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Canada/USA Estate Planning: A Few Considerations
Estate planning is an essential part of ensuring that an individual’s assets are dealt with according to their wishes upon death. For those with assets on both sides of the 49th Parallel, there are even more considerations and greater complexities that can arise. This blog highlights three important factors relating to estate planning involving Canada and the United States of America (the “USA”).
Considerations
- There are big differences in the laws
Not only do Canada and the USA have different laws and regulations, but specific legal nuances also exist between the provinces, territories and states. It is therefore crucial to seek legal advice, not only from a lawyer qualified in the specific country (i.e. Canada or the USA), but also within the relevant jurisdiction (i.e. province, territory or state) where the assets are held – this could mean seeking legal advice from various sources across the same country, especially where there is real property involved.
- Taxation
It is vital to consider the potential impact of all taxes on both sides of the border, to ensure that one’s estate plan is designed to mitigate any cross-border tax implications.
One, major difference between Canada and the USA is that the USA taxes on citizenship, whereas Canada does not. This could therefore lead to a US citizen being taxed on their worldwide assets on death, despite not even living or dying on American soil, and is one reason why US citizens sometimes renounce their connection to the USA when living abroad.
Cross-border estate taxation is a complex issue that can result in significant tax liabilities for estates, where there are assets in both Canada and the USA on a person’s death. Unlike the USA where an estate tax is levied on all assets over a certain threshold ($12,920,000 in 2023), Canada utilizes a “deemed disposition” of all assets on death, which also gives rise to potential tax consequences. Luckily, there is a tax treaty in place between the two countries, which may help to mitigate double-taxation in certain circumstances.
- Executor/trustee appointments
Choosing the right executor or trustee is a crucial part of estate planning.
An executor is responsible for administering an estate on death, whereas a trustee is tasked with overseeing trusts, which can be created either during lifetime or on an individual’s death. Oftentimes, the executor and trustee are the same individual (i.e. usually if a trust is created within a will).
Not only is it important to consider the experience and character traits of a person before deciding who to appoint, but location of that individual is also key, especially if they will be acting alone. This is because there may be unintended tax implications and/or disclosure obligations on both sides of the border, especially if the sole appointed executor or trustee of a Canadian estate or trust is located in the USA.
Conclusion
Estate planning can be a complex process, especially for those with assets in both Canada and the USA. It is therefore important to work with legal, tax and investment professionals who have experience with cross-border planning, to ensure that all potential risks are considered.
