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U.S. Canada Cross-Border Estate Planning

Cross-border estate planning may be relevant to you if you:

  • Own a Canadian company with a U.S. subsidiary or that earns a significant amount of income in the U.S.
  • Want to retire in the U.S. or spend a significant amount of time in the U.S. in retirement
  • Are a Canadian working in the U.S. who wants to return to Canada after retirement, or have worked in the U.S. in the past and have a pension plan in the U.S.
  • Are a U.S. citizen living in Canada

Why do Cross-border estates need expert planning?

There are several complications in cross-border estate planning so you should have an expert in your corner. The cross-border tax accountants at Achen Henderson CPAs can help you with:

  1. Tax Optimization: They devise tax-efficient strategies to minimize tax liabilities in both the U.S. and Canada, considering the complexities of cross-border tax laws.

  2. Compliance Assurance: They ensure that the estate administration complies with the tax laws and regulations of both countries, reducing the risk of penalties and legal issues.

  3. Estate Planning: They assist in developing comprehensive estate plans that consider the unique challenges of cross-border estates, ensuring smooth asset transfer and distribution.

  4. Beneficiary Coordination: They help coordinate with beneficiaries residing in different countries, addressing their individual tax situations and ensuring fair treatment.

  5. Legal Guidance: They provide guidance on legal matters related to the estate, including navigating probate processes and addressing legal requirements in both countries.

  6. Estate Administration Support: They offer support in the administrative tasks involved in managing a cross-border estate, helping executors and administrators fulfill their duties effectively.

Moving your U.S. Pension Plan to Canada

If you’ve worked in the U.S. in the past and invested in a U.S. pension, and you’re now living in Canada, you may want to move your pension to Canada to manage your investments in one country or perhaps to take advantage of favourable exchange rates. U.S. company pension plans may be heavily invested in the employer company and other U.S. entities for which you might lack investment information in Canada.

The IRS requires tax to be withheld from any U.S. pension plan distribution at 15 per cent or 30 per cent.  A U.S. Individual Retirement Account (IRA) may also withhold a 10 per cent penalty for an early withdrawal.

You can transfer IRA or 401K company pension plans into your RRSP by a direct rollover in Canada without Canadian tax, similar to the way you may transfer your Canadian employer’s pension into your RRSP. Our accountant experienced with cross-border tax can assist with plans to use the withholding tax for foreign tax credits in Canada.

What is U.S. Estate Tax?

U.S. estate tax is different from Canada’s taxes on death. In Canada, you’re deemed to have disposed of everything at death, unless the property transfers directly to a spouse. The deemed disposition is a tax on capital gains as if you sold it all when you died.

The U.S. estate tax is a tax on your net worth. The IRS calculates tax based on the net worth or fair value of your assets and investments, in excess of an exemption amount.

U.S. estate tax will apply to a Canadian’s U.S. assets, such as shares in U.S. entities and U.S. real estate. The U.S. estate tax also applies to the worldwide estate of a U.S. citizen residing in Canada, just as the U.S. income tax applies to the worldwide income of a U.S. citizen residing in Canada (see U.S. Personal Returns). There is some good news: as of 2018 the estate tax exemption was increased to $11 million U.S. per person. The exemption amount is indexed annually and is proposed to remain for 10 years. 

A U.S. citizen may claim the entire exemption and, in certain circumstances, the exemption for assets transferred to a spouse. A U.S. alien (non-citizen) Canadian resident is entitled to a pro-rata share of the exemption based on the proportion of U.S. assets to worldwide assets. An estate is required to file a U.S. estate tax return to prove eligibility for the exemption, and often also to allow title to transfer in the U.S., even if no tax is due.  

If you or your parents were born in the U.S., it’s important to determine whether you have U.S. citizenship. Contact us today to ensure your estate is planned for and protected.

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