Why wealthy Americans are diversifying their wealth overseas

In recent years, a growing number of wealthy individuals in the United States have been actively diversifying their wealth by moving assets abroad. This trend is driven by a combination of financial, political, and strategic considerations, and reflects a shifting sentiment among high-net-worth individuals about the stability and future direction of the US economy and policy landscape.

Drivers of offshore diversification

Concerns about the US dollar

A primary motivator is concern over the long-term strength of the US dollar. With high federal debt levels, persistent deficits, and loose monetary policy in recent years, many affluent investors worry about inflation and a potential decline in the dollar’s global purchasing power. By holding assets in other currencies or jurisdictions, they seek to hedge against domestic currency risk.

Political and regulatory uncertainty

The U.S. has seen increasing political polarization and unpredictability in fiscal and tax policy. Some wealthy individuals fear future tax hikes on capital gains, estate transfers, or income, particularly amid growing public discourse around wealth redistribution. This has spurred interest in jurisdictions with more stable or favourable tax environments.

Global investment opportunities

Beyond defensive motivations, many are simply pursuing better returns or diversification. Investing in international real estate, private equity or foreign markets offers exposure to growing economies and industries that are less correlated with the US market.

Tax implications of holding assets abroad

However, moving wealth offshore doesn’t exempt US citizens from their tax obligations. US citizens are taxed on their worldwide income, regardless of where they live or invest. Key considerations include:

• Foreign Account Reporting Requirements: US citizens must report foreign bank and investment accounts through FBAR (FinCEN Form 114) and possibly FATCA (Form 8938), depending on the value of their holdings.
• Tax on foreign income: foreign dividends, interest, rental income, and capital gains are generally taxable by the IRS. Foreign tax credits may offset some double taxation.
• Estate and gift planning: US estate and gift tax applies to global assets. Holding assets abroad can complicate estate planning and may trigger unintended tax liabilities if not properly structured.
• Tax reporting: in addition to the usual FBAR requirements, you will also need to ensure the foreign institution you deal with can provide you with the correct tax reporting. Many only provide reporting for residents of their own local jurisdiction.

While diversifying wealth abroad can provide protection and growth opportunities, it comes with a web of tax and compliance responsibilities. Wealthy Americans exploring offshore strategies should work with experienced advisors to ensure both strategic alignment and full compliance with US tax law. The benefits of global diversification can be substantial, but only if executed with careful planning.