Business Insider, by Juliana Kaplan
The ultrawealthy have had enough in 2020 — of America.
Americans are set to potentially break records for expatriation, or renouncing citizenship, this year, not to mention how many wealthy Americans are obtaining second passports. David Lesperance, an international tax and immigration advisor and lawyer, thinks the numbers could be higher than reported.
As Lesperance put it, being in the US right now is like being in a “wildfire zone” — and procuring another citizenship is akin to “fire prevention.”
“With the expatriation numbers, that’s people actually getting in the car, using their fire escape plan, and leaving,” he told Business Insider. “For every one of those, we’ve got probably 10 people who are just getting the fire insurance and the fire escape plan. And they may never have that day.”
Some news reports have hinted at how many prominent Americans are acquiring second passports, notably ex-Google CEO Eric Schmidt reportedly applying for Cyprus citizenship earlier in November.
Business Insider spoke with four experts on where the wealthy are headed — and why they’re headed there.
There’s a few reasons why the ultrawealthy want to get out: America’s handling of the coronavirus pandemic, social unrest, and the election.
Apex Capital, a firm that specializes in citizenship by investment (CIP) programs, said it has seen interest increase more than 600% since the election, compared to 2019.
Founder Nuri Katz said interest has historically piqued during elections. In 2016, he said, it started “getting a lot of calls about wanting to get out.” He said many of those potential clients in 2016 didn’t follow through, but 2020 has changed all of that.
Some clients want to flee potential tax changes under Biden, while others are uneasy about social unrest. Lesperance said he has clients who span the political spectrum, but they worry nonetheless about civic instability.
“I’ve got a client, a very successful Black entrepreneur, who said, ‘I’m just worried about civil unrest,'” Lesperance said. “He said, ‘What my biggest fear is is that one of my kids or grandkids are gonna come around the corner and walk in the middle of some altercation.'”
Lesperance said that’s been something he’s heard from clients with marginalized racial, religious, and sexual identities. Their line of thinking? “I hope for the best for the United States, but I’m going to plan for the worst.”
On the other side of the spectrum, Katz said some of his clients are “afraid of a backlash against wealthy people.”
It’s not as simple as just packing your bags and hopping on the next flight, says global tax lawyer Ruby Banipal.
A permanent move usually follows a five-step process. First, clients need to consider where they want to get a second citizenship. Then they need to consider the costs and logistics of obtaining that citizenship. Would the family need to move there to establish residency, and, if they’re participating in a citizenship by investment program, how much will they need to invest?
Then they need to figure out the timing of their departure, since, as Banipal said, expatriates would generally leave the country around the same time that they receive their second citizenship.
At that point, a tax lawyer would come in to help them sort out their tax planning. When the client files their expatriation information statements, the IRS or the client will calculate an “exit tax,” an extra tax that could be stretched out over a couple of years.
All of that processing can take a little while.
Ultimately, because of coronavirus-related restrictions on American entry, it’s a lot harder to travel internationally with an American passport these days. For ultrawealthy Americans who are used to traveling for business — or for pleasure — that’s been an adjustment, according to Katz.
For clients who have international businesses, and may not be able to travel as easily to them, that can be difficult. Those clients may want to “diversify” their passports and citizenships.
“I mean, it’s a travesty that you need to now diversify your passports, just like you diversify your financial holdings, or you diversify your two cars in case one car doesn’t work,” Katz said.
He likened it to having multiple credit cards for different perks.
“Americans thought that their passports had the most amount of perks,” Katz said, “until now — when they stopped having those perks.”
The most powerful passport in the world? That title goes to Japan, with visa-free access to 191 countries.