Thu, 2 September 2010
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Expats may find their wealth 'suspended' between two cultures. Financial expert Bryan Hancock advises expats on how to deal with issues such as tax, retirement and repatriation planning.Those of us who grew up in a foreign country and in our home country are often called “third culture kids” or TCKs. The term indicates a life that is suspended between two cultures; being at home and being a stranger in both cultures at the same time. As an expatriate, your wealth may be suspended between two cultures as well.
Those who live abroad can enjoy the richness of another culture, create lasting memories, and perhaps share altruistically with those who are less fortunate. Financially, a life abroad can be rewarding, but it can also be complex. The components of managing and protecting wealth while abroad are often very different than while at home.
We recently interviewed a number of expatriate families and those who serve their needs to understand their greatest financial challenges. In our interviews, we found that the financial goals of expatriate families centre around two main issues: the growth of wealth to allow for freedom to return home financially improved, or the preservation of wealth to ensure the ability to continue the international lifestyle they have chosen. However, a long list of hurdles were voiced that must be navigated to accomplish those goals. For expatriates to grow and preserve wealth, these issues should be deliberately addressed. Here are a few of the hurdles which were voiced in our interviews:
Tax, tax, tax
The added dimension of tax planning and avoidance while abroad (especially for US citizens) can be mind boggling. Tax issues are influenced by the tax equalisation policy of the employer (or lack of one). For US citizens, restrictive and ever-changing US tax law makes short and long-term tax planning a byzantine effort.
Retirement planning
Eligibility for retirement plans in the host country or the home country is not always clear. If employment status does not allow for either, it is sometimes possible to take advantage of tax deferred retirement opportunities without the employer. Knowing when and where the expat family will retire is not always clear which makes retirement planning difficult.
Trailing spouses
Many trailing spouses we talked with expressed a general lack of empowerment caused by a range of issues such as the inability to continue a personally and financially rewarding career, the fear of the breakdown of the marriage, or the complexity of managing the household in the host country. While these are not directly financial issues, they are issues that should be addressed in a wealth management plan to make sure financial resources are alleviating these issues rather than exacerbating them.
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