The Canadian Snowbird in America – Will and Estate Planning Issues

One of the most misunderstood and confusing areas for Snowbirds is U.S. estate planning to avoid the dreaded U.S. estate tax. Ignorance of this tax and not understanding the requisite planning can have serious implications for you and your family not only during your lifetime but at your death as well. We have seen many unnecessary U.S. or Canadian trusts and other sophisticated structures put in place by attorneys and accounts when they have never even “run the numbers.” Be sure you tread carefully and get competent Canada-U.S. advice.

U.S. federal estate tax is imposed on the value of assets at the date of death held by citizens and residents of the U.S. What is often a surprise to many Canadians and Snowbirds, is that U.S. estate tax could also be imposed based on the value of assets you hold in the U.S. or that are considered located in the U.S.

For the majority of Canadians and Canadian snowbirds, the most common types of property subject to U.S. estate tax include U.S. real estate held personally and shares of U.S. companies regardless of the location of the share certificates and regardless of where the shares are traded, including those within your RRSP or RRIF.

Although U.S. citizens are entitled to a fairly generous exemption from estate tax on assets that exceed a certain threshold (U$2 M for 2008 and U$3.5M for 2009), Canadians are only entitled to a partial exemption of these amounts. Your exemption would be determined by dividing any U.S. assets considered to be located there by the value of your entire worldwide estate. Your worldwide estate would include any and all assets you hold in Canada including your residence, business interest, RRSP/RRIF and in some cases life insurance proceeds at your death. After the determination of the amount of U.S. estate tax exemption (credit) that you would be entitled to, an additional credit for married couples might also be available under the Canada – U.S. Tax Treaty.

Calculating the U.S. estate tax and knowing which assets are subject to this tax, can be a tricky proposition, so it is highly recommended that you work with a professional Canada – U.S. advisor who is competent is this particular area. It has been our experience that working with advisors that do not engage in this area on a full-time basis can lead to complicated, expensive and in many cases unsuitable planning recommendations. That being said, there are a number of effective planning strategies that can be utilized to minimize, defer or eliminate this dreaded tax. Such strategies should only be implemented after an advisor fully understands your specific situation and overall objectives.

Having a will is the most basic form of estate planning and in most cases; a valid Canadian will is recognized by U.S. Courts. Therefore if you own a U.S. property, it can likely be transferred using your Canadian will. Having a will in Canada and a will in the U.S. is not necessary and can complicate the process of estate distribution. It’s important that you have a valid will that properly addresses your intentions for the distribution and/or management of your property at your death. This is particularly important when you own assets in different locations.

You may have financial accounts and related affairs in both Canada and the U.S. A valid legal document called a power of attorney (POA) can be an excellent planning tool to ensure that the management of your assets and affairs continue in the event of incapacity or inability while you are in the U.S.

A “power of attorney” (POA) is a legal document whereby an individual (grantor) appoints and gives authority to another individual to act on their behalf. Such documents are typically governed by the law of the jurisdiction where the POA was executed. Therefore, if you have property in the U.S. and Canada that is not held jointly with your spouse or another person that you trust, you should have a POA drafted in the location of such property.