Broad Horizons: Advice from an Expert on Global Relocation

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Stacie Jacobsen: Thanks for joining us today on The Pulse by Bernstein, where we bring you insights on the economy, global markets, and all the complexities of wealth management. I'm your host, Stacie Jacobsen.

As it's becoming increasingly common for our clients to have a global presence, we wanted to highlight the importance of having an expert team to orchestrate the various concerns of global families. These include taxes, investment options, wealth transfer considerations, and even immigration policy, just to name a few.

Client’s motivations and obtaining the right to live abroad are often as varied as their destinations, ranging from a desire to reconnect with their family heritage, maybe for business expansion purposes, or even as a form of risk diversification. Our guest for this episode, Reaz Jafri, is an internationally recognized immigration lawyer, as well as the CEO of Dasein Advisors, a consulting firm that helps high net worth clients navigate some of these complexities.

Reaz, welcome to The Pulse.

Reaz Jafri: Thank you for having me.

Stacie Jacobsen: Reaz, everyone may have their own idea of what a global family means. So, let's start there. How do you define global family?

Reaz Jafri: You know, it varies from, I guess, jurisdiction to jurisdiction, but what they have in common, it's at least a couple of generations.

So, a wealth creator and maybe a second generation that's either involved in the business or the family office. They tend to have wealth spread out throughout the world. Oftentimes they have an operating company. They usually have a family office somewhere, typically in the States. They have multiple homes and are quite mobile. So, it's rare that any one of my clients will ever spend more than six or seven months in any one country. So, they're very mobile. They actually embrace that lifestyle because I think it gives them one, the ability to enjoy what they have, but also engage in business transactions and seek out opportunities that are wherever they happen to be.

Stacie Jacobsen: you know, I think it'd be helpful if we have our audience understand a little bit about the experience that families are going through when they are thinking about going abroad. Do they need to pull a team together? What's that first step that they're taking?

Reaz Jafri: It's quite involved.

I mean, for one thing, our legal systems are different in the U. S. and Europe. In most European countries, you've got, not to get too technical, but a civil law system in place. Where the rules are what they are, and you have to fit into the rules, whereas here in the States, we are allowed to explain things.

It's much more nuanced. So, you know, the team that a client will typically put together will be, we kind of manage the whole process, and whichever country we're bringing a client to will, you know, have a local firm that we'll hire, typically a law firm. And then on the client side, they'll delegate one or more people within a family office.

I've had situations where the client from Bernstein, he had his advisor at Bernstein, very intimately involved in the process in coordination with his assistance in putting together all the paperwork, because when you go through this, you know, you're providing comprehensive background on a person, information about their source of wealth and the source of funds that are going to be coming in and, believe it or not, maybe you would believe it, they don't always know. Know a lot more about their wealth than they do themselves. So, it, it definitely takes in and then, you know, a lot of times there are tax accountants or tax boards will get involved who understand what are the tax implications of becoming a citizen of a country.

So, it tends to have at least four or five different parties involved.

Stacie Jacobsen: Now this seems like an area where a family does need to be on the same page that, you know, potentially the action of an individual family member might. inadvertently subject the broader family to, I don't know if it's complexity or tax exposure, but is that the case?

Does a family really need to make sure they have the appropriate, maybe it's a governance structure and communication style before they make some of these decisions?

Reaz Jafri: Yeah, I think for complex families, definitely, you know, if they have governance in place, they have to make sure that all the members are properly educated on what's happening and why it's happening and give them the option to opt out.

But I find that families that have second, maybe third generation, the patriarch is still alive and calls the shots and says, hey, we're doing this. And really, in my experience, the family members don't object to it because they also like the optionality of having a second passport where they can live, travel freely, they've got younger kids.

It opens up a whole different set of opportunities to work in Europe, which is very attractive to, you know, I think millennials and Gen Z.

Stacie Jacobsen: You know, when a client first comes to you looking for advice on the possible move, what's your approach? Do you have a series of questions that you like to ask? How do you really identify if it's the right move for them?

Reaz Jafri: I always ask them, you know, why do they want to do this? What is the motivation for you to get a second passport or residence? And are you, you know, planning on living there? By the time they come to me, usually they've already talked to friends or other advisors and family, and they've come to the conclusion that there is a risk or risks that they're feeling, and the best way to manage that is to have this option in place.

So, once we understand what keeps them up at night, you know, what's their motivation, then it's a matter of just finding the best way for them to get to where they want to. And there, what we first do is, we look at the family history, because when you apply for a citizenship in a country through investment or a program, there's costs associated with it, whereas if you can qualify based on an ancestor, you're just talking about fees, which are a lot less than the costs.

Stacie Jacobsen: You know, I'd imagine that a good place to start might be by mapping out certain exposures, understanding the requirements from various jurisdictions, but do you have a particular I'll say checklist for lack of a better word on what clients should be thinking about.

Reaz Jafri: It depends on where the client wants to go.

If they come to us and they're looking at Europe, I can pretty much get a person's citizenship in almost any European country, even the ones that don't have programs. I've got some people that come to us and they're doing Armageddon planning. Like what if the bombs start exploding? They probably don't want to be in Europe.

Okay. And they like New Zealand or, you know, Uruguay someplace that's really off the grid. We'll manage that process for them. They usually come to us with an idea of where they want to go. In the States, you know, many of our clients come from European backgrounds, so they naturally want to kind of go back to Europe.

But, you know, this morning I had a client, they're looking at Panama. Because they may want to be out of here, but they don't want to be too far away because they still have friends and family in the States, and it's a shorter flight from Panama than it is from, you know, Slovenia.

Stacie Jacobsen: There are also some main concerns for this type of client base that they have to be more aware of than just a, say, U.S. family. So, what are some of those concerns?

Reaz Jafri: The wealthy families that I work with are oftentimes if not always managing multiple risks, and the risks that I see mostly are political risk, there's financial risk, commercial risk, and personal risk. And with some families, they're worried about environmental risk.

They're very much concerned about climate change and how that's affecting where they live, and all these risks may have some sub sects within them for family to family, for jurisdiction to jurisdiction, but for the most part, if not all, quite a few of these risks are present with these families.

Stacie Jacobsen: Since we've gone there with risks, what would you say are some of the main risks for families?

What's top of mind?

Reaz Jafri: Well, you know, given that I'm based here in New York, and right now I'm working mostly with American families. The political risk that families are feeling in the United States right now, sense that one is a country, you know, election that's coming up, will be very closely watched and people are concerned how that affect them if they're on one side or the other side of the political aisle.

I think that people feel that there might be some civil unrest depending on the outcome, depending on whether people question the integrity of the elections. So that's very much on people's minds. Today, I've had calls of two families that are already thinking about this. I'm getting at least one call every single day from a family that's trying to manage political risk.

The other type of risk that we see quite regularly here in the States is regulatory risk, specifically related to people that are in the crypto space. A lot of the rules that we have are not as clearly outlined as there are in other jurisdictions, which are more crypto-friendly like place like Switzerland.

And so, what we see is a lot of people that have created significant wealth in the crypto space, trying to manage that by establishing multiple residences or citizenships around the world.

Stacie Jacobsen: All right, Reyes, I think I grabbed all of the different types of risks that you just laid out, but it was a political risk, regulatory risk, financial, commercial, and personal.

We talked about the regulatory and political, but what about commercial, what do you mean by commercial risk?

Reaz Jafri: Well, you know, the commercial risks are not just with the U.S. families, but also with our global families. They may be in an industry, mm hmm, which is facing challenges or threats from competition from other countries, or trade sanctions, or tariffs, or just the commercial realities of what's happening.

An example would be families that have significant commercial real estate in New York are finding it either they have to repurpose those buildings, or they're having a hard time renting them out. So, some of them have actually sold some of those assets and put them to work in other investments, typically portfolio investments or in private equity.

That's kind of the commercial risk factor that we see. And it varies for families, depending on what industry they're coming from. When they do reinvest it, you know, and that's where it kind of gets into the financial part of it, where they will put some of it in other currencies. Such as Swiss franc or even the euro because they have got some concerns about what might happen long-term at the U.S. dollar.

And just one thing I want to say, these families aren't thinking about risks that are immediate. They're very thoughtful families. Some are looking 10, 15, 20 years ahead as to what might happen. So, the risks that they're managing to someone else may not even be a risk today. But they're thinking about it, you know, well in advance.

Stacie Jacobsen: Do you find that most families who leave their home country still maintain a residence there of some sort? Leave their assets there? Or is it more common to just completely cut the cord?

Reaz Jafri: Some families are doing this with the intention of renouncing their U.S. citizenship. They're leaving. And in that case, they leave their wealth here for the most part because, for example, if a client has, you know, X number of dollars that you're managing for them, if they give up their U.S. citizenship, you can continue to manage it for them. They don't have to take the money with them. In fact, they'll get better tax treatment if they're not a U.S. person. So, they don't move that. I think people who have, you know, homes tend to keep at least some of their homes here. There are some families that already have well established presence outside the United States and don't really spend much time here.

So, there I find that they do sever a lot more ties. I also find that a lot of the families that are doing this, they do like to have some portion of their wealth abroad, and that's part of the financial risk management exercise that they're going through.

Stacie Jacobsen: You had mentioned maybe some of the benefits from a tax perspective.

Can you talk about the exit tax for a moment? I know that's something that does come up, and when does that apply and what is it?

Reaz Jafri: Sure. So, if a person is a U.S. citizen, or if they’re what's called a long term green card holder, meaning they've had a green card for eight years or longer if they give up their green card or the U.S. Citizenship, that's called expatriation. And to do that, there's an exercise that they have to go through, which is the person takes their worldwide assets, excluding cash, you do a mark-to-mark evaluation of those assets, and there's a deemed sale of those assets and you pay a 23 point, I think 8 percent tax and that’s unrealized gain.

So, it's pretty expensive to give up your U.S. passport. Having said that, you know, we've had clients that have written checks well, in excess of a hundred million dollars to leave. But I think that one case, most people are familiar with that. I can talk about it because it wasn't my client, was Eduardo Saverin,

Stacie Jacobsen: Facebook

Reaz Jafri: guy, right?

He, you know, renounced right before the IPO and brought a huge check. to give up his U.S. Nexus. Had he waited until the IPO, he would have saved money because you'll recall how Facebook's stock initially went up to a certain high price and it took a big dip.

Stacie Jacobsen: Yeah.

Reaz Jafri: But Eduardo didn't sever all his ties to the United States.

He still maintained his U.S. ties.

Stacie Jacobsen: So, if a client comes to you and they do decide to renounce their US citizenship, there's a reason down the road as to why they might want to come back later in life. What's that process?

Reaz Jafri: I've probably done this a few hundred times in my career, and I've never had a client that didn't have some level of anxiety about, I'm giving up my American passport.

Does that mean I can't come back here? I can't be on the board of trustees at Wharton anymore. I can't keep my golf membership. You know, my kids are still in the States. I won't be able to come back here. They may still have the family office here. They may have some businesses that they're still in close to owning over here.

And, you know, I've used this kind of stupid analogy, but I think it's kind of funny. It's kind of like dating your ex-wife. You can divorce America and still want to spend time with her. You still take her for dinner sometimes and do things so not just be cute about that but so when a person gives up the U.S. citizenship, they're the same boat as any other non-American citizen.

So, what that means is that you can come back here as a visitor, depending on what kind of a passport you have. You may need to get a visa. If you have a citizenship in a country that doesn't require visas, like most European countries in Japan and Singapore and a handful of other countries, then you can travel to the U.S. without a visa.

If you want to spend more time over here, then just what a visitor's visa allows you to do, you can become a consultant to your own company, to your own family office, to a third party, and get a visa that lets you stay here longer term. And if you ever wanted to permanently move back over here, you would have to just get a green card first.

And then typically wait 5 years and apply for citizenship and we've had clients that have done that. I've had numerous clients that have given up their U.S. citizenship and then years have passed and then they want to resettle over here. And it's important, I think, for clients to understand the ways that they can come back here, because very few people are leaving, giving up the U.S. citizenship and saying, I want nothing to do with America.

Stacie Jacobsen: So far, we focused the conversation on U. S. families looking to potentially go abroad, but we know that there are just as many global families that are looking to enter the U.S. How do you adjust your advice for those inbound families?

Reaz Jafri: Yeah, it's, uh, it's definitely a revolving door for us here. For every American family that I talked to that's thinking about leaving or having options, there are many more that want to come in. Because risk is very personal and someone coming here from, let's say, Latin America where, you know, Colombia and other countries have seen election results that have spooked wealthy families.

They view the U. S. as being a very safe place to be. They view the dollar as being the currency, reserve currency that it is. The U.S. doesn't tax wealth, we tax income. So, they feel very secure bringing their monies over here. And it used to be that our taxes on maybe worldwide income tax, they were becoming permanent residents, or just other taxes were prohibitively high for some people.

But they really aren't in the grand scheme. It's quite competitive with other countries. So, we see a lot of people that want to come here from Latin America. Not so much from, I would say, Asia as we used to. And I think that a lot of that has to do with the geopolitical tensions between the U. S. and China.

And so, we're seeing a little bit less of that. But they do come here. And the challenge there, Stacie, is it's having those families come here in a tax efficient way, as opposed to just coming here and not planning properly.

Stacie Jacobsen: Proper planning seems to be the key to this conversation, as this is certainly an area where there's the potential for a lot of complexities and really have to be thoughtful about the decisions that are being made.

So Reaz, with that, thank you so much for joining us. You've really given us a lot to think about.

Reaz Jafri: It was my pleasure. I hope that it was helpful and hope that our paths will cross again soon.

Stacie Jacobsen: And thanks to everyone for listening. Join us again in another two weeks for our next episode. I'm your host, Stacie Jacobsen, wishing you a great rest of the week.