Understanding cross-border estate rules

Unlike Canada, the U.S. imposes an estate tax on worldwide estates worth more than $5.34 million (2014).

The U.S. also has different probate rules, and the process itself is generally slower and more expensive than probate procedures in Canada. Until the court date is set, executors cannot do anything.

And, “If there’s tax payable to the IRS, it’s the estate that owes it—but if the executor fails to file, the executor’s on the hook,” says David Altro, managing partner at Altro Levy.

State law can add an additional layer of complexity. New York has its own estate tax, while Florida does not. However, Florida requires an executor to be either a Florida resident or a relative of the deceased (either by blood or by marriage). For these reasons, often the most effective solution is to shift assets out of the estate prior to death. Altro tells clients, “To avoid these issues, maybe you shouldn’t own the property in your name personally.”

He adds, “Maybe have it in a cross-border trust or a partnership, or a vehicle that doesn’t die.” The goal is to bring the value of the estate below the amount that will trigger federal and state estate tax, and to avoid probate.

Be aware of the special tax planning required when Canadian clients have U.S. resident children or, alternatively, when the clients are dual U.S.-Canadian citizens. If the estate is worth less than that threshold amount, the executor must file an affidavit stating so. In New Jersey, for instance, the form is called L-9. Read more: HOW TO DEAL WITH A CROSS-BORDER ESTATE