Most Canadians know they should have a will. Yet fewer stop to consider whether their Canadian estate documents will work as intended when U.S. real estate, retirement accounts or other cross-border assets enter the picture.
Consider Matt and Sandra, a retired Ontario couple who bought a vacation home in Arizona 15 years ago. Matt also has an IRA from a period spent working in the United States. Their Canadian wills were updated when they retired, but the beneficiary designation on Matt’s IRA has not been reviewed in years. Their Powers of Attorney were prepared in Canada, and the daughter they named as executor has since moved to the United States.
Nothing about their estate plan necessarily looks unusual.
But if Matt or Sandra dies or becomes incapacitated, their family may discover that having the right Canadian documents does not necessarily answer every question south of the border.
For Canadians with U.S. real estate, retirement accounts or other cross-border holdings, effective estate planning extends beyond writing a will. It requires coordinating legal documents, beneficiary designations and decision-makers across both jurisdictions.
- Your Will May Not Control Some of Your Most Valuable U.S. Assets
- Can a Canadian Executor Administer Your U.S. Assets?
- Do You Need a U.S. Will?
- Your Canadian Power of Attorney May Not Work the Way You Expect in the U.S.
- How You Own Your U.S. Property Matters
- Canadians Can Be Exposed to U.S. Estate Tax
- Your Executor’s Residence Can Matter in Canada, Too
- When Should Canadians Review Their Cross-Border Estate Plan?
Your Will May Not Control Some of Your Most Valuable U.S. Assets
One of the most important places to start is with beneficiary designations.
Canadians who previously worked in the United States may still have an IRA, Roth IRA or 401(k). Those accounts generally pass according to the beneficiary designation and applicable plan or custodial rules rather than simply following instructions in a Canadian will.
That distinction can become important surprisingly quickly.
Suppose Matt named a family member as beneficiary of his IRA years ago and later updated his Canadian will without revisiting the IRA designation. The beneficiary designation on the account may still determine who receives it.
Marriage, divorce, the death of a spouse or beneficiary, and other major family changes should therefore trigger more than a review of your will. Beneficiary designations on both Canadian and U.S. retirement accounts should be reviewed as part of the process.
There is another question Canadians sometimes overlook: What happens after the beneficiary inherits the account?
A Canadian resident inheriting a U.S. IRA, Roth IRA or 401(k) can face an intersection of U.S. distribution rules, withholding taxes and Canadian income-tax reporting. The rules can differ significantly depending on whether the beneficiary is a spouse, another individual, a trust or the estate.
The important question, therefore, is not simply who inherits the account. It is also how they will receive it, what tax may apply and what rules they will face on both sides of the border.
Can a Canadian Executor Administer Your U.S. Assets?
Canadians with U.S. assets should also look closely at who they have appointed to administer their estate.
Simply owning an IRA, Roth IRA or 401(k) does not automatically mean you need a U.S. resident executor. Retirement accounts with valid beneficiary designations are generally administered under the account or plan’s beneficiary rules.
U.S. assets that become subject to probate, particularly real estate, can be another matter.
If Matt and Sandra’s U.S. property becomes subject to probate after one or both of them die, the estate may need to go through a probate proceeding in the state where the property is located. State law can determine who is eligible to administer that estate.
Some states restrict the ability of non-residents to serve. Florida, for example, generally limits who can serve as a personal representative when the person is not domiciled in the state, although exceptions exist for spouses and certain relatives.
That can create an unpleasant surprise for a Canadian who assumes the executor named in a Canadian will will automatically be able to handle everything in the United States.
The lesson is not that every Canadian with U.S. assets needs an American executor. Instead, Canadians should ask whether the person they have chosen is legally eligible and practically able to administer the assets they own in each jurisdiction.
Do You Need a U.S. Will?
Another common question is whether owning property in the United States means a Canadian should have a separate U.S. will.
There is no universal answer.
Depending on the assets involved, the Canadian province where you live and the U.S. state where your property is located, lawyers may recommend coordinating Canadian and U.S. wills or using another estate-planning structure.
But having two wills is not automatically better.
Poorly coordinated wills covering different jurisdictions can create unintended consequences, including the possibility that one document interferes with or revokes provisions of another.
If separate wills are used, they should be deliberately coordinated so each document deals with the assets it is intended to govern without undermining the other.
For Canadians who own significant U.S. property, the better question may not be, “Do I need an American will?”
It may be, “How should my Canadian and U.S. estate documents work together?”
Your Canadian Power of Attorney May Not Work the Way You Expect in the U.S.
Estate planning is not only about what happens after death. For many families, incapacity can create an even more immediate cross-border problem.
Matt and Sandra may have perfectly valid Canadian Powers of Attorney authorizing each other or an adult child to handle financial matters. But that does not necessarily mean a U.S. financial institution, title company or other organization will immediately accept those documents.
Local law and institutional requirements matter.
Even when a Canadian document may ultimately be legally effective, the institution being asked to rely on it may require additional documentation or legal review.
That can turn a routine financial matter into a significant problem if someone is already incapacitated.
The same issue can arise with healthcare documents. A Canadian who spends several months each winter in Arizona, California or Florida should consider what would happen if they were hospitalized there and unable to make their own medical decisions.
Would the documents prepared in their home province accomplish what they intended? Would a state-specific healthcare directive or Power of Attorney make things easier?
Those are questions worth answering before an emergency occurs.
How You Own Your U.S. Property Matters
For Canadians with U.S. real estate, another important estate-planning document is easy to overlook: the deed.
How a vacation home or other property is titled can affect what happens when an owner dies and whether a probate proceeding may be required.
That sometimes leads Canadians to look for ways to put another person’s name on the property, transfer it to a trust or otherwise restructure ownership to avoid probate.
But probate should not be considered in isolation.
Adding an adult child to the title, transferring property to a trust or changing the form of ownership can have Canadian and U.S. tax, estate, legal and creditor implications.
Avoiding one administrative problem can inadvertently create another.
Before changing ownership, Canadians should consider the effects on both sides of the border. The goal should be to understand not only how the property will transfer at death, but also what tax and legal consequences may arise from changing ownership during their lifetime.
Canadians Can Be Exposed to U.S. Estate Tax
There is another misconception worth addressing: U.S. estate tax is not exclusively a concern for Americans.
A Canadian who is neither a U.S. citizen nor domiciled in the United States can still have U.S. estate-tax considerations if they die owning certain U.S.-situated assets.
U.S. real estate is a common example.
Under U.S. domestic rules, an estate-tax return may be required for a non-resident, non-U.S. citizen when the value of U.S.-situated assets, together with certain adjusted taxable gifts, exceeds US$60,000. That does not mean estate tax will necessarily be payable.
For Canadians, the calculation can also involve relief available under the Canada-U.S. Tax Treaty, which may substantially reduce or eliminate the ultimate U.S. estate-tax liability depending on the circumstances.
So Matt and Sandra’s Arizona home does not automatically mean their estate will owe U.S. estate tax.
But living in Canada does not mean the issue can simply be ignored either.
Even where treaty relief reduces or eliminates the tax ultimately payable, U.S. tax filings may still be required in certain circumstances. Separately, probate, title-transfer and other estate-administration requirements are governed by the applicable state and the way the property is owned.
The distinction matters: estate-tax exposure, estate-tax filing obligations and probate are related issues, but they are not the same thing.
Your Executor’s Residence Can Matter in Canada, Too
The cross-border issue can also run in the opposite direction.
Suppose Matt and Sandra prepared their wills years ago and named their daughter as executor. At the time, she lived in Toronto. She has since moved permanently to the United States.
Should they revisit the appointment?
Potentially.
The residence of an executor or trustee can create Canadian tax and administrative considerations. For Canadian tax purposes, the residence of an estate or trust is a question of fact and generally depends on where its central management and control actually takes place.
That does not mean a Canadian cannot appoint a child living in the United States as executor, nor does the executor’s residence alone determine the estate’s tax residence.
It does mean that an executor moving across the border is exactly the type of life event that should prompt a review rather than an assumption that nothing has changed.
When Should Canadians Review Their Cross-Border Estate Plan?
Estate plans frequently remain static while families, assets and cross-border circumstances continue to change.
Marriage, divorce, retirement, a death in the family, the sale of a business or the birth of a grandchild can all justify a review. So can returning to Canada after working in the United States, buying a U.S. vacation home, inheriting U.S. property or having an executor or beneficiary move to another country.
Even without a major life event, periodically reviewing an estate plan can uncover documents and designations that no longer reflect your circumstances.
For Canadians with U.S. connections, that review should extend beyond the will.
It should include beneficiary designations on Canadian and U.S. accounts, Powers of Attorney and healthcare directives, executor and trustee appointments, the ownership of U.S. real estate, potential U.S. estate-tax exposure and the coordination of Canadian and U.S. estate documents.
In Summary
Effective cross-border estate planning should answer a simple but important question:
If you were to die or become incapacitated tomorrow, would the people you have chosen actually have the legal authority and practical ability to manage your affairs on both sides of the border?
A Canadian will can be legally valid while still leaving practical complications when U.S. assets are involved.
Good cross-border estate planning is not about creating additional documents simply because assets span two countries. It is about making sure your wills, beneficiary designations, Powers of Attorney, healthcare directives and ownership structures work together so the people you have chosen can carry out your intentions with as little cross-border friction as possible.
About Snowbirds Wealth Management
Gerry Scott, Dean Moro and Carson Hamill are Portfolio Managers with Snowbirds Cross-Border Wealth Management. Snowbirds Cross-Border Wealth Management, a firm specializing in financial planning and investment management for individuals with ties to both Canada and the United States. They work closely with Americans living in Canada and Canadians residing in the U.S., helping clients navigate the complexities of cross-border investing, taxation, and wealth management. Licensed in both Canada and the United States, they provide integrated investment and planning strategies designed to help clients manage their wealth efficiently while minimizing cross-border tax exposure.
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