In this article, Cardinal Point’s Terry Ritchie looks at new tax changes that took effect on October 31. The IRS released inflation adjustments for more than 40 tax provisions, including the 2014 tax rate schedules and other rates, exemptions and changes. In particular, advisors with U.S. citizens as clients, or those who help Canadian clients who own U.S. property/shares, should look at the U.S. estate tax exemption for 2014.
What Snowbirds Need to Know about U.S. Estate Tax
Cardinal Point’s Terry F. Ritchie talks to Rob Carrick about the latest changes in U.S. estate taxes and what they mean for Canadian snowbirds who own property in the U.S. For many years, snowbirds had to worry about U.S. estate taxes, but it’s not an issue for most anymore, as the threshold is much higher ($5.23 million USD each). A married couple with a worldwide estate valued at less than $10.5M would have no U.S. tax exposure. According to Ritchie, the estate tax exemption will continue to rise with inflation. For most Canadians, these changes are good news, as estate taxes are not the big concern they once were.The other issue to be aware of is the need to file a U.S. estate tax return upon death if the Canadian has property worth more than $60K.
To view the video, click here to visit the Globe and Mail website.
Estate Planning for Snowbirds
In this segment for Investment Executive, Terry Ritchie talks about U.S. estate planning issues for Canadians with property in the U.S. Recent estate property tax changes in the U.S. have relieved the burden for many Canadians of what happens upon their death when they own U.S. property. If a Canadian owns property with a worldwide value of less than $5.25 million (USD), then the applications of credits may resolve any U.S. estate tax issues.
Those owning property (including U.S. shares) may still be subject to U.S. estate tax, but exemptions do help. An executor would need to file a U.S. estate tax return, and the worldwide estate is part of that filing. If Canadians don’t want the IRS involved upon death, they may benefit from alternative strategies such as partnerships or trusts.
For U.S. citizens living in Canada, estate tax exemptions are much higher now at $5.25 million, which will rise with inflation. If an American in Canada is married, that couple can double up on the exemption. In summary, the estate tax has not gone away completely, but the number of those affected by it has diminished dramatically.
Should Snowbirds Live in the U.S.?
Cardinal Point’s Terry Ritchie looks at new measures to promote longer stays by Canadians in the U.S. The first proposal would let Canadians stay in the U.S. for up to 240 days per year, as long as they are 55 years or older, maintain a Canadian residence, and own/rent property in the U.S. Another provision would allow a Canadian to live in the U.S. for up to three years with a special Z Visa if he/she is over 55, purchases U.S. property for at least $500K (USD), has health insurance, and lives in the U. S. for more than six months. For both provisions, the Canadian could bring a spouse, but could not work in the U.S. For those already owning U.S. real estate, the Z Visa would not apply.
It’s also important to consider the income tax, estate tax, and health care implications of these measures. Consider the rules that relate to establishing U.S. tax residency, such as the Substantial Presence Test. Under this test, snowbirds who spend more than 183 days in the U.S. over a three-year-period are subject to U.S. income tax on their worldwide income. Those that meet this test can file IRS Form 8840 so they aren’t subject to U.S. tax, but U.S. tax residents must file IRS compliance forms when they own Canadian companies, bank accounts, investments, and retirement accounts or risk substantial penalties. The article also discusses rules for Canadian mutual funds, RRSPs, RRIFs, and new foreign asset reporting requirements.
What are the implications for U.S. estate taxes? Under the new rules, a Canadian could be subject to U.S. estate taxes on his worldwide estate, including all assets in Canada. The article provides a recent estate tax case to illustrate this. In terms of health care coverage, Canadians who are away from their province of residency for more than 182 days (some provinces vary) may lose coverage, and finding an alternative form may be challenging.
Read the full article here.
As always, we understand that U.S. Canadian Cross-Border issues can be be a challenge to understand, we are here to answer any cross-border wealth management questions you may have.