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International estate planning: Florida real estate property owned by Canadian citizens

On Behalf of | Sep 2, 2015 | Estate Planning, Residential Real Estate |

At the Law Office of Sam J. Saad III, we routinely work with Canadian attorneys to prepare comprehensive estate plans, administer trusts and probate estates. This collaboration allows us to best serve our clients’ interests more effectively.

I recently attended a seminar where a Canadian Trusts and Estates attorney dissected the differences, challenges and opportunities presented with international estate planning. I thought our Canadian citizen in Southwest Florida may value understanding some of the distinctions between Canadian and American estate planning and tax law. Moreover, a Canadian citizen could benefit greatly from an estate plan created in the Florida given several key factors discussed below.

As a caveat to the information below, there are a multitude of specific factors that should be discussed with a licensed attorney, preferably licensed attorneys in the U.S. and Canada, before making any estate planning choice; these are a few factors to consider where an estate plan in Florida may be beneficial.

If your individual estate exceeds the current threshold of 5.43 million dollars threshold for estate tax, a Canadian citizen is likely best served by an irrevocable Canadian trust, or similar estate plan created with a Canadian attorney. If you own property in Florida, a Florida last will and testament may be something to consider, as explained below. The majority of the information that follows will be inapplicable if you possess assets in excess of 5.43 million dollars.

However, if your estate is under 5.43 million dollars, a Canadian citizen owning property in Florida may be better off with a Florida trust; here’s why:

Estate tax is a federal U.S. Tax charged to the estate of a decedent, which in turn, impacts monies received by the beneficiaries. The Internal Revenue Service (IRS) describes it as a tax on your right to transfer property at your death. As of 2015, estate tax is only levied on estates with assets in excess of 5.43 million dollars. With any deductions taken into account, if the gross estate remains over 1 million dollars, the initial estate tax will be $345,800 plus 40% of the excess amount over 1 million dollars. For example, an estate with assets of $6 million dollars would be subject to an estate tax of $2,345,00, nearly half the estate, assuming there are no exemptions, exclusions, deductions, credits or otherwise.

In the past thirty years, during the 1980’s, the Canadian government did away with the estate tax. It is critical to note, that this tax as it is imposed in the U.S., only affects higher net wealth estates. For this reason, Canadian citizens with assets over the current 5.43 million dollar threshold for U.S. gift tax, will likely be best served maintaining a trust in Canada (with only a Florida last will and testament to direct distribution of Florida real estate). However, despite no estate tax in Canada, there are other taxes imposed on trust income. Unlike in the U.S., the “21 Year Rule” applies to all types of Canadian trusts. It is difficult for some attorneys in the U.S. to grasp the gravity of the “21 Year Rule” as no such similar rule exists here.

According to Canadian law, there is a “21 Year Rule” where the trust income becomes realized and is taxable immediately after twenty-one years from its creation. So, from the date of the trust’s formation, within twenty-one years the trust must be distributed or taxes become due based on capital income and a host of other taxes that a Canadian trust and estates attorney can detail.

One option to discuss with a Canadian Attorney may be a Canadian Alter-Ego Trust, which is a type of trust, similar to an American revocable living trust, used to avoid probate. However, unlike in the U.S., other “magic” numbers come into play beyond the “21 Year Rule.” The Alter-Ego Trust is a great tool, but the grantor, or person who creates the trust and initially serves as trustee managing all of the trust property, must be over the age of sixty-five (65). If the grantor is over the age of sixty-five (65) and has a world-wide estate valued over $5.64 million dollars, the grantor will retain more money in his or her estate with a Canadian trust. This trust would still be subject to the “21 Year Rule.”

Even if you planned your estate in Canada, and after consultation with a U.S. attorney and Canadian attorney, all parties believe your estate is best conserved and your wishes are best served with a Canadian trust or last will, if you own property in Florida, a Florida last will and testament may be used to expedite the probate process and protect the beneficiaries of your estate. The Florida courts consider a last will and testament from another country to be “foreign” and there are specific requirements and certifications that cost time and money to effectuate, and in some rare instances, a Florida court may not honor a foreign will; in which case, the property will pass by the Florida intestate laws through probate. In an intestate estate, Florida Statutes dictate who receives your estate assets and in what proportional share, ignoring the expressed wishes that would be outlined in a foreign will.

Again, due to the multiple factors to be considered with estate planning, please contact an attorney to discuss your specific asset structure and wishes. We would be happy to collaborate with you and your attorney to prepare a complete international plan.