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Advising same-sex couples with U.S. ties

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Terry Ritchie, Director of Cross-Border Wealth Services, was recently featured in an article from Advisor.ca looks at how a recent ruling from the U.S. Supreme Court opened the door to new planning options for same-sex partners with ties to the U.S. The June decision struck down a key part of the Defense of Marriage Act and broadened the federal definition of marriage to include legally married same-sex couples. The new definition also applies to American couples who marry outside the U.S.

Following the decision, the IRS released the tax implications: “Same-sex couples will be treated as married for all federal tax purposes, including income and gift and estate taxes. The ruling applies to all federal tax provisions where marriage is a factor.” The article goes on to give examples of how advisors can help their clients benefit from these changes, specifically in the areas of tax filing, wealth transfer, and principal residence exemption. Read the full article here.

Cross-Border Concerns for Athletes

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Canadian hockey players in the NHL who play for American teams have specific planning needs and require the specialized advice of a cross-border financial advisor. This article by Cardinal Point’s Terry Ritchie looks at what cross-border issues professional athletes may face, including immigration, estate, tax and investment planning considerations.

Ritchie first examines the potential immigration pitfalls for athletes living and playing across the border. It’s important for these athletes to work closely with their advisors and immigration counsel to secure or extend their U.S. work visas, apply for permanent residence with a U.S. Green Card, or ultimately become a naturalized U.S. citizen. Ritchie illustrates potential immigration issues with a case study of an athlete who faced these hurdles and partnered with his advisors and immigration attorney throughout the long, complicated immigration process.

The article goes on to look at the onerous tax consequences that can come with expatriating back to one’s home country after an athletic career in the U.S. The dreaded U.S. Expatriation Tax holds that a player who has a U.S. Green Card for more than eight years is classified as a long-term resident and could potentially face a significant two-fold tax hit when leaving the U.S.

Ritchie goes on to illustrate some of the woes that can come when advisors lead their athlete clients to bend compliance or CRA rules. He uses a case study to show how compliance violations can also result in a number of adverse Canadian and U.S. income tax problems. Finally, the article looks at the need for estate planning if a player is domiciled in the U.S., marries a U.S. citizen, has children in the states, and/or has non-U.S. beneficiaries.

Travel Insurance Between Canada and the U.S.

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Do You Need It?
For our Canadian and U.S. clients, cross-border travel includes an array of possibilities, from a weekly commitment to the rare excursion. The question is: do you need travel insurance? In this article, we look at considerations that keep your best interests in mind.

Many of Cardinal Point’s clients enjoy the best of two worlds. Whether travel is for business, pleasure, or annual snowbird getaway, our clients frequently make the trip across the U.S.-Canada border and have the process down pat: pack your bags, book your flights and keep track of the days spent in each country. But how much consideration have you given to travel insurance? It’s not just for cancelled flights anymore. Travel insurance covers a range of situations from a last-minute change of plans to, in the worst-case scenario, a medical emergency away from home. Here’s the good news: you may already have coverage through your insurer or even your credit card company.

Let’s begin with the trip itself. If you are traveling by airline, it’s tempting to rush through the online booking process in order to secure the best price—and your seat of choice. Take the time to review cancellation policies. If the small print is burdensome, call the airline directly. The moment you are ready to hit the “purchase ticket” button is the time that airline representative are trained to provide you with all the information you need to make that decision. Depending on how and from whom you purchase your tickets, cancellation policies may vary, even for the same flight. If there is a chance you will need to change plans at the last minute, be sure that you will not be forced to purchase tickets for an entirely new itinerary.

Are you planning to drive across the border? Check with your auto insurance provider about international coverage. For your peace of mind and safety, it’s good to know the extent of your liability in case of an accident. Further, some automotive policies that cover theft in your home country do not extend to international travel. The good news is: your homeowner policy may cover items that are in your vehicle when you travel. Getting the details can be as simple as a telephone call.

While you are across the border—either north our south—medical insurance coverage is critically important. As the saying goes, “An ounce of prevention….” In the case of health insurance, whether in Canada or the United States, plan ahead to prevent excessive costs for anything from a sprained ankle to a medical emergency. First, check with your insurance policy to determine coverage. If your plan does not cover international travel, consider purchasing insurance for the duration of your trip. The peace of mind this affords is well worth the investment of time and money.

Finally, look for opportunities to save by finding out what coverage you already have. Many credit card providers offer insurance for parts of your trip booked and paid for by their card. Again, a telephone call or online request can clarify what is covered for you and your family.

Whether you travel on a schedule or “on the fly,” researching your insurance options ahead of time will allow you the opportunity to enjoy your journey.

Caught in the Middle? The Sandwich Generation

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multigenerationfamily

Are you caring for both children and parents at the same time? If so, you’re part of the “sandwich generation.” Adults in this group have at least one senior parent and are either raising a minor child or supporting a grown child1.

As the first wave of baby boomers moves into retirement, the ranks of the sandwich generation are swelling. A new retirement study from Scotiabank2 shows that baby boomers are concerned about assisting their aged parents and their adult children—and how that responsibility will affect their retirement cash flow.

The Financial Pinch

sandwichconundrum The sandwich generation is pulled in many different directions. Balancing the needs of children and parents can put demands on your time and your emotions. It can also exact a significant financial burden. On one hand, you balance rising post-secondary education costs for the younger generation; on the other hand, you have rising medical costs for the older generation. The sandwich generation must also try to save for their own retirement, pay off their mortgages, etc. How do you deal with the financial toll?

Here are some steps to help take control:

Start the Conversation: Money is a sensitive topic for many families, but beginning open discussions with your parents about their finances can be beneficial in the long term. After all, it’s often easier to talk about money before the need arises. In addition, you and your parents might find that it is less difficult to discuss financial matters with your Cardinal Point advisor, who can offer a neutral setting and objective advice.

It’s important to review the following items: your parents’ retirement income, monthly expenses, insurance policies, health care coverage and estate plan. A thorough review can give you a better idea of the assistance (if any) that your parents will need from you, and then you and your Cardinal Point advisor can map out a plan.

A Leg Up for the Future: Those who belong to the sandwich generation are also trying to prepare for rising tuition costs. Our experts can help you select the right education savings plan to meet those costs. It’s also important to introduce strategies that empower your children to have a stake in their financial future. Encourage your kids to pitch in to their own education savings by offering to match what they put away for their education. In addition, make sure they’re prepared to have some savings to cover any unexpected expenses.

Don’t Forget About You: When fulfilling the needs of multiple generations, it can be easy to put your own requirements last. However, doing so could compromise your own financial well-being and your ability to care for those who depend on you. It’s important to look after yourself by exercising, getting enough rest and taking time to recharge. In the face of all your goals and obligations, it’s also essential to partner with your financial team to ensure you stay on course in helping your kids, your parents, and yourself.

1 “The Sandwich Generation: Rising Financial Burdens for Middle-Aged Americans.” PewResearch. January 2013.
2 “The Retirement Landscape — A Focus on the Baby Boomer.” Scotiabank. June 2014.

U.S. IRAs Can Be a Taxing Issue for Canadian Beneficiaries

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iratax An individual retirement account (IRA) is a personal savings plan offered in the United States. Similar to the Canadian registered retirement savings plan (RRSP), the IRA offers income tax benefits to individuals who are saving money for retirement. But what are the tax implications when a Canadian citizen inherits a U.S. IRA?

Let’s look at an example to see how this works. Let’s say you have an Aunt Betty in Ohio. She dies and then names you as the beneficiary of her traditional IRA, and you inherit the lump sum distribution of $100,000. Because you’re a Canadian resident who only spends a week or two every year in the U.S., you assume you’ll be getting that money free of taxes since it’s an inheritance. Think again. Before you go spending that $100K, it’s important to consider the tax consequences on each side of the border.

On the U.S. Side
As is the case with the Canadian RRSP, IRA contributions are tax deductible and can grow tax deferred inside the plan. Taxes are payable upon the money’s withdrawal from the plan. If Aunt Betty’s IRA beneficiary had been a relative living in the U.S., the amount paid from that IRA to that beneficiary would typically be subject to U.S. taxes.

As a nonresident beneficiary of the IRA, you’d generally need to pay a flat income tax rate of 30% on the distribution. In addition, a beneficiary who is a nonresident alien would be subject to 30% federal U.S. income withholding upon distribution of the IRA. Fortunately, under the Canada/U.S. Tax Treaty, the tax and withholding rates drop to 15%. In order to qualify for this lower rate, it is necessary to complete and submit IRS Form W-8BEN (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding) to the custodian or trustee for the IRA.

On the Canadian Side
When an IRA is inherited by a beneficiary living in Canada, the amount paid from the IRA to the individual is typically taxable in Canada—in addition to being subject to U.S. tax. When filing a tax return in Canada, you must include the distribution from the IRA with your income. This will allow you to claim a foreign tax credit for the taxes paid to the U.S, including any U.S estate taxes paid on the IRA.

Unique Opportunity
Despite the tax implications described above, a unique opportunity could also be utilized to allow for the continued tax-deferred growth of the IRA in both Canada and the U.S. Under certain rules, beneficiaries of IRAs could establish what is referred to as an “Inherited IRA” account. U.S. resident beneficiaries typically utilize these accounts to minimize current tax. The cross-border specialists at Cardinal Point Wealth Management often assist beneficiaries that live in Canada in the establishment of an Inherited IRA account that can be managed on their behalf. The Canadian beneficiary would be required to obtain a U.S. Individual Taxpayer Identification Number (ITIN) through the Internal Revenue Service (we can assist with this), and an Inherited IRA account would be established with one of our U.S. custodians. Due to the tax implications on both sides of the border, it typically makes more sense to look at setting up an Inherited IRA as opposed to paying current income tax on the distribution.

However, every situation is different and Cardinal Point’s cross-border experts can help ensure that Canadian beneficiaries of IRA accounts fully understand the implications, options and reporting requirements in the U.S. and Canada.

Terry Ritchie is the Director of Cross-Border Wealth Services at the Cardinal Point, a cross-border wealth management organization with offices in the United States and Canada.  Terry has been providing Canada-U.S. cross-border financial, investment, tax, transition, and estate planning services to affluent families for over 25 years.  He is active as an author, speaker and educator on international tax and financial planning matters. www.cardinalpointwealth.com