Estate Planning

Estate or death tax laws are significantly different in the U.S than in Canada. Canada taxes on capital gains upon death, whereas the U.S. estate tax is based on overall value. It is critical to understand these differences prior to moving from Canada to the U.S. Poor cross border planning in this area may lead to the IRS taxing you on up to half your estate on death.

American residents pay tax upon death on their worldwide assets that exceed the U.S. estate tax exemption. As of 2017, the U.S. estate tax exemption is $5.49 million (indexed annually for inflation) and the progressive tax rates range from 18% for $10,000 of assets or less, to 40% on assets over $5,490,000.

Therefore, a U.S. resident who dies with more than $5.49 million in net worth may owe up to 40% tax on the excess. The good news for Canadians who are planning to become U.S. residents is that they have a golden opportunity to restructure their estate prior to departure to shield their assets from U.S. estate tax.

U.S. estate tax rules are different for Canadian residents who simply own property in, but do not move to, the U.S. They too may face a U.S. estate tax liability upon death, but only on their U.S. assets. For example, the estate of a Canadian resident owning a $1 million vacation home in Naples, Florida may face U.S. estate tax upon death of up to 40% on the property, less any treaty benefits. For more on U.S. estate tax issues for Canadian residents, see David A. Altro’s book Owning U.S. Property – The Canadian Way, 3nd Edition.

Currency risk management for Canadian retirement accounts

Canadians are in the full swing of retirement savings plan (RSP) season, and to build on Jeremy and Matt’s January 31, 2017 blog entry related to cross border taxation of RSPs, which you can view here, I will highlight a couple of issues related to foreign exchange risks faced by retirement accounts within a cross border context. Registered retirement savings plans (RRSPs/RSPs) and registered retirement income funds (RRIFs/RIFs) are tax-deferred savings and income vehicles respectively, available to Canadian residents for the purposes of accumulating funds or providing income for retirement. Contributions to an RSP, as well as investment growth on […]

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