Estate Matters; RRSPs, RDSPs, RESPs, TFSAs; Snowbirds
Find information about RRSPs, RDSPs, RESPs, TFSAs, information for Snowbirds, and information about estate matters, in these articles and threads and ask your questions:
Estate Matters for Former US Citizens
(also contains info for current US citizens)
Interesting article by @RoyBerg1 on the Oct. 2015 IRS treatment of RRSP and RRIF
Bulletin: IRS relaxes reporting requirements for RRSPs and RRIFs
Canada’s Registered Disability Savings Plan (RDSP): Canada’s Finance Minister Flaherty responds regarding this, as well as the RESP and TFSA
Phil Hodgen meets with IRS to solve RRSP problems – Thank you Phil!
A trip to the Center of the Universe….and shameless pimping on RRSPs
More US Hypocrisy re Canadian RDSP (cont.) / Comments requested to be received September 15, 2015
Warning for US Person Families: Why an RDSP will not have the same benefit for your family member with a disability as it will be for any other Canadian no matter their national origin
Canada’s Registered Disability Savings Plan (RDSP): Canada’s Finance Minister Flaherty responds regarding this, as well as the RESP and TFSA
Canadian RDSP (Registered Disability Savings Plan)
Guess when a Canadian TFSA is not really tax exempt?
Why US citizens in Canada should NOT invest in TFSAs or any other “Foreign Trust” (RRSPs excepted)
RRSPs and OVDI
Re: OVDI Switcheroo: Canadian RRSP back in the penalty base
Canadian RRSPs and the OVDI penalty base
Canadian RRSPs may receive special treatment in OVDP
New Streamlined Program: Part 1 – The Canadian Snowbird Dilemma
How Canadian Snowbirds can be Subject to Canadian Departure Tax and IRS taxes, FBAR and FATCA
Another Chapter in the Canadian Snowbird Saga
National Post Offers Some Good Sense Advice to Snowbirds
Canadian Snowbirds Could Face US Tax Servitude
Tracking the Flight of the Snowbird , Hodgson Ross Attorneys, April 6, 2015
Immigration.ca (Live and Work in Canada) – Canada to Adopt Border Exit Controls (with Audio)
Yes, the executor pays the taxes, but question was asked regarding timing of assessment of net worth.
ie parent dies, leaves estate to US citizen , citizen renounces after parent dies but before estate distributed.
Does the inheritance count as net worth in 8854 if renunciant is named as the beneficary but hasn’t yet received it?
I was thinking of a situation where the beneficiary is a US person but the deceased is not. So no US tax considerations for the estate. The question is really one of when would the beneficiary have a potential US tax or reporting obligations on their newly acquired wealth – upon death, or when the funds are released from the estate many months later?
(Yes I realize that one need not report or be compliant etc. – but that’s not the point of the question.)
“I was thinking of a situation where the beneficiary is a US person but the deceased is not.”
I see. Thanks for the clarification.
I was asking this partly on behalf of “Fillinchen” from the other thread, but it also applies to my situation.
I have no particularly compelling need to renounce today – nothing bad is currently happening to me – and US citizenship does have some potential future value if under some hypothetical circumstance I and/or spouse and/or child chose to move south. So there’s an argument to be made in favor of keeping it a while longer. But were I to inherit a substantial amount of money, I could fall into a different category of FATCA policing, which I would rather avoid. Plus the issue of an executor having to deal with possible US tax liabilities were I to perish while still a dual citizen. I will eventually renounce, I expect, it’s just a question of when and how (with or without tax compliance). Knowing one could quickly do it before funds are released from an estate would be useful information.
I would think if the inheritance was not attributable to any account held by you at the time of renouncing, then it would not yet be part of ypur wealth.
Thinki of Dickens Jarndyce and Jarndyce!
So in the process of updating wills, I noticed this is in the boilerplate, under the list of executor’s duties. My italics for emphasis:
To make or not make any election, determination, designation or allocation required or permitted to be made by my Trustee (either alone or jointly with others) under any of the provisions of the Income Tax Act (Canada) or any other taxing statute, including the Excise Tax Act (Canada), in such manner as my Trustee, in his or her absolute discretion, deems advisable, and each such election, determination, designation or allocation when so made shall be final and binding upon all persons concerned.
I removed what’s italicized above, in case it implied another country’s taxing statute.
Sadly, I have just come into an inheritance from a relative in the USA. A significant part of the inheritance is in an IRA account. I’ve been advised that liquidating the account will incur a 37% penalty. Therefore I’m also advised to receive my share as an IRA in my name.
I’ve never had an IRA in the USA, and frankly know nothing about them. My question for you is: are IRAs among the financial assets that expats are restricted from owning? Are there any messy tax complications for expats who take an annual IRA distribution? I do file my US tax forms every year. But in a few short years, God and Immigration departments willing, I’ll finally have a second citizenship and can renounce the toxic US one. What to do with an IRA then? I’m tempted to take the 37% penalty and be done with it rather than live with even more US tax complications in my life. Am I overreacting? I don’t want to pay a tax condor for advice on the matter if I can help it.
Advice will be very much appreciated.
I have an American IRA after working for over 30 yrs in the US and now as a nonresident
(now renounced) Alien I receive it annually untaxed per the US bilateral tax agreement with my country of residence. It is then taxed by my country of residence at the tax rate applicable to me each year .
There is no restriction on owning US IRA’s
As a non resident US citizen you would have the choice of liquidating the account and as this money has been accrued by your relative as untaxed income you would have to pay the applicable US tax rate.
If you decided to keep the IRA and as an American it would incur a tax assessment on the annual distribution at the tax rate applicable to you each year. Later when you renounce your citizenship you can continue to receive distributions annually at a rate depending on your resident countries bilateral tax treaty….if it has one.
I will have to hunt out the chart and will post it later.
Just to add that I am no expert and the above is from my personal experience and understanding .
@Heidi: Many thanks! At least I have a better idea how to deal with this part going forward. The inheritance is almost enough to buy me a cut-rate instant citizenship from a Caribbean speck of an island, which would shorten my waiting time to renounce. I’m so tempted! But the newly departed who worked so hard for that money would not be pleased.
It seems to me that you would be better off keeping the IRA taking annual distributions and paying tax on these to the IRS at your applicable rate which I expect would be lower than 37.5%. The funds would also be gaining in value as annual interest is added.
Then when you become an Alien and depending on where you are living and paying tax, you can reassess your situation depending on the bilateral tax agreement with your country of residence.
If you do decide to liquidate the IRA then you shouldn’t really consider the 37.5% as a penalty. It is untaxed income and therefore will incur the top US tax rate (depending on the sum liquidated).
Thank you again. I now have a clear idea what to do. There is no tax treaty with the US where I live, so the simplest approach is to keep the IRA. At least an IRA doesn’t have to go on the cursed FBAR.
Wise decision. You can always call or email the IRA management company who should answer any questions you may have.
Just to be clear
As an American you would not be able to invoke any tax treaty, you would have to pay tax on the funds in the US each year when you take your annual distribution.
If you later renounce and move to a Country which has a 0% treaty then as an Alien you will pay nothing in the US but pay tax in your country of residence depending on your tax rate.
To add one (maybe) small point to this discussion …
The newly enacted SECURE Act (if I am understanding it correctly) contains a provision that requires your inherited IRA to be fully distributed to you within a ten year period. Prior to this the IRA could be retained for your life. This significantly diminishes the long run investment value of inherited IRAs. For more information you might google “secure act stretch IRA”.
Thanks for that info. I was unaware of the new Secure act provision. I shall have to look into that re my spouses’s inheritance situation.
I believe as an American, there is an automatic 30% withhold on your annual distribution, you might then be able to claim back a tax credit depending on your applicable US tax rate.
Hi. I need some serious help here on an inheritance matter. To be clear, the above thread actually refers to my husband. His mother recently passed away and left a share of a family trust to him. The trust manager, based in California, is now telling him that it seems he is unable to have his share distributed to him because of his “foreign” address. We tried to explain to him that the only complications we are aware of regarding inheritance are when the beneficiary is a non-US citizen. But he disagreed, and said the mere fact of a “foreign” address made it impossible. He said their company does have accounts with other US expatriates, so it’s not the account setup that is the obstacle, but the federal (not state) inheritance laws.
We suggested that to make things easier for him we could use the address of our daughter who lives in the US. But he said we would then have to submit proof that we actually resided there for 6 months plus 1 day.
I politely suggested to him that sometimes Americans confuse “overseas address” with “foreign citizen”. That it’s the citizenship that is the obstacle in inheritance, not the address.
He is “seeking advice”. But he has been waiting for answers to his queries from higher-ups for several weeks now, and so far all they’re saying is “no”.
We hate to have to consult a tax condor over this, because we’re afraid my husband may need more than simply advice, but will to have to threaten a lawsuit. And the way asset values are plunging at the moment, the cost of a tax lawyer could seriously cut into the inheritable amount.
Does anyone here have actual experience with inheritance from a US relative while you’ve lived outside the USA?
Does anyone know of any specific IRS or other directives that relate to this issue of inheritance while abroad?
Does anyone know of a lawyer, accountant, or other expert who actually understands this issue, who is not a slime and will not break the bank?
Found this on a google search
Hope it helps?
@Heidi – that’s an interesting article.
@Barbara – could you clarify exactly what your husband is inheriting? Is he simply inheriting assets or is he somehow becoming a trustee (or in some other way connected with an ongoing trust).
Finally, where are the assets located and are there state law issues that could be at play here?
Interesting discussion here. My situation is somewhat similar as I am named as a successor co-trustee (along with 2 siblings) for my aging parent’s living trust. Both the law firm that set up the trust and the financial institution that hold the accounts are well aware of my address (Canadian) and my US citizenship status (self-relinquished) and have raised no objections.
Perhaps Barbara’s problems are due to the fact she lives in a jurisdiction where such a scenario is uncommon compared to inheritances between Canada and the US where it is very common. The financial institution did suggest a few years ago that it would be a good idea to transfer power of attorney from myself to a US resident sibling. Whether that was simply due to the logistics (the new POA is a brother who lives in same town as our parent instead of me in Canada) or legal reasons, I have no idea.
I have numerous Canadian friends who have inherited from US parents with no issues that I am aware of, but its possible things get more complicated if a trust is involved. I don’t know the details of their situations. Also the growing awareness of US tax pitfalls over the last decade (even among professionals) may now make it a factor for more recent inheritances.
I’ve got a few backup strategies should things really go sideways. One is to decline trusteeship in which case there is another sibling who could step up and take over my duties. Another is to disclaim my share of the inheritance and let the other siblings divide my share among themselves. That one would also solve the problem of yet another cross border transfer back to them when I die. All of this stuff makes me hate the US government and their stupid tax rules even more which I didn’t think was possible.
Also forgot to mention that being a self-relinquisher, there is always the possibility of “adjusting” my US citizenship status to best fit the circumstances, lol!
@Heidi: That article is frightening. This is likely the issue affecting the holdup, though the trust company managers have not been transparent with my husband over what indeed is the problem.
@USCA: His parents’ trust, under the trust rules, are being split between him and his siblings into four separate trusts. In other words, he will become the trustee of his own trust. The contents are all shares and bonds, all based and managed in the USA. Nothing “foreign” about the assets themselves.
My husband’s address as listed in his parents’ original trust papers is in Hong Kong. There is no inheritance tax in Hong Kong, so cross-border taxation is not an issue. And the total amount is far, far below the US$11 million threshold for US federal inheritance tax.
The whole thing is a huge mystery. I personally am baffled as to why the trust manager won’t just let him use our daughter’s address in the USA, which we also happen to use for a long-dormant investment account ($0 in assets, but the account still exists) and a US-based checking account and debit card, as well as for voting. None of these has demanded proof of actually living there. And in my mind there is nothing deceitful about using her address. After all, should we ever be coerced into returning to the USA, that would be where we would likely live at first, so for all intents and purposes it is our legitimate US address. But the fund manager–perhaps understandably what with the government’s vicious attitude toward sniffing out “financial fraud”–wants to cling to his interpretation of the truth, no matter the consequences.
I am not sure how trusts work but can you not transfer the trust into your daughters name to act on your behalf? I see there is a ‘how can we help you’ link at the end of that article, it might be worth trying to get some free advice as how you should proceed. They will be looking for business so may well advise how to proceed.
This sounds like this might be a case of a financial institution “covering its ass” and acting in its own interests instead of the interests of the client. Just as foreign banks have now become scared of any US connection due to FATCA, are US institutions now becoming scared of anything that could remotely be considered foreign?
Living in Canada where cross-border financial activity is common, I do know that some financial institutions are licensed to do business in both the US and Canada while others are restricted to operating only on their side of the border. So its possible the recalcitrant institution is only licensed to do business in the US and that is why they are worried about a “foreign” taint. If that is the issue, perhaps transferring the account to an institution that is capable of doing business in both the US and the other country would fix the problem?