Estate Planning cross border Qs (kids in US)

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planningahead
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Estate Planning cross border Qs (kids in US)

Post by planningahead »

Hello fellow Canucks

My sis and I just spoke with our dad (age 83) about his estate planning needs. Somehow he thought he can make everything joint with us to avoid probate. I did scan forum posts on estate planning and "JTWROS". I also scanned a book Wills and Estate Planning For Canadians For Dummies. Somehow I suspect his plans may not be the best tax planning move. I am specifically looking for tax planning advice based on our situation. I'm happy to do additional research but need to be pointed to where to look next. Thank you in advance for your feedback.

My sister and I split everything 50-50, both as executors and beneficiaries. We are also responsible adults and will not blow the money on a vegas trip. I'm single, and my sister's common law spouse does well financially so there should be minimal worry about needing to share the pot with a (future ex) spouse. We also should not have any crazy creditor requests down the road.


Dad assets:
(1) 1 nicely appreciated house ~CAD 400K, in Calgary. His principal residence
(2) 1 banking relationship with BMO ~800K. personal checking, savings (regular and TFSA), BMO Canada Dividend fund and money market fund. He trades every few years (not buy and hold) so the holdings are either a Canadian fund or a money market fund or both. Unrealized gain should be minimal based on his trading pattern.

Dad income:
dad is frugal from the great depression era. His monthly checks from the govt is more than enough for him. He is not touching the BMO bal for living expense unless something happens - new roof, move into assisted living etc.

dad tax rate: we believe he should be at the lowest CAD federal and Alberta tax rates most of the time, but it depends on cap gain from year to year.
Kid 1: US federal tax rate 28%, no state tax, files FBAR already on a tiny tangerine account.
Kid 2: US federal tax rate 28%, California state tax 9%, does not file FBAR


Option 1: joint (JTWROS) house with kid 1, joint BMO accounts with kid 2.
Pros: avoid probate, super easy to transition once it comes. (then my sis and I liquidate our assignment, and give the other person their half)

Cons/ questions/ tax leaks?:
~how does it work with adding kid 1's name to house? Does kid 1 step into the adjusted cost base of house as of joint date, and will be responsible for 50% of cap gain tax (cap gain tax rate 25% for non resident) down the road, since it's not kid 1's principal residence?

~how about adding kid 2 to investment account? On CDN side my dad can prove that he made all the contribution. On US side can kid 2 not pay US tax (due to nominal investment income rule on her US tax return), since none of the money is contributed by her? And only file FBAR? Are we sharing any $$ with uncle sam prematurely with this move? Basically we are happy to pay any necessary tax in Canada but unwilling to prematurely give uncle sam a cut.


Option 2: Just a plain will, with POA so we can help him manage his finance if he is not able to.
Pros: avoid all issues with JTWROS based on forum history research (sharing with creditors, family squabble etc.)
Cons: probate cost: is it just $400 in Alberta? Any other costs we should be budgeting for? Somehow I read 5% of total asset if we hire out the whole process, (so $CAD 60K), but can we just handle all the paperwork ourselves? What admin headaches are we committing ourselves to in the future?

Option 3: he seems to think he wants to either give us CAD 400K each now, or USD 14K per year per person (due to US gift tax rule, which shouldn't apply to Canadians (?))

Pros: I see no pros.
Cons: I see lots of cons.

We have no needs for his cash. Our tax rate should be higher than him. Once we get the money we will just park it at a US index fund. But we may need to some back to him for his future needs, losing FX twice.
Also, I can see that psychologically, it will be really hard to part with $ diligently saved in the past 80 years and " be dependent on kids for handout". So I am against this arrangement, unless there is something else I am not thinking about.

Any other options we should think about?

Please let me know what your thoughts are, thanks again!!
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Re: Estate Planning cross border Qs (kids in US)

Post by AltaRed »

Firstly, probate in Alberta is max $525... Really http://www.taxtips.ca/willsandestates/p ... ees/ab.htm

Personally, I would not touch Option 1. One never knows what comes out of the woodwork. Secondly, you would have to google AB rules with respect to whether land transfer taxes might apply adding a family member on title (but if so, the taxes are nominal in AB). The bigger issue might be the financial investments adding a US resident as a JTWROS owner. You'd have to ask the financial institution (BMO). CRA may try to claim Kid 2 has more than a 0% interest in the accounts, or BMO themselves may want to assign 50% ownership and withhold non-resident withholding taxes. I can't speak to Uncle Sam but I suspect IRS may want to assign some of the income to Kid2. I don't know IRS rules.

Option 2 is how I would keep it clean.

I wouldn't touch Option 3. I couldn't have imagined asking my 90+ year old mother to start directing some of her assets to her kids, and i don't think she would have felt secure had she done so. She feared running out of money anyway, despite me telling her there wasn't a chance in hell of her running out of money.

Either way, you will have some difficulty handling POA duties as an non-Canadian resident. A number of parties may be unwilling to accept your POA (needs to be done under AB law anyway) and AB law may not accept US residents as POA. You may need an estate lawyer in Calgary to answer those questions for you.

Similar issues may arise for being Executors, but again the question needs to be asked. I would have assumed that when your father developed these documents, Will and POA, that he would have asked his estate lawyer about US residents acting on his behalf.
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twa2w
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Re: Estate Planning cross border Qs (kids in US)

Post by twa2w »

Agree with AltaRed.
Option 1 sets up too many possible complications on both sides of the border. If I did this, I would make house joint with all three and same with investments. I am not sure how uncle Sam would treat the property but the investments would likely complicate your life. There is the possibility the IRS would accept you are on the invedtment for survivorship purposes but I wouldn't bet on what hoops you might have to jump through. If in mutual funds they would be treated as a PFIC by IRS.

Option 2 is cleanest and you should have little difficulty as a US resident In dealing with poa and estate, other than the distance and logistics but that can be overcome.
I would add in a personal directive to the poa/ will mix if he does not have one.

Option 3. Well it is simple but who knows what the future brings. If he wants to gift lesser amounts fine, but not his whole investment portfolio. I suppose if he gifted. Say 1/2 over a few years there would be enough left, tofether with the home equity to fund a number of years in a care facility. Personally I would not want to do this and it won't save any in probste in the end.


There is some work you could do with trusts but I don't see any clear cut advantages other than maybe avoiding filing probate and some administration paperwork although more work and cost upfront now and would require more attention to taking income from trust and filing appropriate tax. For self and trust. Not needed at age 83.
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Re: Estate Planning cross border Qs (kids in US)

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twa2w wrote: 18 Oct 2017 01:15 Option 2 is cleanest and you should have little difficulty as a US resident In dealing with poa and estate, other than the distance and logistics but that can be overcome.
I would add in a personal directive to the poa/ will mix if he does not have one.
I don't know how many difficulties there would be, if any, for US residents acting as POA and/or Executor for an Alberta resident. Your career experience is way more knowledgeable in these matters. I only know that when my own AB based father died in the '90s and I was a non-resident of Canada working in Washington, DC, that the lawyer recommended I resign Executorship making my bro the sole Executor of the estate. Which I did. It would avoid preparation of affadavits, use of Notarys, etc. I'd have to do in Virginia to conduct certain transactions. And the estate was not all that complicated since my mother was still a surviving spouse and there was not that much of father's assets that were in his name only.

Either way, AB has some of the lowest costs in Canada when it comes to land transfer taxes and probate fees. These really should be a non-factor in any decisions.
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Re: Estate Planning cross border Qs (kids in US)

Post by planningahead »

hello AltaRed and twa2w:

Thanks for both of your feedback. I have come across your posts during my research frequently and find them to be informative and helpful. Thanks!

It looks like we will just do a straight will + POA. My dad already has a simple one page will, but no POA/ personal directive. So when we go back to Calgary we'll get that taken care of. He also does not have a living will, I have compared my own 6 part will with his and got answers (such as preference for funeral arrangements, does he want life support that sort of thing). Is that good enough or must we also get his wishes in writing for the living will part?

Just to double confirm, assuming we can handle all final tasks remotely (plus may be 1 or few trips) the charge in Alberta is minimal, and there is no need to find some high priced service to handle everything for us. (the rumor of CAD 60K has veered us off course).

And the tasks include:
~funeral arrangements
~finding a realtor to sell house (and pay commissions)
~deal with personal effects - an estate sale, and/or donation, and/or take back with us.
~sell investments
~final tax return

Any other tasks we are not thinking about? Thanks once again!
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Re: Estate Planning cross border Qs (kids in US)

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Do a personal directive as well regarding health care and end of life. Usually there is a POA (Enduring if you want it to also work once he becomes incompetent) for legal and financial affairs, and a separate Personal Directive (called different things in different places) for healh and life decisions, including where he will live.

A one page Will might not cut it any more. These days, there are separate documents (affadavits) signed by witnesses to a Will which are VERY important. The probate court will want to see those affadavits. If there are none, the probate court may want to interview people who knew your father at the time he signed the Will that he was of sound mind. In my mother's case, we could not find any witnesses that were still alive, but the 90+ yr old lawyer that did the Will was still alive and he was able to sign an Affadavit that she was of sound mind when signing the Will. It may be prudent to get Affadavits done soon... while witnesses are still alive and/or not looney themselves.

You will not be able to sell/disburse any assets including house and financial accounts until probate has been obtained. Pre-probate, you can only disburse assets that have beneficiary designations to individuals such as RRSPs, TFSAs, life insurance. Given your long distance, it will be best you hire a lawyer to apply for probate....once you have completed a complete list (statement) of assets and liabilities to give the lawyer to go with the probate application.

There will be a host of things to cancel too, including Driver's License if any, SIN card, Health card, company pension, etc. It will take awhile to sort through that.

There will likely be at least two tax returns. The Final T1 which covers income up to date of death (plus last CCP & OAS payment) and a T3 Testamentary Trust return because there will be income in the estate between date of death and when the estate has been actually disbursed.

Here is a link to a pretty good kit http://ca.rbcwealthmanagement.com/docum ... 9dcaf6ca2f

Added: Not all things apply of course in each case, but my bro and I used this kit to 'check' what would apply and 'X out' what didn't, and simply worked through it one by one.
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Re: Estate Planning cross border Qs (kids in US)

Post by twa2w »

Just to add to altareds good comments

In Alberta a POA is for monetary and property matters only. A POA normally comes into effect immediately but ceases on incapacity. A continuing or enduring POA continues on in the event of an incapacity hence the name. A 'springing' POA is one that comes into effect only after a certain event occurs such as an icapacity. It has no power until the event occurs. Often times these are set up such that 1 or 2 medical professionals have to sign a letter attesting to the incapacity.
Your father and lawyer can discuss what is best. And as you know, ceases on death.

If a continuing POA, it may be wise to take it to the bank well ahead of time for them to accept it. Usually the local branch will send it off for review by legal dept and once OKed, they will record your info as POA'S and perhaps signatures on file as POAs.

Personal directive is a term unique to Alberta, often called a living will or poa for personal care. In this your father can do two things
-1- leave instructions as to care in the event of incapacity ie no heroic measures, do not maintain on life support etc.
-2- name person or persons to make health decisions on his behalf in the event he is unable to make them or he has not left instructions in part one of the directive. If he names both you and your sister he xan set it so both need to agree or so only one needs to make a decision. The gov of Alberta used to have some excellent info online and a sample directive. Not sure if still there.
You will need copies to provide medical staff at time of incapacity or decision making.

The will. What AR is referring to is that when application is made for probate, the witnesses to the will have to be found and swear they witnessed the will. To save hassles, what many lawyers do is at the time of signing the will, tbey have the witnesses sign affidavits of execution which get attached to the will. This saves tracking down the witnesses later. Not all lawyers do this so it is good to ask and insist on it.

In terms of selling the house, yes you will need probate but it can certainly be listed immediately and an offer accepted, subject to probate being received and a flexible closing date to accomodate this.
You can certainly donate or dispose of household articles and personal effects.

You can take any funeral bills directly to your fathers bank and they will make bank draft from his account to pay this rather than you being out of pocket. They will or should arrange to do the same for house expenses such as property tax and utilities. Remember the POA ceases on death and you have no real power under the will until it is probated. So you may have to take utility bills to the bank to get paid.

Be prepared to deal with a bit of bureaucracy at the bank. Most managers are pretty reasonable when you are nice to them and present a certified copy of will and death cert and advise you are awaiting probate, and ask about the process and let them do the steps they need.

Hope that helps. Sorry if I missed answering any questions and for sloppy spelling. At a voluteer event over next few days and typing on a phone.

Cheers
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Re: Estate Planning cross border Qs (kids in US)

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Much better description than what I provided.

One thing I might add. A lot of materials, including the RBC Executor kit, refer to Death Certificate from the province, in order to do a lot of transactions, apply for probate, etc. Death certificate is a defined term meaning something issued by Vital Statistics from, for example, the appropriate department of the AB government (or any provincial government). Problems is this can take months to obtain and you need copies the very first week to start making things happen. What works in all the cases I have been involved in is the 'Statement of Death' issued by the funeral home. Originals of that plus 'certified true copies of the Will' certified by a local official like the local bank branch manager or 'Notarized copies of the Will' are accepted by most institutions to tranact business as an Executor before probate. The funeral home can provide as many copies of the Statement of Death as you want/need. Get a dozen.
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Re: Estate Planning cross border Qs (kids in US)

Post by planningahead »

Hello AltaRed and twa2w!

I want to move back to Canada now, missing all the friendly and helpful Canadians... :thumbsup:

We will get a copy of our dad's will, see what's missing, then make an appointment with the lawyer to handle the rest. We will report back on this string of what we find from lawyer/ BMO, in case our experience is helpful to fellow Canucks.


To put all research in one place and to further support Joint account with dad on BMO Cdn div fund not being a good decision,
I'm quoting twa2w on his recent comment

http://www.financialwisdomforum.org/for ... 93#p601593
Just to second what AR said about ensuring you do not have any PFIC's in your Canadian accounts. A former friend of mine does cross border taxation. The normal fee for dealing with PFIC's was 1500 to 2500 per PFIC, per year. ( this was for US citizens in Canada, holding non US domiciled mutual funds...
Also AltaRed your checklist you linked is super helpful and exactly what I'm looking for to figure out what needs to be done when the inevitable comes.

Thanks once again!
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Re: Estate Planning cross border Qs (kids in US)

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planningahead wrote: 19 Oct 2017 13:52 We will get a copy of our dad's will, see what's missing, then make an appointment with the lawyer to handle the rest. We will report back on this string of what we find from lawyer/ BMO, in case our experience is helpful to fellow Canucks.
It may be that the one page Will you refer too is still acceptable and doesn't need to be updated. The lawyer can make a judgement on that. My mother's Will was 2 pages, done in the early '70s and was still acceptable simply because the instructions were clear and there were only two (adult) children beneficiaries....except there were no witness affadavits and THAT could have been the issue. Thus at a minimum, if the existing Will is still acceptable, the lawyer might easily find the witnesses and pursue production of Witness affadavits. If not, start with a new (simple) Will and new witnesses....with affadavits (might be easier to do this latter thing in any event).

Your father might be uncomfortable with POAs (and especially Enduring POAs) and Personal Directives but I suspect the lawyer can advise why at least 'some form of POA', and for sure the benefit of a Personal Directive, is in his best interest.

The Personal Directive was valuable for my bro and I with our mother. Near the end, she (age 96) was ending up in hospital every few weeks and finally was nearing the end with congestive heart failure. When we mentioned (and produced) our Personal Directive, the hospital knew exactly what to do. They made her comfortable rather than fighting to keep her alive, and she died about 8 hours later.
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Re: Estate Planning cross border Qs (kids in US)

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planningahead wrote: 19 Oct 2017 13:52 We will get a copy of our dad's will, see what's missing, then make an appointment with the lawyer to handle the rest. We will report back on this string of what we find from lawyer/ BMO, in case our experience is helpful to fellow Canucks.
If you want a recommendation for a Calgary based lawyer for review/updating of the documents, we've dealt with someone we were very satisfied with and from what I recall the costs were quite reasonable. Send me a PM if you'd like the name.
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Re: Estate Planning cross border Qs (kids in US)

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@peculiar investor: I will find out if the original lawyer is still practicing, if yes, we will probably just go back to him. If not I will for sure ask for a recommendation.

Hello all, we got a copy of our dad's will (it's actually a 5 page will including cover), and the signature part looks like this. Is this the affidavit that you guys are talking about, or we need to add the official affidavit? based on a quick research affidavit has the layout of a court document and contains a slightly longer blurb... thanks.


I, (name of dad), have subscribed my name to this will on mm.dd.2007
(signature of dad)

Signed by (name of dad) in our presence and attested by us in his presence and in the presence of each other
(signature of lawyer) name and address of law firm
(signature of receptionist) name and address of law firm
(2) it looks like a personal directive in Alberta can be done at home with a family friend as witness, correct?
http://www.humanservices.alberta.ca/gua ... works.html

(3) but enduring power of attorney needs to be done at the law firm, correct?
http://www.humanservices.alberta.ca/gua ... orney.html



thanks a lot.
Last edited by planningahead on 22 Oct 2017 15:45, edited 1 time in total.
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Re: Estate Planning cross border Qs (kids in US)

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Planningahead, No, that's not the affidavit being discussed.

The affidavit is an attestation by one of the witnesses declaring stuff such as (i) that witnesses were both personally present when the testator signed the will, (ii) that the testator was of sound, mind, memory and understanding at the time of the will's signing, (iii) that neither of the witnesses is the spouse of the testator nor a beneficiary under the will. Every law firm has the boiler plate details of what the affidavit requires. The details vary a bit from jurisdiction to jurisdiction.

The law firm that did up the will should have completed this affidavit and attached it to the original will at the time of its signing.
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Re: Estate Planning cross border Qs (kids in US)

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ockham wrote: 22 Oct 2017 15:32 The law firm that did up the will should have completed this affidavit and attached it to the original will at the time of its signing.
But a good chance it was not done at all for a 'quite old' will. The original lawyer would/should know.
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Re: Estate Planning cross border Qs (kids in US)

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AltaRed wrote: 22 Oct 2017 15:38
ockham wrote: 22 Oct 2017 15:32 The law firm that did up the will should have completed this affidavit and attached it to the original will at the time of its signing.
But a good chance it was not done at all for a 'quite old' will. The original lawyer would/should know.
A long time ago, lawyers would purposefully NOT do up the affidavit (called an affidavit of will's execution) at the time of the will's signing, as a way of forcing the client (or the client's estate) back into the office. This is no longer thought to be acceptable practice.

The larger point is that PlanningAhead needs to find the original lawyer (or the other witness) and have the affidavit completed. If neither lawyer or other witness can be found or both are deceased, things get a lot more complicated. Probably then easiest to just have a brand new will prepared and signed.
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Re: Estate Planning cross border Qs (kids in US)

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ockham wrote: 22 Oct 2017 15:48 The larger point is that PlanningAhead needs to find the original lawyer (or the other witness) and have the affidavit completed. If neither lawyer or other witness can be found or both are deceased, things get a lot more complicated. Probably then easiest to just have a brand new will prepared and signed.
Indeed, as I mentioned earlier. The latter may be just as cost effective, if the Will's terms are simple AND it is 90+% boilerplate.
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