Estate Planning


By far, the most neglected area we see with folks making the transition to the US is the area of wills and estates.  In Canada, a simple will can accomplish most things.  However, when in the US, wills and estates become much more complex, particularly with property spanning both countries and non-US citizenship issues are added.  Estate planning is the most important area of planning you can do for yourself and your family as the following questions illustrate:

	Is your Canadian will valid in the US?
	What would happen to your spouse if you died suddenly in the US?
	Would your spouse be able to get access to any funds?
	What taxes would you pay in the US and/or Canada in the event of your death?
	What would happen to your assets in Canada? US?
	Would your heirs in Canada receive any of your assets?
	Who would care for your children if you and your spouse died simultaneously?
	Who would file your taxes, pay your bills or care for your children in the event of your incapacity?
	In the event you end up in a coma, would you want the "plug pulled?"
	Where would you want your body buried or cremated? In Canada or the US?
	If you inherit assets from Canada, are they taxed? Where?

Estate planning is all about how much control you want in a variety of circumstances including death and incapacity.  A secondary consideration is saving every court cost, attorney's fee and tax possible.  If you do not want to determine the course of events in the situations listed above (don't want to spend the money to get an estate plan), you can let your state of residence decide for you with the attendant costs and delays.  However, rarely have we had a client who is content with that and an estate plan is needed.  You just need to consider the cost of a US estate plan as a part of your overall moving expenses to the US. 

CANADIAN DEATH TAXES - Many people wrongfully assume that if they remain in Canada, there would be no estate tax.  They simply are not aware of the "deemed disposition tax" at death.  Similar to the deemed disposition tax   when you exit Canada, this same tax applies when you die as well.  This means on your final Canadian tax return you must report the full value of your RRSPs, the capital gains in investment real estate, stocks or bonds plus any other income realized in the year of death.  Needless to say, with Canadian income tax rates reaching 45 - 50%, this can be a significant tax burden.  In addition to the federal tax burden, the provinces get their share of the proceeds plus a variety of additional taxes they may levy individually.

US DEATH TAXES - For anyone moving to the US, the myriad of death taxes needs to be considered.  There could be estate taxes, income taxes, state inheritance taxes, gift taxes and generation skipping transfer taxes.  The estate taxes are based on your total net worth (including life insurance proceeds) and can be as high as 50%!  This is in addition to professional fees, court costs and probate fees that could consume another 5% of the value of your estate.  RRSPs are particularly troublesome because they could be triple taxed: First, the deemed disposition taxes at death in Canada; Second, any US federal and state income taxes due on the income accrued in the RRSP must be paid and Third, the RRSPs are included in the estate and may be subject to US estate taxes as well.  Fortunately, the Canada/US Tax Treaty does allow some foreign tax credits (or at least a deduction) in some circumstances to offset the double taxation.  In addition, recent changes in the US estate laws will make estates greater than the "estate exemption" (US $1M per person) subject to US taxes unless the requisite planning is done.

DEATH OF NON-CITIZENS - In the US, non-citizens are not given the same estate planning benefits as US citizens.  For example, US citizens can receive all of the spouse's assets at the first death.  However, non-citizens are not given the same "unlimited marital deduction" because the US government fears the non-citizen could flee the country with the assets without paying any taxes owing.  As a result, tax is typically due at the first death.  To avoid taxation at the first death, you should have Qualified Domestic Trust (QDOT) provisions in your will or living trust.

GIFTS TO NON-CITIZEN SPOUSE - Another area to be cognizant of is the gifting rules for non-citizen spouses.  Citizen spouses have an "unlimited" gifting exemption between them.  For non-citizen spouses, there is a limit of $106,000 annually (adjusted for inflation) and if exceeded, part of your lifetime exemption may be consumed or taxes owing.  These gifts can occur very innocently for example, when assets from one spouse's RRSP are moved into a joint brokerage account in the US.

GIFTS TO OTHERS - The IRS also has a gift tax that many Canadians are unaware of.  US residents are able to gift up to U$11,000 to any one person annually.  Any gifts in excess of this amount require taxes to be paid or a portion of your $1M estate exemption to be used up.  The reason behind the gift tax is to prevent US residents with a large estate from giving away all of their estate to avoid estate taxes.  The gift tax often catches many Canadians by surprise because of interest-free loans they may have given to children or associates.  The IRS deems this a gift because there is an "imputed interest rate" at prevailing interest rates required on any amount lent.  This must be realized as "phantom income" on your tax return even if no cash is received and if the interest exceeds U$11,000 annually, gift tax may be required as well.

The area of estate planning with Canadians relocating to the US is extremely complex and far beyond the scope of this website.  There are some areas that have been tested in US courts, some gray areas and some that have yet to be played out.  Most US estate attorneys have no idea of these complexities and a team approach with your financial planner as the quarterback to ensure an appropriate estate plan is developed to achieve your goals.  We have a network of experts (lawyers, accountants, etc.) with experience in estate planning with non-citizens that we can bring to your unique situation to ensure you maintain the level of control you desire in even the most extreme situations.  In addition, once your estate documents have been executed, you must implement your estate plan properly in order for your wishes to be implemented.