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5 Life and Retirement Traps for Cross-Border Clients

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What You Need to Know

  • Moving retirement savings can be hard.
  • Keeping health coverage in place at all times can be tricky.
  • Some efforts to move or adjust life insurance could wreck estate planning efforts.
Terry Ritchie (Photo: MDRT) Terry Ritchie (Photo: MDRT)

Many people dream of living and retiring outside their home countries, but poor financial planning for clients who cross national borders can lead to nightmares.

Terry Ritchie, a vice president in the Calgary, Alberta, office of Cardinal Point Wealth Management LLC, talked about some of the traps earlier this week, during a session that was part of the Million Dollar Round Table’s annual meeting.

MDRT is a Park Ridge, Illinois-based group that provides educational and networking opportunities for top financial services sales people from all around the world. Because of the COVID-19 pandemic, MDRT held the annual meeting, including Ritchie’s session, online. MDRT has recordings of the sessions on the web, behind a paywall.

Ritchie serves many clients who move from the United States to Canada, or from Canada to the United States, or who live regularly in both countries.

Even though Canada and the United States may seem similar in many ways, and about 1 million U.S. citizens live in Canada, an act as simple as moving from the United States to Canada can lead to big financial problems for clients who don’t know what they’re getting themselves into, Ritchie said.

Here are five traps Ritchie talked about, drawing from the online video of his session.

1. Assuming that it’s easy for U.S. citizens to live where they want to live.

U.S. residents are used to people from Central America having trouble moving legally to the United States.

Financial planning clients have to recognize that they, too, might face bureaucratic constraints when they are trying to move to where they want to be, Ritchie said.

“You can’t just move to a country of your choosing just because you want to,” Ritchie said.

2. Trying to replicate the original retirement savings arrangements in the new home country.

Ritchie said that each country has its own retirement savings arrangements and tax rules, and that arrangements that may offer tax advantages in the United States, such as variable annuities, may offer fewer or no advantages in other countries.

3. Trying to get around restrictions on keeping investment arrangements in place in the original home country.

“Nonresidents of the United States generally can’t maintain investment accounts in the United States,” Ritchie said.

In some cases, Ritchie said, the restrictions apply to retirement savings accounts as well as other types of accounts.

Ritchie has seen clients who have tried to get around restrictions by giving an address in the home country, that’s not their true primary residence address, as their primary residence address.

That strategy does not work, Ritchie said.

“Custodians in both countries are now able to see where clients are logging in from,” Ritchie said.

4. Leaving holes in health coverage.

Canada may have a government-run health finance system, but, in most of the country, people who move there and are qualified to buy coverage must wait for three months before the government coverage will take effect.

U.S. residents moving there should be sure that their U.S. coverage will cover them while they are getting through the waiting period, or they should buy transitional travel insurance to get them through that period, Ritchie said.

Similarly, Ritchie said, a Canadian retiree who moves to Florida with a U.S. citizen spouse may face a waiting period before gaining eligibility to buy into Medicare.

5. Adjusting life insurance.

Cross-border clients may want to change their life insurance to cope with differences in tax rules, or to hold the size of bequests steady.

For a U.S. client who has made estate plans that involve giving a life insurance policy away, one challenge is that efforts to adjust the policy could lead to “incidents of ownership,” and could lead the IRS to see the U.S. client as the true owner of the policy.

One way to avoid incidents-of-ownership problems is to have the non-U.S. citizen spouse own the policy, Ritchie said.

If the non-citizen spouse ends up owning the policy, questions then may arise about the effects of gift taxes, and about what will happen to ownership of the policy if the non-U.S. citizen spouse dies, Ritchie said.

Wellington, New Zealand (Photo: Adobe Stock)


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