Leaving the U.S. to live abroad? Plan now to avoid an unexpected homecoming.

By Morey Stettner

Relocating to a new country - whether to retire or just for a year or two - carries risks

In the movies, Americans eager for adventure or a fresh start decide to move abroad. Cut to the next scene and they are lounging on an exotic beach loving their new life.

In the real world, it isn't that simple. Relocating to a new country - whether to retire or just for a year or two - carries risks. You may not realize the financial or emotional cost of leaving the U.S. until it's too late.

"A lot of Americans don't research it very well and find out after they move what they wish they knew before," said Cedric Bernier, a financial adviser based in France who works with American expats.

A more prudent approach, Bernier said, involves asking smart questions at the outset: Which countries have the best tax treaties with the U.S.? How much easier (or harder) is it to transition to life in your chosen location? What can you do now to protect assets and make the move easier?

Careful planning reduces the chances of hassles down the line. One of the simplest steps involves alerting U.S. financial services companies - your banks, brokerages, insurers, etc. - about your upcoming move.

"I've seen Americans who keep their U.S. address after moving to Europe but not disclose to their U.S. brokerage firm that they've moved," Bernier said. "When the broker finds out you moved - and they will at some point - you may get a 90-day notice that your account will be closed."

U.S.-based financial institutions offer varying levels of accommodation to clients who intend to move abroad. Some "do not want to deal with [expats] to certain countries," said Tom Zachystal, a certified financial planner in San Mateo, Calif. In this case, you'll want to transfer your assets to another firm. "Your access to certain investments can also be limited, like U.S. mutual funds and ETFs," depending on where you move.

Advisers with expertise in serving expats also understand the nuances of tax agreements (also known as tax treaties) between the U.S. and other countries. They can address a client's questions about whether to move investment accounts overseas, how to set up bank accounts in the new country, how to transfer funds seamlessly back to the U.S. (to pay an ailing parent's caregiver, for instance) and how to stay compliant with IRS rules while continuing to save and invest across borders.

Frederic Behrens, a New York City-based certified financial planner, has worked exclusively with cross-border clients for 11 years. Retiring abroad has gained popularity, he said, with Portugal, Spain, Greece and the U.K. as prime destinations.

"For many of them, they want to dip their toes in a different pace of life," Behrens said. "It's like adult study abroad. But all of the things we take for granted are different in another country."

He helps clients weigh each foreign country's "ease of immigration, taxation and healthcare" as they plan their move. For example, every country has its own rules that can affect the timing of subsequent travel in and out of the country, along with your tax bill, health insurance and portfolio management. "And your U.S. retirement plan may not function as intended in a foreign country" because of how that country taxes 401(k) or IRA holdings, Behrens adds.

Setting aside money matters, personal issues come into play as well when planning a move overseas. Health crises - whether your own or a loved one's - can wreak havoc if you aren't prepared. "Many people underestimate this," Behrens said. After they move, they may wind up repatriating to the U.S. to care for debilitated parents or other family members in need.

Retirees can maintain Medicare while living abroad. But it won't cover most care delivered in a foreign country. By planning ahead, a knowledgeable adviser can help you make wise Medicare planning moves, such as determining whether to keep Parts A and B and how to plug gaps in coverage once you move.

'Some countries require you to set up a new trust and will.'

Older expats with sizable assets also need to ask themselves a grim question: What if I die over there?

You cannot evade U.S. estate taxes by dying abroad. When deciding where to move, it's important to research to what extent a foreign country's estate tax exemption differs from the IRS.

"In European countries, the estate-tax exemption is generally much lower than the estate tax exemption in the U.S.," Bernier said. "And if you have a will drafted in the U.S., some countries require you to set up a new trust and will."

That means you'll want to review your estate planning documents - including advance directives and updates to your will - before boarding that plane and starting your new life.

More: You can retire abroad without being George Clooney - or even rich - but it helps to have these 3 things

Also read: Retiring abroad? Why the best, happiest places to grow older and retire are not where you'd expect.

-Morey Stettner

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

10-07-24 0745ET

Copyright (c) 2024 Dow Jones & Company, Inc.