Tax Exile Planning 101: Seven Steps to Effective Second Citizenship/Residence Strategizing for High Net-Worth Individuals

"Failure to Plan is Planning to Fail"Stephen Covey

If you are or aspire to be a High Net-Worth Individual ("HNI"), you have different attributes, needs and concerns than the general population. Along with wealth, a HNI typically has a great deal of real life experience in business, wealth management, proper use of qualified professionals, and geo-politics. A HNI also tends to have a more complicated business/ financial life and has established a personal lifestyle that is beyond the reach of most of society. Unfortunately, the "deep pockets" of a HNI also make them the preferred target for tax revenue, property theft and lawsuits.

Properly husbanded, these attributes can allow a HNI to fulfil all of their needs and isolate/reduce or eliminate their concerns. This article will examine the use of residence/ citizenship and domicile planning for HNIs.

Residency, Domicile and Citizenship

In order to consider this type of planning, it is important to have a thorough understanding of the above key terms.

Residency generally has both a tax and an immigration element to it.

Tax residency is usually based upon a count of the number of days a person spends in a jurisdiction or a review of various indicators/ symbols of residence (i.e. home, bank accounts, vehicles, club memberships etc.). Immigration residency is usually granted on a temporary or permanent basis. It may allow an individual physical presence, re-entry, employment or study rights.

Domicile is an estate tax concept, which concerns a person's "ultimate home". All persons, even "perpetual tourists" are deemed to have a domicile. A person acquires a "domicile of origin" at birth. They may acquire a "domicile of choice" by changing residence and acquiring long-term trappings of a new home, such as gravesites and new wills. It is also possible to acquire a subsequent "domicile of choice" by severing ties in the first "domicile of choice" and re-acquiring them in a new jurisdiction.

So a person might leave the United States for Ireland and after several years in the Emerald Isle move to Canada. If a person abandons their last "domicile of choice" without acquiring a new one (e.g. becomes a "yachtie"), then under U.S. law their domicile reverts back to their last domicile. This is different from British law, which states that a person, who has a U.K. domicile of origin, reverts back to the U.K. domicile of origin, upon abandonment of their last domicile of choice.

Citizenship is a status granted by a country and may include various rights such as travel documents (passports), voting, land ownership, and the ability to hold public office, etc. A country may grant citizenship in...