Things to Consider Before Retiring Abroad

Retiring to another country can be a very attractive option. Lower cost of living and health care expenses along with exotic locales and temperate climates persuade many seniors to retire outside of the United States. If you want to ensure a smooth transition, however, there are many issues to consider and steps to take before packing up and moving.

Local Laws 

You should familiarize yourself with the local laws, and should seek professional legal advice before settling abroad.  Determine whether your trust, will and powers of attorney are legally enforceable in your country of destination.  If not, you will want to draft and implement legally enforceable planning documents.  Some documents, such as health care powers, even if enforceable, may be more practically accepted locally if in the form and format common among the local population. Specific legal advice is necessary and advisable.

In addition to your lawyer in the United States, the U.S. embassy or consulate can provide you with a list of local English-speaking lawyers willing to assist U.S. citizens.  Especially in local real estate matters, it is important to understand any contracts you are asked to sign. Review the local traffic laws and licensing requirements if you intend to drive.  Some countries have a changeable political environment with different legal systems than you are accustomed to.  Be sure to find out what civil liberties and political rights you will have as a foreign resident.

Bank Accounts 

One of your first considerations should be where to keep your money. When you move abroad, you will most likely need to open a bank account in the new country in order to pay local bills. Opening a bank account in a foreign country can be difficult because of the Foreign Account Tax Compliance Act (FATCA), passed in 2010. The law requires banks to disclose data on American clients to the IRS, and many banks are refusing to accept clients from the United States because they don't want to deal with the requirements. Your best bet may be to look for a big bank that has routine dealings with the United States.

Once you have a bank, you will need to consider how much money you want to put into the local account as well as the best way to transfer money into the local currency.  If your money remains in a U.S. bank and the exchange rate changes suddenly, the value of your money can change drastically. Another option is a foreign exchange specialty firm that may be able to provide you a fixed rate for transferring money. Before moving, you should consult with a financial planner to determine the best way to protect your money.

Currency Exchange 

Navigating currency markets is an often unexpected and complicated consequence of retiring abroad.  Hidden foreign-exchange fees are, according to some, the No. 1 culprit in dwindling your hard-earned retirement savings in another country. Exposure to the volatile currency markets on a daily basis can add up quickly in the form of unwanted fees.

The first such fee is what's known as a transfer fee, which can cost $15 to $100 per transfer of money to the foreign location of your choice. If there are regular transfers on a monthly basis, those fees will rapidly add up.  But the biggest expense factor can be the exchange rate itself.  Currency specialists, such as USForex offer tools and calculators to structure and protect nest eggs against currency exposure.  But you will want to shop local services and solutions, because these may prove more or less expensive.  Be careful, though, because unexpected and undisclosed costs are, sadly, common in the currency exchange industry.

Reporting

The United States wants to prevent citizens from hiding money in overseas bank accounts, so there are special reporting requirements. If you have $10,000 or more in a foreign bank account you will have to fill out an annual Report of Foreign Bank and Financial Accounts (FBAR) with the Department of Treasury. FATCA (see above) also has its own reporting requirements. If you are married and have a foreign account with more than $400,000 at the end of the year (or more than $600,000 at any time during the year), you will need to file a special form with your income taxes. If you don't comply with the requirements, you could face stiff penalties.

Taxes

Moving to another country doesn't mean you don't have to pay taxes in the United States anymore. All U.S. citizens have to pay taxes, regardless of where they live, and if you still have a residence in a U.S. state, you may also have to pay state taxes. In addition, you will likely have to file a tax return in the country you are living in. If you pay taxes to a foreign country on a source of income and are subject to U.S. tax on the same income, you may be able to take either a credit or an itemized deduction for the foreign taxes paid. For more information, click here.  It is important to consult with a tax professional who is familiar with taxes in the country you are moving to.  

Investments

You may want to invest some money in the local currency so that your assets keep pace with cost-of-living increases. Having investments in the currency of the country you are living in also protects the value of your investments from drops in the value of the dollar.

Real Estate

Purchasing real estate is not always straightforward in another country. Before deciding to buy, it is important to understand the rules of the country you are moving to. For example, in Mexico foreigners are prohibited from owning property within 31 miles of the coast, so property is often held inside corporations or trusts, which can create tax issues for U.S. citizens. In addition, there may also be different inheritance laws that could affect property. For example, in France children have priority over a surviving spouse.

Health Care

Most countries have a national healthcare system that covers all residents, and monthly premiums are often less than $100. It’s relatively easy to become a resident of another country, which typically involve proving you’ll have at least a modest amount of income, perhaps $1,000 a month.  Traditional Medicare does not provide coverage for hospital or medical costs outside the United States, so if you are retiring in another country, you will need to purchase health insurance from another source.

Quality of health services varies, so research carefully, especially if you have medical problems. Even in countries with well-rated health care systems, the best services are centered around metropolitan areas.  Emergency care and emergency response time may be important considerations when considering the idyllic village off the beaten path.  

Regardless, Medicare may remain an important part of your health care plan, however, because If you return to the United States, you will still be covered by Medicare Part A, which covers hospital stays.  Unless you paid the premiums for Medicare Part B while you were away, however, you may have to pay a penalty to enroll in Medicare Part B. Of course, you could continue to pay the Part B premium.  For more information about Medicare while traveling or living overseas, click here.

Safety and Security

Consider carefully safety and security issues too. Use the State Department’s Retirement Abroad advisory for information for country-specific reports on crimes, infrastructure problems and even scams that target Americans abroad.

Retirement funds are an attractive target for charlatans and scammers who make false promises of romance, friendship, or financial gain.  Scammers operate primarily through the Internet, email, and phone, but personal targeting at airports, bus stations, and market places are also common.  For more information,  review the State Department's information on International Financial Scams. Information on scams common in your destination country can also be found in each country's Country Specific Information.

Accessibility and Accommodations

If you have mobility difficulties or use a wheelchair, determine access to areas such as swimming pools, public facilities, restaurants, bars, toilets, etc.  Determine if shopping and entertainment are accessible.  For more information, check out the State Department's section on Traveling with Disabilities. 

Prepare for Emergencies

Leave emergency contact information and a copy of your passport biographic data page with family and trusted friends.  Carry emergency contact information for your family in the United States with you when you travel (be sure to also pencil it in the emergency contact information section of your passport).  Know the contact information for the nearest U.S. embassy or consulate and provide that information to your family and friends.  If there is an emergency where you are staying, such as civil unrest, disrupted transportation, or a natural disaster, prevent undue worry or concern by contacting your family and friends as soon as possible.

A secure way to maintain your emergency contact information is to enroll with the Smart Traveler Enrollment Program.  Your information is stored securely and enables the Department of State, U.S. embassy, or consulate to contact you, your family, or your friends in an emergency according to your wishes.  

For more information, consider International Living's "Best Places to Retire."   AARP also writes about retiring abroad and Expatinfodesk.com publishes relocation guides.

Updated 4/1/2015

Sorting the confusion between SSNs,TINs, ITINs, and EINs

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If you are confused regarding taxpayer identification numbers, don't feel bad.  Although they are rather straight-forward and it is "technically" clear which you need in a particular situation, they are nonetheless confusing to lay persons, and even professionals that do not routinely apply for assignment of these numbers.  

Just the term Employer Identification Number (EIN) creates confusion, since it is not limited to just employers.  In fact, for this very reason, some financial companies. brokers, and insurance companies will not, on their forms, refer to an EIN, using instead the term Taxpayer Identification Number (TIN), when they clearly are requesting the former and not the latter.  Why?  The only explanation is that they know that your trust, for example, isn't an employer, and you will become confused that the request doesn't pertain to your trust.

There is another example of this type of practice regarding warning on tanks and tank trailers. "Flammable," right?  Well, except for the fact that there is, or at least was, technically no word, "flammable!" The correct word is "inflammable."  To avoid confusion, manufacturers use the "wrong" word rather than the "right," and for good reason- we wouldn't someone pounding, heating, or setting ablaze a tank that was labeled "inflammable," thinking incorrectly that it wouldn't burn or explode, right? In that same way, financial services companies use a more common reference Tax Identification Number rather than Employer Identification Number to "avoid" confusion. 

So let's see if we can clear any confusion.

What are Tax Identification Numbers? 

For the IRS to conduct its business, it must have an easy way to identify each individual, trust, and business or non-business entity. To do this, the IRS requires each individual and entity to have a Tax Identification Number. While most individuals use their Social Security Number (SSN) for filing taxes, most businesses and non-business entities, like trusts, must have a special tax identification number instead.

Please note that  we are referring generally to tax identification numbers.  There is a specific Taxpayer Identification Number (TIN) which the Service usually designates as (ITIN) for "Individual" Taxpayer Identification Number.   

SSN, ITIN or EIN: What’s the Difference?

There are three main categories of tax ID numbers: Social Security Numbers (SSN), Employer Identification Numbers (EIN) and Individual Taxpayer Identification Numbers (ITIN).  SSNs and ITINs are used for individuals. Generally, the ITIN is for those not eligible for an SSN, such as non-resident aliens or resident aliens not yet eligible for a social security number. 

For businesses and non-business entities, like trusts, the EIN is the most important tax identification number. Despite the name including "employer," it suits all businesses, or non-business entities such as a trust, even those with no employees. 

So one of the biggest clues what you need is "to what are you referring as the owner or beneficiary of the asset, account, or benefit?"  If you are referring to a trust, use the EIN for the trust.  

The trust usually uses your social security number if you are the Settlor/Grantor of a revocable trust.  When the trust qualifies as a "Grantor Trust,"  it is a disregarded entity which uses the Grantor's social security number.   

If the Trust is irrevocable, the trust may have a separate EIN, so you will need to either: 1) refer to the Certificate of Trust which will identify the EIN; or, 2) ask your attorney or accountant that obtained the EIN. Most attorneys make clear on the Certificate Trust is the irrevocable trust is treated by the IRS as a separate entity requiring an EIN, and typically will obtain one for the trust. 

Tax ID Numbers for Businesses

Most businesses require a special tax identification number for their filings with the IRS. Many other legal documents for businesses, including loan applications, bank account applications and permit applications, also require a tax identification number. Therefore, one of the first actions to take after setting up your business is to apply for an EIN.

Are There Exceptions?

There are cases in which business owners can use their own social security number rather than an EIN for filing taxes for their business. The two exceptions are sole proprietorships and certain LLCs, as long as the LLC does not have any employees. In these cases, the business owner can use his or her SSN in place of the EIN. However, even sole proprietors might need a EIN under certain circumstances, such as for excise tax returns or pension filings.

You have your choice of business structure, which might impact what type of Tax Identification Number you need. Start your tax ID application to receive your EIN number by filling out the form here. Alternatively, complete a sole proprietorship application and use your social security number instead. Our support team is available 24/7 to assist you with any questions you might have about filing these applications.

Do I Need an ITIN or Social Security Number to Get an EIN?

There are ways to get an EIN for your company without having either a Social Security number or an ITIN, but in most cases, you do use those other tax identifiers in your application. That’s because the IRS does require the person who takes responsibility for the registration to have one of these. If you do not have either identifier, you have two options.

• File for either a SSN or ITIN before applying for an EIN so that you can be listed as the point of contact for the company.
• Engage an accountant or lawyer willing to act as that contact for the company and submit their information so they can receive paper records regarding your EIN.

What Are the Differences Between a SSN and an ITIN?

The main difference is that the Social Security number is for those who are eligible for Social Security benefits, either at retirement or in the event of a disability. For residents of the U.S. and non-residents who own businesses in the country, the ITIN provides and individual tax identification option outside of Social Security. This is an important avenue for those who do not qualify for a Social Security number.

Can I Use a Tax ID Number for More Than One Business?

Generally, no. If your business needs its own EIN for any reason, you need to use a unique one that is just for that entity. Entrepreneurs with multiple companies they own as the sole owner, either through sole proprietorship or a single-member LLC, might have the option of lumping all their business taxes under one tax return by using their Social Security numbers and filing with Schedule C. Even then, if any of those businesses hire employees or seek bank loans, they will need their own EIN, and they will not be able to share.

Still Confused?

Your attorney or accountant will usually help you quickly identify and locate the correct number.  Rather than create additional work later, we suggest that clients fax or email the forms they are completing with an indication what they are trying to accomplish.   We usually will simply insert the correct "number" and send it back for completion.  Regardless, if you are confused, ask for help!

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Ohio Repeals Estate Tax

It is now official: Ohio officially abolished its estate tax when Republican Governor John Kasich signed the state budget today (June 30, 2011).  The estate tax provision of the new law does goes into effect on  January 1, 2013.

This cliffhanger is reminiscent of the federal estate tax law change that eliminated the federal estate tax for just one year in 2010. The federal estate tax came back Jan. 1, 2011, albeit with a generous individual exemption of $5 million. The Ohio estate tax repeal is intended to be permanent, once it becomes effective.  In other words, it does not "expire" or "sunset," and will remain the law unless changed by a future Ohio legislature and Governor.

“By repealing this suffocating tax, Gov. Kasich and the Ohio legislature have made their state stronger – and made it a model for the remaining 21 other states who continue to impose state estate or inheritance taxes, including three of Ohio’s neighbors: Indiana, Kentucky, and Pennsylvania,” says Dick Patten, president of the American Family Business Institute, a no-death-tax lobbying group.

For a map showing state estate taxes and rates for 2011, click here.

For the years 2011 and 2012, Ohio remains as one of 22 states that along with the District of Columbia currently have estate and/or inheritance taxes.  Among estate tax states, Ohio currently has the lowest exemption amount per estate, just $338,333, but the lowest top rate at 7%. 

Once the Ohio repeal becomes law, New Jersey will have the distinction of being the state with the lowest estate exemption at $675,000.

For more information on the efforts of other state legislatures to minimize estate taxes, click here.

Private Nurses for Home Care

Patricia B. Gray, contributing writer for Money Magazine has written an excellent article regarding private nursing for home care.  She introduces this increasingly common alternative to institutional care for seniors:

You may think of private nurses as a luxury for the ultra-rich, like a butler or personal chauffeur. But hiring in-house medical care has become an increasingly viable option for regular folks too.

You can use a nurse to ease the transition from hospital to home after surgery or a major illness, or even to administer chemotherapy if you want to stay out of a clinic or hospital. Visits from a private nurse can help your elderly parent remain in his or her own house safely.

Care at home can be a less expensive option than an extended stay in a nursing facility, says Kathleen Kelly, executive director of the Family Caregiver Alliance, a San Francisco nonprofit. Still, the cost can add up quickly, and you may have to cover most of it yourself. So it pays to know whether you need a nurse and how to pick one.

Insurance Department Helps Locate Missing Life Insurance Policies

If you suspect a deceased loved one has a life insurance policy that you cannot locate, there is a service through the Ohio Department of Insurance that can assist in identifying and locating the policy.  The Ohio Department of Insurance’s missing life policy search service is a comprehensive search service that assists Ohio residents, and the families of deceased Ohio residents, in locating lost insurance policies purchased in the state. The search identifies the existence of any life insurance policies or annuity contracts purchased in Ohio and issued on the life of, or owned by, a deceased person.

Since its implementation in September of 2009, the missing life policy search service has had 682 valid search requests, and have matched 442 polices with their rightful owners.  “This is a great program that works for the consumers of Ohio to help them locate life insurance dollars to which they are entitled,” Ohio Lieutenant Governor and Department of Insurance Director Mary Taylor said in a release. “It’s great that Ohio’s life insurance companies are able to work together, along with the Ohio Department of Insurance, to perform this service. These numbers are amazing and we encourage Ohioans to continue to submit their search requests to the Department.”  

Executors, legal representatives, or members of the deceased person’s immediate family may file a search request with the Department.  To submit a request, visit www.insurance.ohio.gov   to print out the request form.  Have the form notarized, attach a copy of the certified death certificate, and mail it to the Department.

The Department forwards the search requests and supporting documentation to all Ohio-licensed life insurance companies within 25 business days of submission. If an insurance company has information about an in-force individual insurance policy on the life of the deceased person or an individual annuity contract where the deceased person is an annuitant, the insurer is required to take action to administer the policy and/or contract according to its terms.  If any money is to be paid to a beneficiary, the insurance company will contact the beneficiary directly. In this case, the company has 21 days to notify the consumer after contacting the Department.

Ohioans with questions about life insurance can call the Department's toll-free consumer hotline at 1-800-686-1526. A life insurance informational toolkit is also available on the Department's website at www.insurance.ohio.gov. The toolkit provides tip sheets, publications, and links to other helpful web sites.