You know, if you were to have a lawsuit against yourself in the United States, you don’t have to renounce your U.S. citizenship and move to Portugal. I personally have lived in quite a few places within the United States. I’ve spent time living in the South; I currently live in Texas. I’ve lived in the Northeast and the Midwest. I think I’ve lived in maybe four or five of the top ten largest states in the United States, and every state, every location, every jurisdiction has different advantages that others don’t. Whether it’s cost of living, lifestyle, cultural and social aspects, or fiscal issues, there are a variety of things to consider.
I am a big fan of a few different video channels on YouTube that discuss different jurisdictions, where to live, and most of them are actually focused on living abroad and often focused on U.S. citizens who might want to renounce their U.S. citizenship or maybe establish residency in a different country. One of them is Nomad Capitalist, which I think is a really interesting channel, and I like the work that they do. Not that I necessarily agree or disagree with any of it, but it’s just super interesting.
I have a client right now who is not originally from the U.S. and doesn’t have citizenship here, and I work with a lot of clients like that. One of the conversations we had was around this idea, for tax planning purposes, of what might make sense for them—whether to stay here in the U.S. or maybe go to a different country, maybe go back to where they have citizenship.
One of the things that Nomad Capitalist talks about is whether or not you should move to Texas or Florida. So many people are moving to Texas and Florida from high-cost-of-living states such as New York, New Jersey, California, and elsewhere. Nomad Capitalist makes a really good point: if you’re willing to move 1,000 miles or 2,000 miles across the country, why not consider another jurisdiction that could possibly be abroad? I think that’s a valid point. What I’ve realized is that it’s not realistic for everyone to make that consideration, but for some people, it probably could make a lot of sense.
Now, whether you go and live abroad without renouncing your U.S. citizenship and continue to own assets here, or whether you are a U.S. citizen or not, there are still estate tax issues that come along with that. That’s something I don’t hear them necessarily talk about a lot, though they might. So, what happens if you can’t move to Belize, Mexico, Colombia, Singapore, Ireland, or Portugal? Portugal is really popular these days. There’s even an asset protection aspect of having passports from other countries or establishing residency in other countries.
What do you do if you can’t move to Florida or Texas, where I’m located, but still have options? There are still tax planning options and asset protection options. You can consider trust planning in one of these jurisdictions that are extremely advantageous from a tax perspective and an asset protection perspective. We help a lot of clients with this type of planning in South Dakota, and Nevada is another place where you can do it.
What’s unique about South Dakota that doesn’t happen in Nevada is privacy. There are great privacy laws when it comes to trust planning in South Dakota. Two things that really stand out are the ability to set up, for your own benefit, what’s called a domestic asset protection trust in South Dakota. This allows you to protect all your assets from any type of personal claims that come against you. That’s one aspect of it, right? If you were to have a lawsuit against yourself in the United States, you don’t have to renounce your U.S. citizenship and move to Portugal, which some attorneys may advise you to do. There’s better planning out there; you just have to be really proactive.
The other aspect that’s really overlooked, and one of the reasons people move to Florida and Texas from places like California, New York, and New Jersey, is to avoid state income tax. There’s no state income tax in Florida or Texas, whereas California has nearly a 14% state income tax rate for its top earners. You can never really do anything about your W-2 salary wages, but you do have planning opportunities around whether or not you’re selling a business or have large investment brokerage accounts with a lot of capital gains. You can avoid state income tax on those transactions if you move your assets, your closely held business interests, or your brokerage accounts to an irrevocable trust in South Dakota.
There are different ways to structure that, and why this is such a beautiful thing, or an opportunity for people in these various states, is that even though it’s an irrevocable trust that you potentially benefit from, you can still set it up in a way that allows for a directed trust. With a directed trust, you yourself are still managing those assets and benefiting from them, even though you have a trustee that is responsible for any claims that come against that trust.
I’ll have different videos about directed trusts, but essentially, you bifurcate—you split up, you part and parcel—all these various responsibilities that have historically existed with the trustee. So, the trustee is no longer in charge of managing your assets. You, the client, can be designated as the investment adviser, in charge of managing the assets, which is a role given by South Dakota law. You can have a distribution adviser, who could be a family member, a friend, or a trust company, who decides when to make distributions to you. Then lastly, you have an administrative trustee who just does the back-office function, whether it’s reporting, putting together financial statements, or tax documents—that kind of thing.
So, you don’t have to move abroad or to Texas or Florida, but you can still tap into significant tax savings if you can’t make that jump across the country or even abroad.
