Retiring to Europe

[Lusitan]

Originally Posted by haydee

All this sounds incredibly complicated. I am kind of wondering how the average Joe who would just pick up and go would ever figure out what the correct thing to do is.

It is complicated. I don't think the Average Joe America would be able to figure out the correct thing to do. But I guess that's a reflection of the fact that emigrating from the USA is not a common path (yet) for the Average Joe America.

Most people who emigrate from the USA at this point probably have some wealth and the means to consult with professionals, and anyone who doesn't, well, if they don't have anything saved up they probably don't care too much about the taxes and rules anyway.

[bpp3]

Originally Posted by Lusitan

Most people who emigrate from the USA at this point probably have some wealth and the means to consult with professionals, and anyone who doesn't, well, if they don't have anything saved up they probably don't care too much about the taxes and rules anyway.

Most of the ones I know are just middle class, law-abiding working stiffs. The ridiculous tax rules were passed with a few high-profile billionaires or corporations in mind, but the burden of complying with them falls on regular folks.

Some of the rules are so obscure and poorly documented that even the IRS doesn't seem to understand them (nor do the people in Congress who passed them, I bet), and the IRS guides for overseas tax-filers are thoroughly inadequate.

<ackh, phpbbt... spits out hairball.>

[Lusitan]

Originally Posted by bpp3

Most of the ones I know are just middle class, law-abiding working stiffs.

Really? I admit I was shooting from the hip there, but I was under the impression that only a small number of Americans emigrate each year, and that most of these were of means and not working stiffs. Maybe you just happen to know a disproportionate number of working class emigrants. Or maybe my assumption is outdated and an exodus of working-class Americans has already begun.

Either way, I agree with you about the clueless IRS/Congress and their innane laws and regulations that even they don't understand.

[bpp3]

Originally Posted by Lusitan

Really? I admit I was shooting from the hip there, but I was under the impression that only a small number of Americans emigrate each year, and that most of these were of means and not working stiffs. Maybe you just happen to know a disproportionate number of working class emigrants.

Could be. I don't run around in the kind of circles that would expose me to lots of executives on expat packages (whose companies probably do their taxes for them). Most of the emigrants I know ended up living abroad more or less accidentally -- maybe they tried teaching English for a lark after college, ended up getting married and settled down where they were, and then eventually realized that they probably were not ever going "home" again.

Or maybe my assumption is outdated and an exodus of working-class Americans has already begun.

I don't think it is an exodus, but there are something like 4 million US citizens abroad, and they are not all highly-compensated executives. The world is just a lot smaller than it used to be.

Either way, I agree with you about the clueless IRS/Congress and their innane laws and regulations that even they don't understand.

I think everyone can agree on that!

[FinanceGeek]

I'd like to see statistics on "who emigrates from America".

I strongly suspect that many/most of the so-called "emigration" from the US are naturalized citizens who eventually return to their country of origin.

[bpp3]

Originally Posted by FinanceGeek

I'd like to see statistics on "who emigrates from America".

Hmm, seems to be hard to find good statistics, as discussed in this link: http://paa2004.princeton.edu/downloa...issionId=41789.
Part of the problem being that the US doesn't keep track of who leaves, only of who enters.

Of course we're talking about tax filers here, so there should be some kind of info available from IRS records.

[bpp3]

Some 9-year-old statistics from http://www.treas.gov/press/releases/reports/tax598.pdf.
(Note: Section 911 = Foreign Earned Income Exclusion, Section 901 = Foreign Tax Credit.
FEIE limit at the time of the study was $72,000.)

Nearly 50% of the returns filed by overseas citizens or resident aliens report no tax liability, primarily as a result of sections 911 and 901 of the Code. In addition, even among those overseas citizens or resident aliens who have been found by IRS not to have filed returns, the provisions of sections 911 and 901 still may operate to eliminate or reduce significantly the amount of U.S. tax owed.7 For example, in one IRS compliance initiative, which the Government Accounting Office (the “GAO”) studied in a 1993 report, Tax Administration: IRS Activities to Increase Compliance of Overseas Taxpayers (the “1993 GAO Report”), out of 176 overseas taxpayers that IRS contacted who hadn’t filed returns, only one owed U.S. taxes, totaling $9,595. Similarly, in another initiative, only $2,126 was owed from a group of 140 delinquent filers, and in a third only $5,345 was owed from a group of 62 overseas nonfilers. See 1993 GAO Report, at 9-10.8 Although these samples are clearly too small for any definitive general conclusions to be drawn from them, Treasury believes the samples do indicate that with respect to U.S. taxpayers working overseas, a taxpayer’s failure to file a U.S. tax return does not necessarily indicate that the taxpayer is not paying the taxes he or she owes to the United States. Therefore an initiative aimed merely at increasing overseas filing compliance may not necessarily raise sufficient revenue to justify the cost of such an initiative.

[ladelfina]

Here's a twelve-year-old study using 25-y.o. data.. comes up with about 50,000 annually US born, up to 200,000 counting foreign repatriation.
Estimation of the Annual Emigration of U.S. Born Persons By Using Foreign Censuses and Selected Administrative Data: Circa 1980

Just anecdotally the US and UK expats I have run into personally and on forums are mostly middle to upper-middle class. Some are fixed-income retirees barely getting by now that the dollar has sunk so much. Many (like me) moved for love and are either starting families with a working husband, teaching English or trying to freelance, or are underemployed considering their past US employment history. They're not rolling in dough, most of 'em, that I can see. And they all have the same questions and doubts as the OP. I know of some who don't have Italian income but have elective residency and use the option of paying a small yearly sum to buy into the regional health system at about €400/year/person.

[Lusitan]

Just to clarify - I don't think that most expats are rolling in dough, just that they are of (enough) means to consult qualified tax attorneys/accountants to deal with these complex issues; i.e., they are not the poor, huddled masses typically going the other way into the USA.

[nun]

Originally Posted by ladelfina

Here's a twelve-year-old study using 25-y.o. data.. comes up with about 50,000 annually US born, up to 200,000 counting foreign repatriation.
Estimation of the Annual Emigration of U.S. Born Persons By Using Foreign Censuses and Selected Administrative Data: Circa 1980

Just anecdotally the US and UK expats I have run into personally and on forums are mostly middle to upper-middle class. Some are fixed-income retirees barely getting by now that the dollar has sunk so much. Many (like me) moved for love and are either starting families with a working husband, teaching English or trying to freelance, or are underemployed considering their past US employment history. They're not rolling in dough, most of 'em, that I can see. And they all have the same questions and doubts as the OP. I know of some who don't have Italian income but have elective residency and use the option of paying a small yearly sum to buy into the regional health system at about €400/year/person.

If you are considering retiring to Europe I think its important to invest in Euopean markets to hedge against currency fluctuations and protect yourself against the plunging dollar.

[bpp3]

Originally Posted by Lusitan

Just to clarify - I don't think that most expats are rolling in dough, just that they are of (enough) means to consult qualified tax attorneys/accountants to deal with these complex issues;

I'm not even sure I would agree with that. For someone below the FEIE, who may not even owe any US tax, the cost of a competent advisor (I've seen some pretty bad advice out there) could be pretty steep.

But... rant off.

[ladelfina]

Not a matter of rant, bpp3.. it's a valid observation. Before leaving for Italy I got in touch with an experienced tax attorney with int'l. experience who I thought could clear up some inheritance and tax planning issues. At $350/hour (2000 dollars) ehmmm.. I'll wing it.

I don't think anyone of an adequate calibre is going to end up being worth what you pay them unless you are talking multi-millions in assets. Anyone to whom you'd pay less: I wouldn't be confident they know their stuff.

[nun]

Originally Posted by ladelfina

Not a matter of rant, bpp3.. it's a valid observation. Before leaving for Italy I got in touch with an experienced tax attorney with int'l. experience who I thought could clear up some inheritance and tax planning issues. At $350/hour (2000 dollars) ehmmm.. I'll wing it.

I don't think anyone of an adequate calibre is going to end up being worth what you pay them unless you are talking multi-millions in assets. Anyone to whom you'd pay less: I wouldn't be confident they know their stuff.

What I plan to do is to employ a dual qualified tax accountant for the first year I have to file both UK and US taxes so that I can see all the forms and how to fill them out. I'll have a pretty low tax bill and I think I know the US requirements quite well, but the UK self assessment forms are a bit of a mystery

[ladelfina]

That's a good plan, nun.

It's not so much taxes I am worried about as estate planning. How can I write a will that is good in the US if wills depend on state laws? I don't have a "state".. How will the disposition/taxation of my Italian house and bank account proceed? We have joint tenancy accounts established when we were in the US (on this income we jointly file US taxes every year). If we were both US citizens, this would make things simple, but there are different limits on transfers to non-citizens, even spouses.. Simply putting DH's name on the joint account does not seem to trigger the transfer, but only when the joint tenancy ends.

There is a trust vehicle called a QDOT, but I get a headache just thinking about it. It allows for a deferment (not exemption) of estate tax until after the surviving non-citizen spouse dies, and withdrawals from the trust are taxed at normal income rates (feh!).


I don't know, and can't seem to find, an adequate definition I can easily comprehend of "domicile", "residence", "tax residence" and so forth. I don't want to have to deal with THIS (sigh):

In the case where the value of the assets passing into the QDOT exceed $2 million, one of the trustees must be a corporate (bank or trust company) trustee. Prop. Regs. 20.2056A-2(d). Otherwise, the trustee must furnish a bond equal to 65% of the fair market value of the corpus to insure payment of the tax. Prop. Regs. 20.2056A-2. The requirement of a corporate trustee may cause some administrative burdens on the trustee. For example, if the trust has no liquid assets (e.g., the corpus is composed only of real estate), there may not be sufficient cash flow to pay trustee fees, or, alternatively, the continuing costs of a bond if one can be obtained. Assets may need to be sold to cover such costs.

Furthermore, of the QDOT has less than a $2 million value, an additional restriction is that no more than 35% of the corpus can be held in the form of real property located outside the U.S. Prop. Regs. 20.2056A-2.

The Regulations also require that the assets (tangible and intangible) must be held in the United States, e.g. in a U.S. brokerage account. Prop. Regs. §20.2056A-2(d)(3).

Estate Planning with Qualified Domestic Trusts

This may or may not all be moot, since who knows what the regs will be on estate taxation in the (hopefully far-off) future. As one site said dryly: "If the law does not change, then 2010 is the appropriate year to die.." ;-D

more here:
Article - "Joint Tenancy With A Noncitizen Spouse: An Estate and Gift Tax Guide for the Perplexed" By Miriam A. Goodman

Gotta get some Excedrin.

[nun]

Wills etc are a big issue, you have to have a US one and one for your country of residence too.

You say that yo don't have a "US state", I doubt that, if you are a US citizen you are probably still domiciled in the US and the state you last lived in will be used in tax an estate planning, or it might be your domicile state which is the state you consider home and would return to, it all depends on the state. Domicile is a tricky legal concept that depends on your intentions. So ask yourself what you would do in a crisis, if you divorced or your husband died, would you stay where you are or move back to the US, that place is your domicile.

Mentioning states brings in a whole new complication with US tax law and retiring to Europe, you have to deal with state taxes. Some will let you break residence easily, however, some are "domicile" states (CA, VA, MA) and you have to become domiciled elsewhere before you can stop paying state taxes.

[ladelfina]

nun, it sounds like you understand these distinctions (to the extent that they can be understood, or at least to a greater extent than I). It's a very bizarre to my mind to have a code with legal standing based not on what one is doing, or has done.. but what one *may* do!!

In my own case, I left one of the "domicile" states directly, but maintain a US mailing address (where my mom lives) in state #2 for my financial accounts and also have a driver's license from state #2. If I were to move back to the US tomorrow, it might be to state #2, OR maybe even state #3 where my sister lives with her kids. OR if the stock market does really well, maybe to NYC! OR to state #1 where most of my friends are. It depends on "if" as well as "when" and "who" (i.e., if my mom is still around, if my sister were to move to TX, etc.). I don't feel like I am an outlaw, and am not trying to cheat anybody out of anything.. I just have a very hard time understanding the existence of laws like these that are so at odds with how people actually live.

I have already examined the tax laws for state #2, which says that investment income is not taxable for non-residents. It's the will issue that has me a bit stumped. I guess I should "seek professional help" here, but it's more the travel/annoyance/time factor that's the hurdle, since we live, relatively speaking, in the boonies. Rightly or wrongly, I also have less sense of urgency since we don't have kids.

[nun]

Originally Posted by ladelfina

nun, it sounds like you understand these distinctions (to the extent that they can be understood, or at least to a greater extent than I). It's a very bizarre to my mind to have a code with legal standing based not on what one is doing, or has done.. but what one *may* do!!

In my own case, I left one of the "domicile" states directly, but maintain a US mailing address (where my mom lives) in state #2 for my financial accounts and also have a driver's license from state #2. If I were to move back to the US tomorrow, it might be to state #2, OR maybe even state #3 where my sister lives with her kids. OR if the stock market does really well, maybe to NYC! OR to state #1 where most of my friends are. It depends on "if" as well as "when" and "who" (i.e., if my mom is still around, if my sister were to move to TX, etc.). I don't feel like I am an outlaw, and am not trying to cheat anybody out of anything.. I just have a very hard time understanding the existence of laws like these that are so at odds with how people actually live.

I have already examined the tax laws for state #2, which says that investment income is not taxable for non-residents. It's the will issue that has me a bit stumped. I guess I should "seek professional help" here, but it's more the travel/annoyance/time factor that's the hurdle, since we live, relatively speaking, in the boonies. Rightly or wrongly, I also have less sense of urgency since we don't have kids.

It sounds like State #2 will be the applicable state as part of domicile is also maintaining links and the fact that your mum lives there, its your mailing address and you have a state#2 drivers license makes it a good candidate. I'd make sure you cut all links with you original "domicile" state so don't register to vote there or keep its drivers license or accounts there.

I live in a "domicile" state too, but when I move to Europe I'll be changing my domicile, closing all my accounts in that state, returning my drivers license and writing a letter to the state revenue dept. This will get me out of state tax,but open me up to maybe higher European taxes.

[ladelfina]

domicile is also maintaining links and the fact that your mum lives there, its your mailing address and you have a state#2 drivers license makes it a good candidate.

It's really hard to pin down because I have looked at various states and references to domicile are all fairly wishy-washy.. saying that they take into account "a variety of factors", some of which you've listed. In the end, though, I'm 99.9% unconcerned about state #2 income tax liability as all my income is investment income which they don't tax anyway for non-residents; I don't own any real property in state #2 either. I have searched high and low for a def'n. of domicile for state #2, but they do not define it anywhere.

The best I can come up with is this:

The NESTOA states have recognized the need for uniformity in determining domicile issues by its member states. Therefore, the NESTOA states have agreed on the following factors to be considered in determining domicile.
Home or Way of Life
Time
Items “Near & Dear”
Active Business Involvement
Family Connection
(To be reviewed when the first four factors are not conclusive.)
These factors will be used by the states as a guide in determining domicile. In most cases a review of these factors will be sufficient to make a determination. The states have created a model questionaire for their use during audits. Individual state's laws and regulations take precedent on any issue and audit staff will be making decisions in accordance with those laws and regulations.

In some cases the domicile issue may be pursued by more than one state for a particular taxpayer. If two or more states claim a domicile status and if requested by the taxpayer, the North Eastern States involved will discuss the issue and attempt a resolution. However, the states are not bound to accept the resolution. The taxpayer may continue with the appeal process in each of the states.

which applies to all members here:
NESTOA_HOME

(Wish I could get my hands on this model questionnaire and its interpretation guide/guides.)

I'd make sure you cut all links with you original "domicile" state so don't register to vote there or keep its drivers license or accounts there.

Excellent advice, but for me voter reg. is something I can't really change unless I want to give up voting altogether, since the way absentee balloting works, is that the state where you were last registered to vote is the state that's responsible for sending you absentee ballots and counting yr. vote. For me that'd be state #1.


Don't mean to hijack the OP's thread. I hope these discussions give them food for thought, though.. as to what they need to plan for on the US side. If they don't identify their destination country it'll be pretty impossible for anyone to give them advice on the European angle.