As more U.S. citizens eye life abroad—from celebrity couples to remote workers—advisors warn that the true cost of leaving the American tax system is measured in complex forms, exit taxes and multijurisdictional estate traps.
A Lifestyle Dream Meets a Tax Reality
For a growing number of Americans, the fantasy of a life overseas is moving from daydream to decision, fueled by political fatigue at home, flexible remote work and the appeal of a different lifestyle. Expatriation—formally cutting ties with the U.S. tax system—is increasingly part of that conversation, with expatriations jumping 102% in early 2025 compared with the prior quarter. Yet beneath the headlines about high‑profile couples securing second passports lies a dense web of tax rules, reporting obligations and estate-planning consequences that many would‑be expatriates only discover after they have already set plans in motion.
Moving Abroad Is Not Expatriation
A core misunderstanding, advisors say, is the belief that simply relocating abroad shrinks or severs U.S. tax obligations. The United States is one of only two countries that tax based on citizenship rather than residence, meaning U.S. citizens remain liable for federal income, estate and gift tax on worldwide income and assets no matter how long they live overseas. Expatriation in the legal sense occurs only when a citizen formally renounces citizenship, or a green card holder gives up permanent residency, and then completes the required filings with the Internal Revenue Service. Without those steps, clients remain firmly in the U.S. tax net, regardless of where they sleep at night or where their paycheck originates.
Planning the Exit Before the Exit
Expatriation planning has emerged as its own specialty, focused on the tax and legal groundwork that needs to be done before a client gives up U.S. status. A linchpin of that process is IRS Form 8854, which formally notifies the IRS of expatriation; until it is filed, the agency still treats the individual as a U.S. taxpayer even if immigration authorities have processed their departure. For wealthier clients, planning also means modeling the impact of the so‑called exit tax, designed to capture years of unrealized gains on appreciated assets before the taxpayer steps outside the system. Advisors who gloss over these steps risk leaving clients with unexpected liabilities that can upend carefully constructed retirement or relocation plans.
The Exit Tax: IRS’s Last Bite
The exit tax functions as a deemed sale of an expatriate’s assets on the day before they give up citizenship or long‑term residency. The IRS treats real estate, investment portfolios, business interests and certain retirement accounts as if they were sold at fair market value, taxing the gain between cost basis and current value—even though no actual sale occurs. The regime typically applies only when a client meets “covered expatriate” thresholds, including holding more than 2 million dollars in assets, but the reach of the rules can surprise anyone with concentrated equity, valuable property or significant interests in private businesses and trusts. Cash is excluded, but the breadth of other includable assets makes pre‑exit restructuring, gifting strategies and entity planning essential for those who hope to reduce the final tax bite.
Section 2801 and the Generational Tax Tail
Even after expatriation, tax exposure can live on through the next generation. Under Section 2801, gifts or bequests from covered expatriates to U.S. persons can trigger an additional transfer tax, now administered through IRS Form 708, released in early 2026. U.S. recipients—not the expatriate—are responsible for filing the form and paying tax at a 40% rate, a structure that can catch families off guard if they have done little coordination between relatives on different sides of the border. Advisors working with globally scattered families are increasingly forced to map not only where their clients live today, but where their heirs reside—and where they might move in the future.
More Passports, More Problems
The proliferation of dual citizenships adds yet another layer of complexity. Holding multiple passports is not itself a taxable event, but problems emerge when tax residency overlaps, or when clients inadvertently trigger residence rules in countries where they own property, work or spend significant time. A U.S. citizen who settles in Spain, for example, can face income and capital gains taxation in both jurisdictions, and something as simple as buying a vacation home in Greece could create additional liabilities if residency thresholds are crossed or the property is later sold. In this environment, the romantic notion of collecting passports has to be weighed against the administrative and financial costs of complying with multiple, sometimes conflicting, tax regimes.
Country-Specific Traps and Trust Landmines
Beyond U.S. rules, destination countries often carry their own “tax tails,” continuing to tax former residents years after they leave. Former residents of Germany, for instance, may face German tax obligations for up to five years post‑departure, while the United Kingdom’s April‑to‑April tax year and retroactive rules can complicate when and how new residents are taxed. The UK poses additional risk for U.S. trust structures, as a sole trustee moving there can cause a domestic U.S. trust to become taxable in the UK and to be treated as a foreign trust for U.S. purposes. France is viewed as particularly hostile to trusts—including common U.S. revocable trusts—with potential tax exposure when any of the grantor, beneficiary or trustee resides there, and inheritance tax rates that can climb as high as 60%.
Advisors as Global Quarterbacks
Most clients broach the idea of expatriation with only a hazy sense of what it entails for their tax bill, estate plan and cross‑border reporting. Advisors, however, sit in a pivotal position to “quarterback” a coordinated team that typically includes U.S. and foreign trusts-and-estates attorneys, CPAs or equivalent tax professionals in each relevant jurisdiction, and specialists in any country where clients hold assets. The role extends beyond technical answers to framing the right questions: where clients intend to retire, where their heirs live, how long they expect to maintain ties to U.S. markets and whether their tolerance for complexity matches their global ambitions. Even when the final decision is not to expatriate, the exercise of mapping exposures and options can deliver a clearer, more resilient plan for an increasingly mobile world.
Source: Jeanne Cotroneo Darrow, “The Rise of Expatriation Planning”, Wealth Management by Informa
