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Current Cross Border Issues Affecting Financial Planners

Taylor Liao, CFPBy Taylor Liao, CFP, Chinese Taipei

One year ago, I had a client who had a Taiwanese father, but had immigrated to the US a long time ago. He was born in the US and cannot speak Mandarin. He came to me for financial planning because his father has many assets in Taiwan, and he and his brother will face tax issues in the future. The estate tax is quite low; 10%, but it was 50% just two years ago. Even if the estate tax is only 10%, the amount for their estate tax will still be quite high and they need to plan for it in advance. In Taiwan, we use global taxation, meaning once somebody dies their global assets, not their local assets, will be summed up for the 10% estate tax. This means when you do financial planning for a client, you must take into consideration his/her global assets.

Working with Clients who are Dual Citizens

In this scenario, I felt like I only knew some of the necessary client information and that it wouldn’t be helpful for me to do a financial plan for him. If I could talk to a CFP certificant in the US to discuss his situation, then I would be able to provide a better, more complete suggestion. The tax laws in different territories can vary quite a bit, and more and more territories follow the rule that their citizens have to pay the estate tax based on their global assets, not their local assets. In this kind of cross border practice, when doing financial planning for a client, it is best if we can partner with a CFP certificant who is familiar with their local tax law and seek their advice for our clients.

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The issue we are facing today is that some of our prospects have two nationalities or they are doing business abroad, such as having investments in factories in China or other Asian countries. If I become his/her financial planner, knowing both countries’ law and tax regulation will become important. Normally, clients have a CPA to take care of their taxes, but CPAs can’t do financial planning for their clients. I know many clients who hire a CPA for their business accounting, but don’t share their personal financial information with him/her.

Financial Planners vs. Lawyers and Accountants

Financial planners are different from lawyers or accountants, because we care about the personal life details of our clients. We spend time trying to understand our clients’ ideas and life plans. Often when clients seek help from a financial planner, it is not because they have a tax or legal issue; it’s because they have an issue with their lives or dreams and they need a trustworthy advisor to help them out.

According to law, when a man with two sons passes away, each son will inherit half of his assets, but on occasion the man does not view the sons equally and would like to divide the inheritance unequally. The regulation is fixed, but human beings don’t work like machines. Clients have emotions and desires, especially when discussing the effort they put into their work and how they’ve accumulated their wealth. Clients also get emotional when thinking about inheritance for the next few generations. Some clients even consider donating their money to charity. Some people probably discount financial planners because they aren’t experts in taxes or laws, which is true, but financial planners work together with clients to help them achieve a better life. CPAs and lawyers don’t take the time to understand their clients’ lives, families, and financial statuses to develop a comprehensive plan based on their needs.

Of course financial planners need knowledge of tax and law to finish a well-thought-out financial plan, but the most important knowledge is understanding the client’s life plan. In today’s environment, clients will increasingly have cross border elements in their lives. In order to completely meet the needs of clients, you may have to work jointly with a CPA or lawyer, but don’t forget that financial planners are the major players in the financial planning process.

Foreign Account Tax Compliance Act (FATCA)

This year, people with American green cards were concerned about FATCA. A growing number of wealthy Americans in Taiwan are exploring whether to renounce their U.S. citizenship or give up their green cards to avoid onerous tax obligations. The banks in Taiwan are forced by the US government to provide their clients’ asset information to the IRS, otherwise they have to pay 30% of withholdable payments to the IRS. Many Taiwanese who have dual nationality in Taiwan and the US actually live in Taiwan and never pay US taxes. These people are concerned about their property information (real estate, deposit…etc.) being disclosed to the IRS. These dual citizens will face a heavy financial penalty, so some of them are beginning to renounce their US nationality.

Dual citizens might work and live in Taiwan but they don’t pay the tax for their income or their investment in Taiwan. Now, because of FATCA, they may lose half of their property that they’ve worked their whole lives for. The shortage of national revenue is becoming a normal issue in nations around the world. An increasing number of our clients will face situations similar to FATCA.

The world has become globalized. Cross border practice is necessary in today’s environment, and that will be a challenge in planning for clients. CFP certificants will need to communicate more than ever to understand clients’ situations and to provide suitable comprehensive financial plans.

Taylor Liao's Blogs

2 comments to Current Cross Border Issues Affecting Financial Planners

  • Global cross-boarder issues undoubtedly involve taxes,as they have a significant impact, but there are other financial considerations. Accountants are not well versed in the whole picture, nor are lawyers. Wherease, CFPs are focused on the big picture and knows what tools can be used for which exposures. Therebye, the CFP is the likely candidate to liaise with the client and assemble other professionals as required.Cross-border planning requires a broader team of professionals and that is the the focus of the Financial Planning Association (FPA) International Community.

  • […] 原文刊登於FInancial Planet […]

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