Cross-border estates planning grows as world shrinks
By AdvocateDaily.com Staff
More Canadians than ever need cross-border estates advice as the world continues to shrink due to travel and technological developments, Toronto estates and trusts lawyer Ian Hull tells AdvocateDaily.com.
A recent CBC story reported that Canadians spent almost $20 billion in the 2016-2017 fiscal year alone on U.S. real estate, with the bulk of it purchased in Florida and Arizona.
“Canadians are quite a significant chunk of the U.S. market,” says Hull, co-founding partner of Hull & Hull LLP. “I find that more and more people are needing cross-border help when it comes to their estates.”
Hull says Canadians have a number of options when it comes to how to hold foreign property, adding that he will always advise them to find local counsel to assist them with legal issues in the jurisdiction.
“Some hold it in a trust, while others hold it through a corporation. There used to be many more elaborate schemes, but it’s more common now for people to hold U.S. property personally because of the changes in the tax regime that make it very difficult to predict what will be effective,” he says. “At the moment, the rules are changing every quarter.”
Hull says the biggest difference between the American and Canadian estates regimes is the U.S. inheritance tax, but that it only affects a limited number of individuals anyway due to its exemption rule, which means that it only kicks in for estates valued at more than $11 million. During his election campaign, U.S. President Donald Trump suggested scrapping the tax altogether, but the recent tax reform bill passed by Congress instead doubled the exemption, which previously stood at $5.5 million.
“When you’re dealing with a person with U.S. connections, they don’t always know their citizenship status,” Hull says. “You will need U.S. advice to drill down on that before you continue, but most often they will file a U.S. tax return.
“Then the nature of the assets and the extent of the tax hit they’re going to face is what drives most of the planning,” he adds.
But it’s not just the U.S. where Canadians have interests. Hull says things get more complicated in certain European jurisdictions, where forced heirship prevents parents from fully disinheriting their children, unlike in Canada.
“Sometimes there are planning advantages to working through Canada, but typically, an individual has a will for the Canadian assets and a separate will for the foreign assets that will be administered in accordance with laws in that jurisdiction,” he says.
When testators opt for a separate will for foreign assets, he says it’s best to have them drawn up in conjunction with one another to avoid inherent conflicts in wording.
“You can have disputes over which law applies, but there are some hard and fast rules depending on whether the asset is movable,” Hull says. “Land tends to be governed by the law where it is located, but if it’s a bank account or investment portfolio, there is a bit more flexibility and the domicile of the deceased will come into play.”