Wills and Estates
By far the most neglected area we see with Americans moving to, or living in, Canada is planning when it comes to wills and estates. Most shocking is the fact that U.S. citizens living in Canada remain subject to IRS gift and estate tax rules (up to 45% tax!) This, coupled with the “deemed disposition” at death in Canada, could result in substantial depletion of your estate at the second spouse’s passing (up to 54% tax depending what province you live in). In addition, there are probate fees in each province and potentially in the U.S. if you hold real estate there. This gets extremely complex very quickly and getting the right Canada-US attorney on your team is an absolute must. Generally, your existing U.S. wills and estate plans must be replaced with new Canadian estate plans which generally include a power of attorney and healthcare directives.
In the U.S., the use of living trusts (revocable) is commonplace because the IRS views them as a “flow-through” entity to your personal tax return. However, if you move to Canada and don’t do some planning with your US trust, you could be in for a rude awakening. In Canada, trusts are taxed as a separate entity with its own T-3 trust tax return and the first dollar of income retained in the trust is taxed at the highest marginal tax rate (as high as 54%). Further, any assets moved into or out of the trust are considered a “deemed disposition” for Canadian tax purposes and must be reported on a tax return. Needless to say, having a review of your U.S. wills and estates plans prior to moving to Canada should be a priority.
U.S. gifting rules apply to US citizens and Green Card holders living in Canada and for any gifts over the annual exemption (U$14,000 in 2016) to any one person, a U.S. gift tax return needs to be filed. In addition, there is a limit of $148,000 (2016) that the US citizen can transfer to the non-US citizen spouse. This can cause complications in “mixed” marriages (US citizen married to a Canadian citizen) when the US citizen commingles assets in a joint account with the non-US citizen or makes a spousal RRSP contribution. As you can see, these rules follow the US citizen up to Canada and can wreak havoc on your Canadian wills and estates planning.