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Tax and Estate Planning for U.S. Residents Inheriting Canadian Property

A cross-border inheritance often results in the need for tax and estate planning whether one calls the U.S. or Canada their primary residence. What are some tax and estate planning issues that U.S. residents should understand when inheriting Canadian property? An inheritance comprised of Canadian property bestowed to a U.S. resident is not taxable to the U.S. resident beneficiary upon receipt. However, IRS tax reporting requirements differ for those inheriting Canadian property in contrast to a U.S. based estate.

Notably, inheritances in excess of $100,000 from a foreign estate require the filing of IRS form 3520, which is also known as the Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts. The 3520 is an informational return and not a tax return. Also, it is important for U.S. residents not to overlook additional IRS reporting requirements for foreign based accounts. Specifically, form 8938 (Statement of Specified Foreign Financial Assets) and FinCEN form 114, Report of Foreign Bank and Financial Accounts (FBAR) are frequently required when settling a Canadian based estate. There are severe penalties assessed by the IRS if the required forms are not filed in a timely manner.

Although no tax is assessed when received, a Canadian inheritance can create additional U.S. tax liability. Notably, capital gains tax can result when an inheritance is sold due to asset appreciation. Also, an inheritance becomes part of the estate of the U.S. based recipient, which can cause additional tax liability. A revised estate plan often results when inheriting a significant amount of assets from a Canadian estate by a U.S. resident. 

This content is for general information purposes only and is not legal or tax advice. Materials on this website should not be used as a substitute for consultation with professional advisers. There is no "one size fits all" cross-border financial planning strategy. Therefore, it is important to partner with a qualified team of tax, legal and investment professionals who specialize in Canadian and United States cross-border transitioning and asset management. Please contact Cardinal Point Wealth Management at http://cardinalpointwealth.com/contact-us/ to review your unique situation.


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