the reason, but it's definitely not the whole story - many expats live in countries where taxes are even higher than in the U.S.

Hear more: Mark Nestmann: Escape From America

The real reasons are often much more practical. Citizens of the good ol' U.S.A. have become pariahs on the world stage. The U.S. government's efforts to leave no tax-stone unturned have made it virtually impossible for us to bank freely in other countries.

(Not too long ago, a bank cancelled a client's mortgage after it found out she had committed the heinous crime of carrying an American passport.)

Insurance is another practical issue: It's become nearly impossible for a U.S. citizen living overseas to obtain an ordinary life insurance policy. The insurers don't want us.

Other clients tell us they can no longer do business internationally, because prospective business partners shun them. Their maybe-partners assume (in some cases, rightly) that doing business with a U.S. citizen or permanent resident opens the door to continuous surveillance of their own financial affairs by the IRS.

And let's not forget the curse of the "covered expatriate."

Worse than Montezuma's Revenge

While admittedly it applies to only a small percentage of the expat population, there's some risk in becoming what the authorities call a "covered expatriate": having a net worth of more than $2 million at the time you hang up your spurs.

And believe me, the consequences are serious.

For one, you may never be allowed back into the U.S. for any reason - even to visit family and friends.

You may be forced to pay a hefty exit tax on all unrealized capital gains on ALL of your assets. In other words, a sizeable tax bill even though you had no intention of selling those assets.

(Then, as if that weren't bad enough, when you actually do sell the asset, your newfound home might tax you again on the capital gain. In effect, it's double taxation.)

That's why some people - mainly up and coming entrepreneurs and high value executives - choose to opt out before they hit the threshold.

"Should I do the same?"

It's a question I get frequently, and, in all honesty, there is no right answer.

But, if...

  • You're comfortable living outside the United States, or are already doing so.
  • Your spouse and minor children are comfortable living outside the United States, or are already doing so.
  • You have already or are capable of shifting the majority of your income and assets outside the United States.
  • You understand the tax implications of expatriation and can minimize or eliminate the possibility of "double taxation."
  • You already have a non-U.S. citizenship and passport, or can acquire one in a reasonably short period of time.
  • You're willing to take the chance, however remote, that you might be permanently excluded from ever returning to the United States.

...then yes, expatriation may be appropriate for you.

But, it's definitely not for everyone... Like most important things in life, there are benefits as well as risks.

And, in truth, unless you said "yes" to most questions on that little quiz above, you might be best served to focus on all the other areas of asset, privacy, and personal freedom protection...

  • Securing your assets from prying eyes and sticky fingers.
  • Building a strong privacy shield to remain under the radar.
  • Looking at 2nd residencies and passports, "just in case."

You can still protect yourself pretty well while remaining a U.S. citizen. It's not easy, but it's still possible and well worth doing.

Listen: Mark Nestmann: Protect Your Wealth and Your Freedom From the Rising Tide

Source: Nestmann

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