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How U.S. Estate Tax Applies to Canadians with U.S. Stocks, ETFs

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Cardinal Point’s Terry Ritchie continues his talk with Rob Carrick about U.S. estate taxes; this segment focuses on what they mean to Canadians who own U.S. stocks and ETFs. U.S. shares owned by Canadians are considered U.S. cited, and there could be U.S. estate tax filing requirements if they are valued at more than $60K (USD) upon death. If that’s the case, a U.S. estate tax return, IRS Form 706 NA, should be filed. The problem is that the full value of the worldwide estate must be disclosed, even though the Canadian is responsible to the CRA, not the IRS. Otherwise, some transfer agents may not distribute those U.S. shares through probate.

Ritchie then discusses how much money Canadians would need in estate to worry about estate taxes. If the Canadian has less then the $5.25M exemption ($10.5 for married couples), then there is no U.S. estate tax exposure. It’s a matter of filling paperwork, but not owing taxes.

What if a Canadian owns American stock indexes listed on the TSX? It’s not an issue, but if you buy the comparable version from a U.S. provider traded on a U.S. exchange, those are considered U.S.-cited and would be part of a U.S. estate tax valuation.

What Snowbirds Need to Know about U.S. Estate Tax

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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

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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.

Cardinal Point Wealth Management featured in the Wall Street Journal, “A Cross-Border Retirement Without Tax Woes”

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Our own Jeff Sheldon was recently featured in a Wall Street Journal article, “A Cross-Border Retirement Without Tax Woes.” He shared the story of a couple who retired to the U.S. from Canada. While they sought sunny weather and a simpler life, when it came time to sort out their taxes and streamline their retirement investments, they were confronted with a cloudy, complicated situation. Adding to the challenge, “the wife was a Canadian citizen, the husband held dual citizenship in Canada and the U.S., and the couple owned retirement plans, property and other assets on both sides of the border.”

What to do? After other advisors told the couple to liquidate their Canadian retirement accounts and transfer those assets to U.S. accounts, the couple turned to the cross-border expertise of Cardinal Point. Jeff was concerned that such a move would subject those assets to double taxation, first as a withholding tax in Canada and then again as taxed income in the U.S. Fortunately, he came up with a solution that enabled the couple to avoid being taxed twice while still receiving funds from their tax-deferred Canadian retirement accounts.

Then Jeff identified a significant issue with their estate plan. “[T]he husband’s estate was considerably larger than his wife’s. That ordinarily wouldn’t be an issue, but the wife isn’t a U.S. citizen and isn’t eligible for the unlimited marital exemption.” As a result, the wife would owe estate taxes on what she inherited from her husband. To prevent this, Jeff employed two strategies to help ensure she wouldn’t owe estate taxes on that money.

As with many cross-border moves, there were no “one size fits all” solutions to fit the couple’s complex financial, tax and estate planning needs. It wasn’t a quick fix, but our tailored advice helped the couple worry less about their retirement and enjoy more Florida sunsets.

Preparing to Exit Canada for the United States? (Part IV)

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In the fourth installment of the series, John McCord looks at the importance of consulting an attorney with cross-border expertise to analyze your estate plan before a move. Estate planning is a sophisticated, rapidly changing subject, and the laws governing it are not uniform between Canada and the U.S. A collaborative approach between cross-border financial advisors, CPAs and other practitioners is recommended when developing a cross-border estate plan. The article also looks at Canadian corporate pensions and how a U.S. move may impact pension taxation. Canadian pensions are taxed at IRS income tax rates when domiciled in the U.S., which can create additional after-tax pension income but also raises the risk of double taxation.