Cross-Border Financial Planning for Canadians Living in the US
Cross-border financial planning between Canada and the USA has always been complex, but recent developments have brought some welcome relief for many individuals and families.
The US estate tax, often referred to as a “death tax,” has been a significant concern for those with substantial assets. This tax, which can be as high as 40% on estates exceeding the exemption threshold, has prompted many to engage in elaborate estate planning strategies.
The Trump Era Tax Cuts and Their Impact
When the Trump administration came into power, it implemented sweeping changes to the tax code, including doubling the estate tax exemption. As of 2024, this exemption stands at a substantial $13.61 million per individual.
This increase provided a significant buffer for many wealthy Americans and Canadians with US assets, shielding a larger portion of their estates from potential taxation.
The Looming Sunset Provision
Initially, this increased exemption was set to “sunset” or expire on January 1, 2026. If left unchanged, the exemption would revert to its pre-2018 levels, adjusted for inflation – approximately $7 million to $7.25 million.
This potential reduction caused considerable concern among those with estates valued between these thresholds, as they would suddenly find themselves subject to estate tax liability.
Political Developments and Their Implications
Recent political shifts suggest that the higher exemption might become permanent. With the potential for Republican control of both the Senate and the House, and the possibility of Trump returning to office, there’s a strong likelihood that the current estate tax exemptions could be maintained beyond 2026.
This development would alleviate the need for many Americans to engage in aggressive estate planning tactics to transfer assets out of their estates.
Impact on Canadians Cross-Border Financial Planning for Canadians Living in the US
- It’s crucial to note that these changes also affect Canadians with US assets. The rule for Canadians is particularly nuanced:
- If US assets exceed $60,000 AND
- Worldwide assets surpass the exemption threshold
- Then US estate tax could apply to their US assets.
- This includes US real estate and personally held US stocks.
Estate Planning Strategies
Despite the potential for a permanent higher exemption, estate tax planning remains relevant for those with significant assets. Some strategies to consider include:
- Transferring US properties to irrevocable trusts
- For Canadian residents, moving US stocks to a Canadian holding company
By implementing these strategies, individuals can potentially mitigate their exposure to US estate tax.
Conclusion
While the political landscape suggests a more favorable estate tax environment, it’s essential to remain vigilant and adaptable in cross-border financial planning. Consulting with a qualified cross-border financial advisor can help ensure that your estate plan is optimized for both Canadian and US tax implications, regardless of future legislative changes.
Ready to Take the Next Step?
At Mintco Financial, we understand the importance of personalized financial advice tailored to your unique needs. Whether you are planning for retirement, managing investments, or navigating cross-border financial complexities, our team is here to help you achieve your financial goals.
Book a call or virtual meeting with one of our experienced advisors:
We serve clients across the entire country, ensuring that no matter where you are, you have access to expert financial guidance.
Book a call or virtual meeting with one of our experienced advisors:
We serve clients across the entire country, ensuring that no matter where you are, you have access to expert financial guidance.
