Work with an Expat Financial Advisor to Avoid These Major Pitfalls

Video Script

In this video, I’ll go over the four main pillars of wealth management for expats, so you know what to look for when seeking a cross-border advisor.

As an American living in Canada, if you don’t have a comprehensive cross-border financial plan and investment strategy, you can run into serious problems with the IRS and CRA.

My goal with this video is to give you a framework that will help you identify the cross-border services you need and prevent expensive mistakes.

Hi, I’m Tiffany Woodfield, a cross-border advisor, associate portfolio manager, and co-founder of SWAN Wealth Management.

I’ve spoken to hundreds of professionals and entrepreneurs with cross-border investments over the past few years. And I’ve noticed that there tends to be a lot of confusion around the four pillars of cross-border wealth management.

As an American living in Canada, you’ll need to ensure your advisory team can help you with four main things.

1. Cross-border tax planning

2. Cross-border investment management

3. Cross-border estate planning and trusts

4. Cross-border financial planning

When you have a high-net-worth, each of these four elements is equally important.

So, let’s get into it!

As an American living in Canada, your financial planning isn't as simple as if you were a Canadian.

When doing a financial plan, the foundation of the conversation is cash flow:

• How much do you need now and in the future stages of your life?

• Where will you draw this money from?

For income streams, if you worked in Canada and the U.S. for part of your career, you would have accumulated CPP and Social Security. There are strategies around eligibility, and which to take and when to take them.

In addition, registered retirement vehicles such as RRSPs and IRAs have different rules that you need to be aware of. You need to consider the timing of withdrawals and which one to take money from first. If you have substantial assets, you shouldn't be doing this alone.

When discussing estate planning with my cross-border clients, I often hear one big fear: "What happens when I pass?"

As an American in Canada, it’s critical to consider estate planning because you can easily fall into costly tax traps. For example, you may risk double taxation of your estate if you have an executor who lives in the U.S. or if you use trusts incorrectly.

Trusts don't work the same way in the U.S. and Canada. You could spend a lot of money to set up a trust only to discover that it isn't ideal within a cross-border context.

It’s important to work with a cross-border attorney and a financial advisory team that understands estate planning on both sides of the border.

Tax planning is key when you’re an expat.

As a U.S. Citizen in Canada, you continue to file back to the IRS. This puts you at a greater risk of falling into tax traps.

There are three primary tax considerations that we often see come up for Americans living in Canada:

1. IRS: First, you need to get a complete set of tax slips from a cross-border advisor to ensure you are onside with the IRS and CRA. Most Canadian-only advisors and banks aren’t able to provide you with these tax receipts.

2. INVESTING: Next, you need to know what not to invest in so that you don't have an additional tax liability to the U.S.

3. CAPITAL GAINS: Next, when you own and sell a principal residence in Canada, it may be tax-free for Canadian purposes. But you still need to follow the rules for the U.S, and it may be a taxable capital gain.

I’ve dealt with many cases where a client comes to us after paying penalties and taxes that could have been avoided if they had worked with an expert in the first place.

Finally, let’s talk about investment management.

As a U.S. citizen, managing your investment portfolio in Canada can be confusing because there are investments that cause tax complications. You need to watch out for PFICs, which can cause tax complications.

If you work with a Canadian-only advisor, they might invest you in Canadian mutual funds or Canadian ETFs, which are PFICs and which may cost you at tax time.

In addition, you have to report to two governments using different currencies and different methods to tax capital gains. Also, it is likely you need to track two cost bases, which is time-consuming and complex.

On the flip side, if you keep your investment portfolio in the U.S. while living in Canada, your U.S. advisor is unlikely to know which investments are treated tax favorably in Canada. You’re likely to miss out on opportunities to reduce tax.

Finally, make sure your advisor is a portfolio manager and U.S. licensed. You probably don’t want a cookie-cutter portfolio made up of high-cost mutual funds.

When you work with a portfolio manager who is U.S. licensed, they’ll be able to create a customized portfolio that doesn’t rely on high-cost products. If you have substantial assets, I wouldn't recommend managing your cross-border financial situation alone.

Ideally, you should find a cross-border financial advisor who will help you with all four pillars of cross-border wealth management.

At SWAN Wealth, we offer comprehensive cross-border wealth management, which includes tax planning, estate planning, financial planning, and investment management.