Your Back Up Plan with David Lesperance
LifeBlood: We talked about making a back up plan should you ever need to leave the United States, the tax and other important considerations to keep in mind, how to talk with your family about it, and when a good time to start is, with David Lesperance, JD, and one of the world’s leading international tax and immigration advisors.
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george grombacher 0:02
David Lesperance is an attorney. He’s one of the world’s leading international tax and immigration advisors. Welcome, David.
David Lesperance 0:11
Nice to be here. George,
george grombacher 0:12
excited to have you on. Tell us a little about your personal lives more about your work and why you do what you do.
David Lesperance 0:19
Sure, I’m not American, but I’m about as close as you can be. Without having the big ego passport. I grew up in Windsor. So I’m a child of the auto industry. Father would wake up every day and go and work in Detroit was quite common. His golf and bridge buddies were the equivalent at Ford and Chrysler, and AMC back in those days. What was also quite common was when mothers would feel the contractions, they would run over to Henry Ford Hospital and have what they now call anchor babies. I’m the third child so when my mother got pregnant with me, the doctor said, Look, you’re gonna have Rh blood kin compatibility, this child is going to need blood transfusions Don’t be screwing around driving across the bridge. So literally, the only reason I don’t have an American passport is because my parents had incompatible blood. Then, going through law school, I needed a job my father knew all the people at customs because he was implementing the auto pack for GM Canada. So I worked in the booth at the Windsor Detroit tunnel, busiest car entry, couple of days was sweltering in my little booth in the sun, seeing the immigration people with their feet up read in the newspaper, I thought that would be the job for me. We then moved to Toronto, and I did the same thing at the busiest airport, Toronto Airport Pearson International. And then I saw the light or went to the dark side and it 90 got called to the bar. The other part of my background is I swear my siblings and I didn’t go out at night clubbing looking for Europeans to dance with but my sister made a Latvian then a German my brother married an Italian I married a scotswoman than a pole and my younger sister made an Irishman. So I’m the only one of the four of us to actually pick up and move to Europe. But I can tell you all of my nieces and nephews have done everything from kind of gap years study, to working and living and working in in Europe. So very familiar with the lineage citizenships. Got called as I said to the bar in 1990, my law school study partner went work for big American firm called Baker McKenzie in Hong Kong that was prior to the 97 handover. So I’ve been dealing with kind of Hong Kong, China, Asia clients for three plus decades. Canada back then had a early what they called now a golden visa program. So this was before, during and after the Gulf War, running up and down the Gulf. If this is Tuesday must be Bahrain, meeting all the private banking clients for HSBC and standard charter. And I did my first US expatriation because the US has this original or unique, I should say, original and unique citizenship based taxation. Everybody else in the world says, if you live here, according to whatever their residency is maybe a day count or connections test, we’re talking about taxes. If you’re an American citizen, even if you’ve never set foot in the United States, maybe you got that from a parent or you know, you’re you’re you’re born when your parents were in the United States and some temporary purpose and you’ve long lived in somewhere else US has still you’re a US person for tax purposes, you have full US tax liability and financial reporting requirements. So if you want to leave the Canadian or anybody else’s tax net, you simply move and don’t spend too much time back in the country you just left whereas for an American, they if they move abroad, Eva has a choice of being an American living abroad and but fully tax compliant. Or we can use it as part of an expatriation strategy to permanently leave the US tax system.
george grombacher 4:06
Death and taxes, David,
David Lesperance 4:08
death and taxes I don’t want to bore you I once got retained by a client who wanted me you know, said I’m gonna freeze myself How do I leave money for myself in the future? And I was fascinating how many heads on the angels on the head of a pin. But ultimately, he said, No, there’s not a way we could do this. So deal with the taxes but death still eludes us events, certain with an uncertain event date.
george grombacher 4:37
So we got called to the bar in 1990. So it’s been a couple of years and you’ve been fascinated or involved with immigration or people moving between countries for for a while before that. And now here we are in 2023. What what what, what’s your thoughts?
David Lesperance 4:54
Well, it’s it’s interesting in so I’ve been doing expatriation And that was mostly estate tax driven in the early days, people wanting to, you know, preserve their estate from us estate tax. And then I started doing what Tom Wolfe called masters of the universe who had a completely different focus. So vcsp e’s, private equity and hedge hedges. And they were looking at how do I get net closer to gross by q4 of next year, completely different focus. One of the things that, you know, is really changed in the last few years, our clients who are looking for not necessarily expatriation, but they’re looking for some type of options. And this is a bit of a dangerous analogy for a Canadian to be using these days. But imagine you’re in a wildfires. And what are your wildfire concerns? Well, you may say, well, the Democrats are going to hit the trifecta in November of 2024. And I look at the green book, and you know, that’s gonna hit me tremendously from a tax point of view. I’ve got other clients who say, Oh, my God, the Republicans are gonna get in and I don’t want to live in a mega America. I’ve got clients whose wildfire concerns are, I’m really worried about the increase in anti semitism, anti racism, anti, I’m a member of a political party, which means half of the United States hates me. Another big one is gun violence. I grew up, you know, next to Detroit when it was murder city. But back then it was two drug dealers shooting at each other with Saturday night specialists. Now you’ve got mass shooting events, in soft targets with automatic weapons, semi automatic weapons, it’s just a different world. And kind of say, well, I know statistically, my child is not going to be part of a mass shooting event. But I know with 100% certainty, they’re gonna go through active shooter drills, and just the stress, and, you know, they’re gonna see on her news reports of somebody who’s been shot and killed, that looks a lot like them. And every time they walk out the door, my spouse and I are gonna worry about, you know, is today going to be the day so most of the world doesn’t have to deal with that. So those are American wildfire concerns. So if you’re in a wildfire zone, what do you do? Well, you engage in fire prevention. So that may be your taxes, doing domestic tax planning, moving to a low tax state, if you’re worried about personal security, it can be everything from homeschooling to personal security, to getting a gun, getting a dog, etc. But if you along with fire prevention, you prudently also would consider fire insurance, which would be an alternative citizenship or an alternative residence, and having a fire escape plan. So if you perceive that the fire is getting too close, either to your fiscal house or you’re going to affect your family wealth, or what and or wealth being, you can trigger the fire escape plan, what’s the fire escape plan? So it could be a go back option? Oh, my God, there’s a hurricane. That’s it. I need to bug out for a period of time, where can I go? That that works, or a party that I don’t like is got elected, I want to move somewhere for the next four years. So I’m going to be an American living abroad temporarily or permanently, all the way to, I want to permanently leave the US tax system. And you know, I’m looking at a 25% which is the Biden’s proposal 25% tax unrealized capital gains every year, I’d rather pay 23.8% once and be done than 25% every year and whatever the state tax burden is going to be. So different types of solutions for different clients.
george grombacher 8:59
I think that that is a wonderful, wonderful analogy slash metaphor, it makes a lot of sense dangerous
David Lesperance 9:05
for a Canadian these, my West Coast clients understood it. I had a bunch of New Yorkers, looking at me with a side eye as the sky was orange behind them earlier this year, but an out one,
george grombacher 9:19
ya know, for sure. So there’s lots of different options. And I think you broke it down really, really nicely. It’s cost, it’s time. It’s desire, it’s location, it’s all these things that I need to be considering and balancing.
David Lesperance 9:36
And it’s really, you have to come up with a plan that not only makes kind of financial sense, but that you can, I like to say sell at the breakfast table. So I’ll get some clients who call me and say I’ve just been sued. I’ve just been audited. I’ve just gone through a divorce. I want to move somewhere where there’s no taxes and no lawyers. Fine. We’ll move to Pitcairn Island. Only 67 people on Earth have decided that that’s where they want to live. Oh, no, no, no, I want schools, hospitals and airport, you know these things. So interestingly, I would say, you know, 70 to 80% of the clients, we move to what are thought of as high tax countries, but on a lower controlled tax basis. So, you know, if you’re, for example, you know, which is amazing to Canadians, but Canada can be a tax haven, to an American, to certain types of Americans. Well, how’s that? Well, Canada doesn’t have a gift tax doesn’t have an estate tax doesn’t have a wealth tax, we have higher income and capital gains tax, which I’m gonna throw one equation at your audience, which is x times y equals Z, or is Canadian to say Zed. So x is taxable income, y is rate, z is dollars paid in tax. So the whole goal is to get the lowest amount of tax paid on y is what it is, it’s going to be whatever the legislature sets up, one of the things you can do is instead of having ordinary income have long term capital gains, so that’s going to be half of why fine, but we can do lots of planning on reducing or even eliminating x, zero times and even 99.9%. rate is still $0. Paid. So Canada has a higher why, except for New York City, because it has combined city state and federal tax, but generally the Canadian tax rates Why are higher, but through pre immigration tax planning, we can effectively greatly reduce an almost eliminate x. So therefore, Canada, familiar, close, can stay in the same timezone a number of different ways that an American can come to Canada because we have a free free trade agreement. A number of other other ways of doing it Canadian dollars lower. So Canada is, surprisingly often one of the tools in the toolbox that we reach for. And one of the things is, as a lawyer, one of the first things that you learn is who’s my client? Well, my clients, not a country, like Canada is not a fund manager. It’s not a developer, my client is my client. And I am a fee based advisor. I don’t take commissions, if we have to reach for a tool like a residence or citizenship by investment that pays a commission. I pay that back through to the client. So they know that I my advice is agnostic and uncomplicated. And one of the things I once had somebody say to me, you know, she said, David, you look at the world like Mr. Spock, I took it as an aspirational compliment, Mary nice through but the aspirational, she thought it was, I was emotionless. But so it’s agnostic, you know, looking at the world, not as we wish it was, but how it is and how we can reasonably predict it to be trying to eliminate the rose colored glasses. And let’s look at practical solutions. That work that you can sell at the breakfast table that are livable for all the family members. And that may involve multiple jurisdictions may involve different people because different some people may be going to school, some people may be starting in their careers, others may be retiring. So, you know, having something that that deals with, especially when you’re dealing with multi generational families, all the different concerns.
george grombacher 13:48
That don’t make sense. And it’s, you did a great job, great job explaining that. Why does planning halt commonly or not get completed?
David Lesperance 14:00
Because the plan is not ignorance of the options. Life inertia, what I will call, you know, people have a number of things to their wives fruit that’s very familiar to them. They have built up, they’ve got friendships, they’ve got familiarity, they don’t understand or really want to explore something else. So if you think of that kind of classic New Yorker magazine, you know, cover of the island of Manhattan. And so you had people that just never left Manhattan, you know, I’m not even going to take a bridge and tunnel over to New Jersey. Well COVID drove them out of Manhattan, it overcame life inertia, all of a sudden, they were in the Hamptons, or wherever they were at. And they were saying, oh my god, there’s this thing called Zoom. Oh my god, there’s Honey, did you know that? There’s this thing called Amazon Prime where they’ll deliver whatever and there’s, like DoorDash that will deliver food from my favorite restaurants and I never thought I’d leave Manhattan, I was driven out of the place and you know, life’s not so bad. And so like with any interaction, a body in motion tends to stay in motion. So they started thinking or saying, Well, okay, there’s a New York City mayoral race, and they’re talking about increasing the taxes and gee, the tax rate is going to be higher, and why don’t I move to Miami? Or Palm Beach? Oh, okay. Or why don’t I explore Puerto Rico? Or why don’t I, you know, once they’re in motion, and once they’ve overcome that life inertia, it’s a lot easier for them to contemplate. So life inertia, ignorance, some people say, Well, you know, using the firefighter example, which is, you know, I want to fight, whatever my concerns are, I want to stay in the fight. It’s like, okay, fine. But, you know, fire chiefs, when they’re dropping crews into a fire zone, always make sure that they have at least two escape routes, why the political winds blow in different ways, and you don’t want to get trapped there. So yes, that’s great. If you want to fight that fight, that’s great. But that shouldn’t prevent you from engaging fire prevention, fire insurance, and a fire escape plan, especially when you’re talking about, you know, your family, you know, wealth and well being. And for higher net worth clients, they have a lot more of a budget and more options. So you’ll hear, you know, some pundits say, Well, you know, how dare they, you know, they leave and some even go so far they started the fire, you know, Jeff Bezos didn’t start global warming. And, you know, how dare he create a company in a product that I thought valuable enough? Or I’m talking to you on an Apple computer? How dare Steve Jobs, create something? It’s like, Well, no. He created a product, which I thought was worthwhile and worth more than the money I paid him for. and stuff and because he deals with a global market, and because you have the delivery system when things stop being delivered. Great. And thanks. Not that, you know, every billionaire is a saint. They’re not but they’re not evil, simply because they had a product or service, which was attractive in a global market and the delivery mechanism to do it. So if they want to, you know, have something that works then in great and it’s interesting, also, there’s a bit of an industry out there people kind of bashing and say, wow, you know, so Sam Beckman, Fried’s little brother said, Oh, we’re gonna buy the the eyelid window room? Well, I think somebody was having a few too many edibles. When I was musing about that, or, you know, Peter Thiel is going to build, you know, these billionaires are going to build bunkers in New Zealand, or they’re going to go into missile silos and Kansas. It’s like, okay, if you are concerned if your wildfire concern is everything from earthquakes, to Yosemite finally going up, to hurricanes to all the political and all the other things, and you want to bug out? How logically would you do that? You know, notice that there’s an author, New York professor who says, Well, you know, I was flown in and talk to them about how are we going to save our, you know, protect ourselves from the Navy SEALs we have protecting our food in New Zealand, like, very dramatic, sold a lot of newspapers lately, but if you would talk to me and say, Okay, well, you like New Zealand, or Iceland, great, they’re isolated. pandemics, etc. Fine, you know, you’re gonna go there. Air New Zealand has a nice flight that you can go there. You don’t have to pay, you’re going to arrive in New Zealand. If you want to get a panic room in your, in your nice house, they’re fine. But you know, you don’t need to have you don’t need to have a SWAT team because all your neighbors in New Zealand have their own food, why the hell would they want to bother, bother you. And you know that there’s a group that builds these kind of mobile homes. They’ve claimed they’ve done eight of them and shipped them to New Zealand. So I’m like, Okay, let’s apply Akram tracer here. So you’re somewhere in Texas, you build something that’s like a double wide mobile home. You then have to take that to the nearest to, let’s say, Port of Los Angeles. You’re going to transport this thing. Close all the roads because it’s the double wide. You’re going to get it onto a ship. Can’t be a normal can ownerships got to be a special to container ship that’s going to ship across to New Zealand arrive at one of two ports be offloaded, shipped, again, you got to close all the roads, to the secret location where you secretly dug a hole buried in the ground without any planning approval, and then on this entire 1000s of miles of journey, you never ran across somebody with a kit with a phone that had a camera that took a picture of this, and you did this eight times. Yes. So in my questioning whether that is actually true, again, aacomas Razor would say? Probably not, especially when I presented the alternative of cheaper, faster, better. So you don’t have to fly me to an undisclosed location in the desert. With I’m amazed that there’s warm knots on the flight. And you know, give me in a secret room with Phil, six billionaires who are quizzing me about Navy SEALs, I mean, again, I’m not calling him a liar. I’m just saying, Okay. Could have happened the exactly aacomas razor? I’m not going to take it for granted.
george grombacher 21:15
Maybe not so much. Yeah. So as as for somebody who is who has been listening, they said this, this makes a lot of sense. How much time should I be willing to or be to create a backup plan or to begin researching a backup plan? How long is this going to take me? And you and I should should should be engaged?
David Lesperance 21:40
So the first thing would it be I have a have a consultation where we really talk about kind of really looking trying to look beyond the iceberg as to what is the driver? What is the motivation? What are we trying to do? Then getting into some family history? I mean, if you’re if you have an Irish grandparent, you can get a an Irish lineage citizenship, that’s going to cause maybe spending some money on a genealogist if you don’t have the documentation, legal fees, and government fees, a fraction? If you’re Eric Schmidt, who didn’t have that, and he wanted to buy what was the spent several million euros on a separate passport. So it’s kind of what you what your needs are? Exactly. So the first start is kind of what you know, what’s the what can sell at the breakfast table? What what are your needs? What’s your, your, your pain points, what are the motivations, etc. And at the end of that we really come up with Okay, here’s a plan. Are you going to go back option? Are you going to be an American living abroad? Call quiet. I just call before this was he was an American, but he’s married to his to a Spaniard? Well, they don’t have to move to Spain, they can move to Spain, but as an EU country national, she can move to 27 different countries. And he, as the spouse of an EU national can go and live in any of those countries doesn’t need to make a golden visa investment, etc. Okay, what if they didn’t have that? Well, if they’re going to spend more than six months there, they don’t need to make a golden visa investment. I have a nine year old twins, I’m going to be somewhere nine months of the year. So now I’m going to be tax resident in that jurisdiction. So you know, what are the tax ramifications of that? So it’s consultation, let’s figure out there may be at the end of that consultation, and we’ll kind of I can provide kind of here’s what I think would be appropriate sometimes, especially when we’re dealing with multi generations, you know, we have a, an initial fee, that would be kind of like exploratory and strategy stage. And then I because what I do is I get and get rid of tangible residences, is it per domicile, I tend to project fee as opposed to hourly fee. So I say, Okay, here’s the cost. Here’s the benefit over the written retainer, do you want to proceed? And then I also identify who else do we need involved, that may be one of your current advisors, it may be a specialist, American lawyer. It may be depending on where you’re going to and how much time you’re going to spend there. A tax lawyer in a new jurisdiction. Another thing, especially when we’re dealing with families, is family law, divorce issues. It’s not a black swan event. I have said nine year old twins. So physically, one of them is going to get divorced. Taxes, percentage income, divorces, percentage capital. I’m betting on my daughter because at nine she’s already into the bad boys. But you know, not that the Les Brown’s family treasure chest is that enormous but it’d be much easier with proper planning. So should you know that marriage fall apart? She didn’t say well, you know, honey had like to give you love to give you half but that SOB father of mine put it up in a trust when I was eight years old. That’s much easier than I know, we’re getting married in two weeks, but I need you to go and see this lawyer for independent legal advice on a prenuptial. That’s a difficult conversation to doubt. So, you know, it’s that kind of planning cost depends on what we’re trying to achieve background, what’s the concerns? What’s the timing? You know, it’s the classic, you know, quality, speed, cost, pick two, well, we’re not going to skimp on the quality. So the longer we have, the less it’s going to be for trying to do things. If you’re trying to get fire insurance at the 11th hour on the fire is bearing down on you, you’re probably going to pay more.
george grombacher 25:53
It makes sense. But David, thank you so much for coming on. Where can people get a hold of you? How can they how can they have that conversation?
David Lesperance 26:00
Well, hopefully you’ll have the spelling of my last name on on the the show notes. You can google David Lesperance it’s Les Brown associates. There’s a contact us there. I’m also on LinkedIn. I do almost daily posts on different issues. And I have a lot of making subscribe to the blogs I there’s a lot of media, etc. And you don’t hesitate to reach out and ask for a consultation.
george grombacher 26:38
Excellent. Well, if you enjoyed as much as I did, so David, your appreciation and share today share with a friend who also appreciates good ideas. Fine David at Lesperance and Associates, it’s Le s p e r a n c e n David Lesperance and find him on LinkedIn. Check out the blog and all the great resources that he has on the website for helping you to better understand everything and then have a conversation and see what finally makes sense for you if anything. Thanks good, David.
David Lesperance 27:07
Great. Thank you.
george grombacher 27:09
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George Grombacher November 21, 2023