For high-net-worth individuals and families considering a move to the United States, the appeal is understandable: access to top-tier education, healthcare, business opportunities, and global connectivity. But beneath the surface lies a complex web of U.S. tax laws that, if not navigated properly, can trigger punitive outcomes, especially around income, gift, estate, and trust taxation.
Thankfully, these issues can often be mitigated, or entirely avoided, with well-timed and proactive pre-immigration tax planning.
Below is a breakdown of the key strategies and risks every prospective U.S. immigrant should understand:
1. Timing Is Everything: When Do You Become a U.S. Tax Resident?
The U.S. applies different standards for income taxes and transfer taxes (estate and gift taxes):
- Income Tax Residence is triggered by either:
- Holding a green card (lawful permanent resident status), or
- Meeting the Substantial Presence Test (spending 183 weighted days in the U.S. over 3 years).
- Gift and Estate Tax Residence is based on “domicile” — a vague test hinging on your intent to remain in the U.S.
Risk: You may become subject to U.S. gift and estate tax before triggering income tax residence. Start planning well before your intended move.
2. Accelerate Income, Realize Gains, Defer Losses
The U.S. taxes worldwide income and gains from the moment you become a resident. There is no “step-up” in cost basis like in Canada or the U.K., although there is a way to utilize the Canada-U.S. Tax Treaty to elect to trigger dispositions for U.S. tax purposes if moving from Canada.
What you can do before arrival:
- Accelerate income: Collect foreign employment, consulting fees, dividends, or rents before arrival.
- Realize capital gains: Sell appreciated securities or properties to lock in gains outside the U.S. tax net.
- Defer losses: Don’t realize losses before moving — those losses can’t be imported for U.S. tax purposes.
Pro tip: Repurchase similar, but not “substantially identical”, securities if you want to maintain market exposure.
3. Deal with Foreign Corporations, CFCs, and PFICs
The U.S. has complex anti-deferral rules for foreign corporations:
Controlled Foreign Corporations (CFCs)
If, after you move, you and other U.S. persons own >50% of a foreign corporation, you’ll be taxed annually on the company’s income, even if no distributions are made. This includes:
- Subpart F income (passive or related-party income)
- GILTI (global intangible low-taxed income)
Planning tip: Consider restructuring ownership, making dividend distributions, or electing “check-the-box” to convert the entity before you immigrate.
Passive Foreign Investment Companies (PFICs)
Most offshore mutual funds and ETFs are PFICs. Once a U.S. tax resident, all gains are taxed at ordinary rates and “excess distributions” are subject to an interest charge dating back to the year the PFIC was acquired.
Planning tip: Before moving, either:
- Sell PFICs,
- Exchange into U.S. versions (if offered), or
- Make a Qualified Electing Fund (QEF) or mark-to-market election (if feasible).
4. Trusts
Foreign trusts can be tax and compliance nightmares post-immigration. Issues may include:
- IRS reporting on Form 3520/3520-A for any receipt or involvement with a foreign trust,
- Harsh penalties for undisclosed distributions or use of trust assets (even rent-free use of a home, yacht, or artwork), and
- All loans from a foreign trust may be deemed taxable distributions.
Planning tips:
- Review all existing trusts — especially those you created or benefit from.
- Accelerate distributions before moving.
- Restructure or domesticate trusts where appropriate.
- Educate yourself and family members on compliance risks and reporting requirements.
5. Consider Pre-Immigration Gifts and Trusts
If you plan to support family members financially, gifting before becoming a U.S. resident may be highly advantageous because foreign persons are only subject to U.S. gift tax on U.S.-situs tangible property. Once you become a U.S. domiciliary, gift tax applies to worldwide assets.
Planning tips:
- Create irrevocable trusts for children and spouses before moving.
- Avoid gifting away assets you’ll need to maintain your lifestyle.
- Carefully coordinate with your home country’s tax rules to avoid triggering exit taxes.
6. Avoid Becoming a Covered Expatriate
If your U.S. residence ends in the future, the manner of your departure matters. Individuals who hold a green card in at least 8 of the last 15 years may be subject to expatriation tax rules under IRC §877A, which includes a deemed disposition of worldwide assets on departure. Additionally, gifts/bequests to U.S. persons post-expatriation may be hit with a 40% tax.
Solution: Delay obtaining a green card unless long-term residence is your goal. Consider other visa options (e.g., E-2, L-1, H-1B, TN) if U.S. stay may be temporary.
7. Coordinate with Home Country Advisors
Changing tax residence impacts not only your U.S. exposure but also your home country’s:
- Departure taxes (e.g., Canada’s deemed disposition rules),
- Impacts on pensions, tax treaties, and nonresident withholding rules, and/or
- Local reporting or penalties for removing wealth or making foreign trusts.
Best practice: Work with a qualified Canada-U.S. cross-border financial advisor to coordinate with your existing tax, legal, and trust advisors abroad.
8. First-Year Pitfalls and Compliance
Once in the U.S., the compliance burden becomes intense. Individuals must navigate complex reporting requirements, including the FBAR (FinCEN 114) and FATCA (Form 8938) for disclosing foreign financial accounts. They may also be required to file Form 3520/3520-A for foreign trusts and gifts, as well as Forms 5471/8865/8858 for foreign corporations, partnerships, or disregarded entities. In addition, there are strict withholding rules for payments made to non-U.S. persons. Failure to comply with these obligations can result in severe penalties, often exceeding $10,000 per form, per year.
Best practice: Engage a cross-border CPA as early as possible.
Conclusion: Move Smart, Not Fast
Moving to the United States can be a powerful life change, but tax residence should be earned with strategy, not stumbled into blindly.
The golden rule of U.S. pre-immigration planning? Start early. With enough lead time, you can:
- Realize gains tax-free
- Restructure foreign holdings
- Build tax-efficient trusts
- Preserve global wealth
The U.S. rewards those who prepare—and heavily penalizes those who don’t. Contact a qualified Canada-U.S. cross-border financial advisor to discuss your situation today.