Why do people change their citizenship? Usually for practical reasons, like taxes or estate planning. But for wealthy individuals, citizenship can be a strategic tool, and David Lesperance is one of a rare breed of advisors with expertise in this area.
As founder and principal at Lesperance & Associates, he says he’s either “a tax-savvy immigration advisor” or “an immigration-savvy tax advisor.” Fittingly, he and his family have pursued a peripatetic life: “I live in Poland; probably next year I’ll be in Bermuda,” he says.
In the recent past, he lived in the Residences of the Ritz Carlton on Wellington Street in Toronto and a house in Dundas, Ont. “When our twins were about two years old, we got a house in Dundas, then moved to Poland,” he says. “We thought we would then move on to Portugal or Italy, but, as a British prime minister once said, ‘Events, dear boy, events.’”
Similarly, his business associate Michel de Martigny resides in Montreal but has previously lived in Dubai, Windsor (U.K.), Hong Kong and Toronto.
We sat down with Lesperance and talked about what triggers wealthy families to relocate, his recent new-found fame in Britain, and Canada’s hike in taxes on capital gains.
What brought you into this specific niche?
My first case of this type in 1990 was a product-liability specialist who had been saving money in a non-Canadian, non-U.S. trust. He held citizenship in St. Kitts and Nevis and wanted to give up U.S. citizenship.
At that time, Canada wasn’t going to tax what was in the bucket for five years, so we used his status in St. Kitts to renounce his U.S. citizenship and applied for citizenship in Canada.
Though that was a unique situation, it brought me into the realm of the few U.S. tax lawyers who were doing this. Improperly done, you’re going to step on a lot of landmines. When you consider the cost of hiring a guide, for high-net-worth or ultra-high-net-worth clients, it’s worth it.
In 2020, I wrote a white paper for Brits who wanted Canada as a tax haven. There’s a lot of tax planning you can do to blunt the impact of taxation. It was called Canada as a Tax Haven, and how Meghan and Harry may benefit from their choice to relocate, and it really blew up in the British media. Because of that, I became ‘Mr. Megxit.’
I understand that the Reed Amendment in the United States helped your practice as well.
In 1996 there was U.S. immigration reform that introduced the Reed Amendment, which says that if you have renounced U.S. citizenship for tax purposes, you are inadmissible into the country. There were a number of attempts to enforce this, but it’s unenforceable. They’ve never passed enabling legislation, but it’s still in the documentation.
Forbes did a series of articles about the ‘New Refugees,’ and more people started to ask about formally renouncing their citizenship. If you renounce it for ‘relinquishment’ rather than for tax reasons, it’s okay, so [professionals like U.S. immigration lawyer] Austin Fragoman started to say, ‘I don’t know anything about this, but there’s this kid in Toronto.’ So we were doing relinquishments for over three decades.
How do you work with family offices?
We’re an outside advisor. We make them look good; we provide solutions to their principals. I may manage lawyers in different jurisdictions, depending on what I’m doing.
For a Canadian family office, I would ask whether there are any Americans in the mix. If so, I would ask whether they were dual citizens at birth. Maybe, for nieces or nephews who want to do gap years in Europe, do they have rights to citizenship in their ancestry?
COVID was definitely an eye-opener for Canadians and Americans. When the pandemic hit, they were shocked that they couldn’t take the kids to Disneyland or visit the U.K.
For instance, Sardinia is like a seasonal playground for the ultra-high-net-worth, and in one case, an American couple flew in with a German couple. The Italians said the Germans could come in, but the Americans had to go back. I got called in by the New York lawyers, who were saying, ‘I need a mobility expert.’
Since then, Americans and Canadians have started to think that one of their concerns may be future mobility, because for the first time in their lives, they couldn’t just cross the borders.
What are the usual trigger events that make families decide it’s worth pulling up stakes?
Usually, it’s about estate planning. The longer the runway and the planning you have, the better. In Canada, there are many ways to reduce capital gains: you can use estate freezes, you can sell assets, you can gift excess capital. Canada doesn’t have a gift tax, and Canada doesn’t tax based on citizenship, although if you become non-resident in Canada, you may trigger a deemed disposition and capital-gains liabilities.
Lately, I’d say four out of five of my U.S. clients are driven by non-tax issues like shootings.
But who actually picks up and moves? Everybody has life inertia; they have a home, friends, kids in school, places of worship, favourite restaurants. They will only move when the pain or the force is greater than the life inertia.
That can be very specific in regard to taxes: What’s your cost of moving?
Are you also starting to hear from Canadians?
It’s not as much as in the U.S., where they have more non-tax issues. We haven’t got the mass shootings and the proliferation of firearms.
But you’re hearing lots of grumbling. People are worried about antisemitism, about islamophobia and racism. We are seeing high-net-worth and ultra-high-net-worth families who are starting to see trouble on the horizon here. We’re starting to get early movers. They’re the first; they’re not going to be the last.
Wealthy Canadians are not as concerned about wealth tax, but they look at the title of Chrystia Freeland’s book, Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else [2012], and they think, ‘I guess she’s talking about us.’
Let’s look at the situation. There’s a housing crisis, and there are Gen Z-ers saying, ‘Buy a house? I can’t even afford to rent!’ How to get more liquidity in the housing market? Force people to sell by capping the principal-residence exemption and increasing capital-gains rates. Will the government bring in increased capital-gains rates? Will they bring back some type of estate tax or a citizenship-based tax?
The greater your net worth, the greater the potential damage to your fiscal house. Those are all drivers.
I tell my clients to imagine they live in a wildfire zone. What’s your big concern? Taxes, political violence and so on. While the first, and noble, reaction is to fight the fire, by voting for example, smart people realize that it is called a wildfire for a reason.
It is worth remembering that just because you have fire insurance and a fire-escape plan, that doesn’t mean you have to use it. However, it comes in very handy if you start smelling smoke.
Responses have been lightly edited for clarity and length.
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