As a HNW American, when you move to Europe, you become subject to two sets of financial regulations and two tax systems – EU and local country rules as a resident in your new country, and US rules as a US citizen.
The US is almost unique in subjecting all its citizens to its taxes and financial rules, even if they live abroad. The system applies globally. It means however that for Americans living in Europe, the complexity of wealth management increases in ways that normally wealth managers won’t be aware of and aren’t qualified or experienced to understand properly.
Some of the challenges that high net worth Americans in Europe face include ongoing US reporting obligations, European tax residency rules, investment restrictions from both sides, and estate planning across multiple legal systems. Addressing any one of these issues in isolation creates issues, and they must be viewed as a whole and from a cross-border perspective.
The challenge of operating across two financial systems
As a HNW US citizen, your obligations to the IRS stay with you when you move abroad, or even become more complex. You still file US tax returns, and you’ll also have to report your foreign financial accounts and assets to Uncle Sam, while remaining subject to rules governing retirement accounts, capital gains, and taxation.
At the same time, European tax residency brings local income and capital gains taxes, potential wealth taxes depending on the country, and, in some cases, limitations or taxes on assets held outside Europe. The interaction between these two systems is where most wealth management advice falls short, whether you seek it in the US or in Europe, because most advisors aren’t aware of both systems and how they interact.
The stakes of getting it wrong are higher for high net worth Americans in Europe, as larger portfolios mean greater exposure to tax issues, and complex asset structures mean more potential compliance issues.
Investment management across borders
Creating and maintaining a well-diversified investment portfolio as an American in Europe is more restrictive than many people imagine.
Most major US brokerage firms won’t work with non-residents, which can disrupt access to your existing investments. At the same time, EU-domiciled funds are typically classified by the IRS as Passive Foreign Investment Companies (PFICs). PFICs trigger complex reporting requirements and unfavorable tax treatment for US citizens.
This leaves many high-net-worth Americans in a position where neither the obvious US solution nor the obvious European solution is easily accessible.
The most effective approach for most Americans in Europe is to work with a cross-border advisor who has established relationships with custodians that support overseas Americans and can build a portfolio using US-domiciled structures that still provide meaningful international and European exposure. This approach keeps your portfolio compliant on both sides without sacrificing diversification or performance.
You may also wish to invest in European markets to have income in the currency you’ll be spending in, but again seek specialist advice to avoid investments that could trigger US tax issues.
Tax efficiency across jurisdictions
Some European countries offer favorable tax regimes for new residents, such as Italy’s flat-tax regime, which can significantly reduce local tax exposure for the right individual.
Determining whether these regimes apply to your situation and how they interact with your US filing requirements requires advisors who are fluent in both systems.
You should also consider the timing and sequence of important financial decisions, such as when to sell an asset, convert a retirement account, or make a large transfer. Getting the timing wrong can have significant tax consequences in both jurisdictions.
Estate planning across multiple legal systems
Many high-net-worth expats assume that their US will covers their global assets. In reality, European countries have their own inheritance laws, and in some cases, local rules can override their US documents.
Note also that non-US citizen spouses who don’t live in the US face significant estate tax disadvantages under US law, receiving only a $60,000 exemption rather than the unlimited marital deduction available to US citizen spouses. Strategies such as annual gifting, Qualified Domestic Trusts (QDOTs), or pursuing US citizenship for the foreign spouse can address this, but each comes with its own planning requirements, and there may be separate tax implications in your country of residence.
Real estate and other assets in Europe may be subject to local inheritance rules, forced heirship provisions, or wealth taxes that you may not have accounted for in your financial planning. In this case, having a will in each country where you hold assets is the only reliable way to ensure your intentions are carried out.
Your estate plan will also have to consider cross-border tax implications of your business interests, especially if your ownership stake is in an entity operating under a foreign legal structure.
Currency and liquidity management
HNW Americans living in Europe typically hold assets in both dollars and Euros, and currency fluctuations can affect long-term portfolio values.
To manage these fluctuations, it’s advisable to maintain a liquidity buffer in your local currency, time larger conversions around favorable rates, and build a portfolio that provides natural exposure to the currency in which the majority of your spending occurs.
If you hold significant assets in both currencies, consider multi-currency banking structures and coordinated transfer strategies. These are worth building into your financial plan rather than being an afterthought.
The role of a cross-border wealth manager
Standard wealth managers, whether based in the US or Europe, tend to optimize for a single jurisdiction, which is fine if your finances are confined to one country. When they aren’t, their advice can have unintended consequences in jurisdictions they aren’t familiar with.
A cross-border wealth manager who specializes in serving Americans in Europe can help you structure your investments so they are compliant and tax efficient in both jurisdictions and set up to support your international life and your future plans. They will also recommend and work together with appropriate cross-border estate planning, US and European tax specialists to ensure your whole financial life is joined-up.
Final thoughts
Wealth management for high-net-worth Americans in Europe requires a financial plan that accounts for the full scope of your obligations and opportunities across both systems, along with an advisory team with the expertise to keep everything aligned as your life evolves.
The earlier you put the right structure in place, the better, as trying to untangle a misaligned financial plan or investments structured for Americans in the US after the fact is always harder than building it right from the start.
If you have any questions about financial planning or investing as an American living in the EU, get in touch.
This article is for informational purposes only; it is not intended to offer advice or guidance on legal, tax, or investment matters. Such advice can be given only with full understanding of a person’s specific situation.
